The need for Competition Law

The need for Competition Law becomes more evident when foreign direct investment ( FDI ) is liberalized . The impact of FDI is not always pro – competitive . Very often FDI takes the form of a foreign corporation acquiring a domestic enterprise or establishing a joint venture with one . By making such an acquisition the foreign investor may substantially lessen competition and gain a dominant position in the relevant market , thus charging higher prices . Another scenario is where the affiliates of two separate multinational companies ( MNCs ) have been established in competition with one another in a particular developing economy , following the liberalization of FDI . Subsequently , the parent companies overseas merge . With the affiliates no longer remaining independent , competition in the host country may be virtually eliminated and the prices of the products may be artificially inflated . Most of these adverse consequences of mergers and acquisitions by MNCs can be avoided if an effective competition law is in place . Also , an economy that has implemented an effective competition law is in a better position to attract FDI than one that has not . This is not just because most MNCs are expected to be accustomed to the operation of such a law in their home countries and know how to deal with such concerns but also that MNCs expect competition authorities to ensure a level playing field between domestic and foreign firms.

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