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New Laws by Monopoly Control Authority Pakistan

The Monopoly Control Authority (MCA) is introducing a new law to restrain companies/manufacturers from sharply lowering prices of consumer goods, in a bid to create monopoly, by preventing entry of new competitors or forcing existing companies out of the market.

Terming the new law as historic, MCA Chairman Khalid Mirza told Business Recorder on Thursday the Authority has taken a bold step to notify a "general order" preventing companies from committing 'predatory pricing', in the long-term interest of consumers.

The MCA has notified regulations to deal with the 'predatory pricing', a method where a manufacturer, producer or proprietor sharply drops a price of goods to non-competitive level to drive out competitors and subsequently raise the price sharply.

This act of the companies would be considered as "unreasonable monopoly power", which would be subjected to penalty under the provisions of Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance, 1970.

The MCA chief said the enforcement of the new law would fill a major gap in regulating framework for competitors. Most astonishing aspect of the 'predatory pricing' is that the established company, who deliberately bring its prices to extreme low level for causing damage to new competitors, would later raise prices, exceptionally.

In short term, the consumer thinks that the price of a product is very low, but once the competitor is out of the market, the company would recover all their losses by raising prices, he said, adding this sharp increase in prices at a later stage would cause real damage to the consumers in long-term and needs to be checked under MRTPO.

In some cases, the Authority has observed that the companies/manufacturers have been allegedly involved in substantially decreasing prices of finished products to prevent entry of new competitors or forcing the existing competitions out of the market. The company intending to make such practice would be considered as involved in "unreasonable monopoly power".

Khalid Mirza said the Authority has adopted a definite measure for the first time to effectively regulate and retain the manipulative practice of predatory pricing. The aim of predatory pricing is to drive out competitors from or prevent new entrants in the market, he added.

Meanwhile, sources said that certain companies in leading sectors of Pakistan have committed "predatory pricing" to kick out their competitors from the market. In the past, a top Tetra Pack Company had attempted to create monopoly by lowering prices of milk and mineral water products to force a new competitor out of the market. The prices of milk were again substantially raised once the new competitor left the business.

Quoting another example, sources said that a manufacturer of polyester also tried to create monopoly when a new competitor entered into the business. Similarly, cement units had decreased prices of cement in the past when a new competitor entered into the market.

Following is the text of the SRO(I)/2007 issued on Thursday: Suggestions or objections from any person or undertaking affected by the following General Order are invited by October 24, 2007, for the consideration of the Authority under section 7 of the Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance, 1970.

Pursuant to section 7 of the Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance, 1970 and the enabling powers conferred on the MCA in that behalf, the Authority has prescribed that the following is deemed to constitute a practice prohibited under the Ordinance:

Any price or fee charged by an undertaking that is below the average long-run incremental cost (average variable costs plus any product specific fixed costs) incurred in the production of goods or in the provisions of services, (or such cost reasonably determined as imputable to the undertaking) which has or is likely to have the effect of driving competitors out of a market or preventing the entry of new competitors in the market, shall be deemed to be the exercise of unreasonable monopoly power. Copyright Business Recorder, 2007

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