M&As by Business Groups and Market Competition: A Study of Tata Steel

Abstract

This article examines the involvement of business groups in consolidation activity. An important component of the Monopolies and Restrictive Trade Practices Act was “the concentration of economic power in the hands of a few” which has been de-emphasized as per the amendment made in 1991. The new Competition Act mainly deals with the case-by-case analysis of market competition rather than ownership concentration. The competition regulation in its current form is mainly focusing on the concept of “economic efficiency” and not addressing the “social fairness” concept. The involvement of business groups in consolidation activities results in multiplier effects as they are already part of a diversified and well-structured umbrella of business with horizontal and vertical linkages. This article observes the active involvement of big business groups in mergers and acquisitions (M&As) activity across various product lines. Further, many such M&As are leading to capacity expansion not only in various overlapping products (i.e., horizontal linkages) but also in the vertical line of business, in which the affiliate firms of the group are engaged. This may be beneficial to the group as a whole since the cost of intermediary inputs supplied to various affiliate firms can be reduced. The study points to consider the “ownership and group effect” and the resulting synergy creation more carefully while assessing competition.