Cartelization
Cartelization
Cartelization
definition of cartel is very broad and inclusive covering both trade and
competition and covers any and everything that may try to limit competition,
restrict or inflate prices, control production and make arrangements that
bars entry of new players or cause them hindrance. The Competition
Commission of India (CCI), while inquiring into the alleged contraventions
of section 3(1) or 4(1) may, if it opines that there exists a prima facie case
order an investigation by the Director General (DG).Cartels have been a
subject of heavy litigation since the time of Monopolies and Restriction of
Trade Practices Act, 1969 and have been a major aspect of the
Competition Act, 2002.
Issues faced by India
There are many issues which India or for that matter any system of
competition law in the world would face; like
1. The extent to which the unilateral conduct of firms with market power
should be controlled,
2. The extent to which transactions can be modified,
3. The price which a new player or customer should pay to access an
essential facility,
4. The relationship between intellectual property and competition law
and to what degree should a merger be prohibited.
A one point solution of all these problems would be to scrutinise and
keep an eye on agreements between independent firms which smell
of restriction and establish a hierarchy and severity of cartelization
involved and set up penal provisions accordingly which may amount
to imprisonment for the more serious offences. Some other policy
questions include whether sanctions should be available against
individuals as well as companies and the extent of leniency which can
be given to whistle-blowers from within the cartels.
CASE 1
Cement Cartelization in India
In India cartels have been alleged in various sectors like cement, tyres,
trucking, steel, family planning devices (Copper T) and the like. India is the
second largest manufacturer of cement in the world after China and so the
supply and fix prices by forming a cartel and that according to the DGs
investigation report, CMA formed a high power committee and the prices of
cement were discussed in its meetings.
The 2012 Tyre Cartelisation Controversy
In the year 2011 it appeared that another major cartel in India is soon to be
busted and this came to light in the backdrop of consumers having to face
steep price hike on tyres, increasing the costs of maintenance of their
vehicles. It was alleged that the major players of this industry had
conspired together to create an artificial price hike of tyres and charges
were levied against the Automotive Tyre Manufacturers Association
(ATMA) and the major players in the market which included Apollo Tyres
Ltd, MRF Ltd, JK Tyre and Industries Ltd, Birla Tyres and Ceat Ltd and it
was alleged that they control 95 per cent of the industry. A much publicised
litigation took place in the case of All India Tyre Dealers Federation vs.
Tyre Manufacturers in which the commission observed that certain
industries provide a structural basis that is conducive for cartelization and
that that tyre industry in India, being highly oligopolistic and concentrated in
nature, having entry barriers and a homogenous product, is conducive for
cartelization but there are other factors that dilute the above structure and
create conditions which do not sustain the maintenance of a cartel.The
Commission was of the opinion that price parallelism per se may not violate
the provisions of the Act and that in certain cases price parallelism could
have been dictated solely by economic reasons and that it was not a
violation of the Competition Act if it does not result from the alleged
concerted action. The Commission also weighed various parameters and
held that the presence of other mitigating factors such as the bargaining
power of the Original Equipment Manufacturers known as the OEMs, who
constitute a majority of the customer base, and the options to replacement
consumer to retreat, diluted the factors suggesting collusive actions. It also
held that the levy of anti-dumping duty on the imported tyres suggested that
cheaper options were available and hence the existence of cartel cannot be
established.
India and International Cartelisation
Another issue which India faces is lack of tie ups with other governments or
signing up international treaties to handle international cartels that have
effects in many different countries, given that national laws apply only to
harm that occur in national jurisdiction, and some countries have no
anticartel laws at all, case in point being Information Technology cartels