An article by P. S. Mehta, Secretary General, CUTS International, appeared today in The Financial Express titled “Should Dominant Companies Be split?”

In it, to summarise, he submits the following:

1. The post 1991 economic reforms threw all MRTP concepts relating to control of mergers and acquisitions out the window resulting in large scale cartelisation by both foreign and Indian companies across various industries, particularly the cement industry.

2. Under section 28 (1) of the Competition Act, the CCI has the express power to direct that a dominant enterprise be split up to ensure that such an enterprise does not continue to abuse its dominant position.

3. Although breakups have been less favoured than conduct remedies and access remedies, they are more effective in correcting the identified anti-competitive conduct. He contends that conduct remedies are generally favoured simply because the defendants would likely be more willing to accept them as compared to breakups and also feels that courts and competition agencies are also reluctant to break up what has been a successful firm because once broken up the firms might cease to be successful and they would get the blame.

There is little to debate upon regarding the first two points but the third must be questioned in light of the reality of practical experience. I would like to respectfully submit that I feel breakups are a less effective remedy in the long run to control abuse of dominance as compared to conduct or access remedies. This is so because any company/conglomerate which manages to build up a dominant position through acquisitions and expansions, if broken, shall always find the means and the intellect to re-merge, one way or the other. Mr. Mehta’s own examples can be cited in favour of this contention.  He has cited the examples of Standard Oil and AT&T  as examples of the effectiveness of breakups. But the fact remains that these companies haven’t remained broken at all !! Many of Standard Oil’s then broken subsidiaries have since merged into a single multinational corporation to form Exxon Mobil, whereas five of the seven broken subsidiaries of AT&T have since merged to become AT&T Incorporated, which is now the 14^th largest company in the world. Compare this to the conduct remedies/conditions which were imposed by the EC on Boeing during the Boeing/McDonnell Douglas Merger Investigation, which the company appears to be still committed to upholding, and one clearly gets the impression that between breakups and regulation of conduct, the latter are definitely more effective, especially in the long run. It is also noteworthy that it would be far easier for the Commission to monitor companies upon whom conduct or access punishments have been imposed rather than companies which have been broken up into various subsidiaries. A re-merger, in the manner as already cited above, will not only render the previous punishment of breakup pointless but shall also result in an extra burden for the Commission as in order to take action against the new re-merged corporation, the Commission shall have to once again conduct a fresh investigation and prove an abuse of dominant position.