Monday, May 27, 2013

Countervailing Buying Power

In India, the Competition Act, 2002, was amended in 2007 to create two new agencies: the Competition Commission of India (CCI) and the Competition Appellate Tribunal (CAT). CCI is expected to promote, regulate and sustain competition in the market while CAT is to help resolve any disputes.

Article 19 (4) of the Act states that CCI shall, while 'inquiring whether an enterprise enjoys a dominant position'...have due regard to a number of criteria, one of which is  "countervailing buying power".

What is Countervailing Buying Power?

Buying Power is "the ability of a buyer to influence the terms and conditions on which it purchases goods”. This is fairly straightforward. Large supermarkets like Walmart are in a position to drive a hard bargain from its suppliers. In exchange for large volumes and access to developed markets, manufacturers (eg., Knitwear from Tirupur) are forced to strip down their margins to the bare minimum, and this, is supposed to help the supermarkets offer sharp discounts to their customers.

The word 'Countervailing' is a little more complicated. It is most often used in the context of international trade, as in Countervailing Duties (CVD), which are taxes imposed by a government to prevent cheaper imports from running the domestic manufacturers out of business. In India, CVD is additional duty of customs is levied to offset the disadvantage to like Indian goods due to high excise duty on their inputs.

So Countervailing Buying Power is something that helps bring down the cost of a product when manufacturers (sellers) seeks shelf-space in a supermarket. It is often used as a defense in merger cases, to paint a picture of powerful buyers rising up to seller power. For instance, Walmart and Ikea often proclaim that they are able to supply relatively cheaper groceries or furniture because they are able to able to drive a hard bargain with their suppliers.

Central Excise Act, 1944 --
Why is Countervailing Duty Important? (MoneyControl) -

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