CARTELS AGREEMENT

“People of the same trade seldom gather

together, whether for merriment or diversion,
but the conversation ends in a conspiracy
against the public or some contrivance to
raise prices.”
-Adam Smith
 Section 2 (c) defines ‘Cartels’

“Cartel includes an association of producers,

sellers, distributors, traders or service
providers who, by agreement amongst
themselves, limit, control or attempt to
control the production, distribution, sale or
price of, trade in goods or provision of
services”
 Three Essentials of a Cartel
• Existence of an arrangement or
understanding between the competitors
• Agreement is amongst producers, sellers,
distributors, traders or service providers, that
is, parties are engaged in identical or similar
trade of goods or provision of service
• Agreement aims to limit, control or attempt
to control the production, distribution, sale,
or price of, or, trade in goods or provision of
services
 Cartels and Indian Competition Law
• From an economic perspective, cartels are agreements
between firms aimed at reducing the level of
competition amongst suppliers to increase prices
• Section Sec. 3(3) of the Competition Act, 2002
prohibits agreements that:
– Determine purchase or sale prices;
– Limit the production, supply, markets, technical
development, investment or provision of services;
– Share the market or source of production or provision of
services by way of allocation of geographical area of
market, or type of goods or services, or number of
customers in the market or any other similar way; and
– Result in bid rigging or collusive bidding
Conducive Conditions for Cartelization
• Small number of firms in an industry
• High concentration
• Barriers to entry
• Low technological advancement
• Homogenous products
• Strong ability of competition firms to
exchange information on price and other
terms of sale, and
• Uniformity in cost or efficiency
Fight Against Cartels: A Demanding Task
• Cartels being secretive and cartelists taking
pain to conceal it necessitates the Competition
Authorities to undertake great efforts to detect
concealed cartels;
• Competition Authority needs extraordinary
powers and skill to collect sufficient evidence
to mount a viable case against uncooperative
defendants;
• Cartels are conspiracies and to destabilize
them, Competition Authority needs to heavily
bank upon “Leniency Programme”
KINDS OF CARTEL AGREEMENT

• Price Fixing
• Market Allocation
• Output Restriction
• Bid Rigging
 PRICE FIXING

• Agreement among competitors: raises,

lowers or stabilizes prices or competitive
terms
• Apple e-book Price Fixing Case
 MARKET ALLOCATION

• Agreements in which competitors divide

markets among themselves
• Also called Market division
• Division of:
– Specific customers
– Products, or
– Territories among themselves
 OUTPUT RISTRICTION

• Competitors agreeing to restrict the volume

of their supply or production capacity
• Example- BIDS Case/ US v. Andreas
(Lysine cartel)
• In US- treated under per se rule
 BID RIGGING
• Conspiring competitors effectively raise
prices
• Competing bids are solicited
• Winner of the bid is pre-decided by the
competitors
• Generally happens in public procurement,
as result causes great harm to tax payers
 Sec. 3(3)
• Explanation-“Bid rigging” means any
agreement, between enterprises or persons
referred to in sub-sec. (3) engaged in
identical or similar production or trading of
goods or provision of services, which has
the effect of eliminating or reducing
competition for bids or adversely affecting
or manipulating the process of bidding.
 KINDS OF BID RIGGING
• Agreements as to who shall submit the lowest bid,
• Agreements for the submission of cover bids
(voluntarily inflated bids),
• Agreements not to bid against each other,
• Agreements on common norms to calculate prices
or terms of bids
 Builders Association of India v.
Cement Manufacturers, 2010
• CCI in earlier 2012 order had found contravention of
section 3 and imposed fines. But it was set aside in
appeal by COMPAT on the grounds of natural justice.
• Matter was reheard by the CCI in January 2016 and
fresh order made in August 2016
• Broadened the definition of “agreement” – a “nod or
a wink” will be suffice.
• It was held that CCI shall assess evidence on basis of
benchmark of “preponderance of probabilities” as
cartelization is not a criminal offence.
 Cement Cartel Case contd.
• Circumstantial evidence is of no less value than direct evidence
• Two types of evidences were employed by CCI i.e. Economic and
Communicative evidence.
– Economic evidence:
• CCI first considered structure of market i.e. Oligopolistic market and
interdependence is a characteristic of an oligopolistic market, which
probability of collusion
– Communicative evidence:
• CMA provided common platform to cement companies to interact on
a regular basis
• Clear opportunities were given to cement companies to share
commercially sensitive information and thus to coordinate
 Cement Cartel Case contd.
• On basis of economic and circumstantial evidence,
and the fact that cement companies met together at
CMA and exchanged details of prices, capacity
utilization, production and dispatch, CCI held that the
companies had acted in a coordinated way to restrict
production and supplies in market in breach of
Section 3(1) and 3(3)(b) of the Act
• Prices of companies moved together which went
beyond mere price parallelism but established that
companies acted in concert and agreed to fix prices in
breach of Section 3(1) and 3(3)(a) of the Act
 Cement Cartel Case contd.
• Presumption of an AAEC
– Parties could not show that impugned act resulted
in accrual of benefits to consumers, made
improvements in production of distribution of
goods or provision of services, or promoted
technical, scientific or economic development
– Reduction of capacity utilization indicated no
efficiency improvement in market
– Concerted action had led to increase in cement
prices acting as detriment to consumers
 All India Tyres Dealers Federation v.
Tyres Manufacturers, 2013
• The complainant alleged that the major domestic tyre
manufacturers were indulging in various anticompetitive
practices.
• CCI found a prima facie case and referred the matter to
the DG for investigation.
• On investigation, the DG concluded that that ATMA and
five major domestic tyre manufacturing companies were
acting in concert in contravention of the provisions of
section 3(3)(a) and 3(3)(b) of the Act.
• The CCI considered the DG’s report, the replies of the
firms and its own analysis but did not find sufficient
evidence against the tyre manufacturers to hold them as
contravening section 3.
 Tyre Industry Case contd.
• CCI highlighted that the evidence of an explicit
agreement between firms is not necessary for
establishing the existence of a cartel.
• Concerted action can be established through indirect
evidence in the form of market characteristics and
conduct of the firms under investigation.
• The Commission was of the view that the probability
of cartelization gets higher if the some structural
factors are present in any product market such as
highly concentrated market, homogenous product,
active trade association etc.
 Tyre Industry Case contd.
• Price parallelism
– The CCI disagreed with finding of DG and
observed that differences in range of prices of
different manufacturers were more than Rs.1000
for the period 2005-2009 and about Rs.600 in
2010 which amounts to 6-12% of absolute price.
– CCI held for a homogenous product (i.e. tyres),
it implies dissimilarity in prices i.e., no
parallelism in prices is found.
 Tyre Industry Case contd.
• Capacity utilisation
– Held available capacity was the correct measure and
not the installed capacity
– Although a general downward trend in the utilisation
of capacity was found, CCI held after hearing from
parties that following factors contributed to it:
• Scheduled and unscheduled maintenance.
• the effect of global recession around 2009.
• capacity additions by manufacturers and ramp up time
to become fully functional.
• Willful underutilisation does not profit them.
 Tyre Industry Case contd.
• The CCI observed fluctuations in market shares:
– Apollo, CEAT, Goodyear and JK lost their market
share while Birla gained.
– Such a trend was found to be inconsistent with a
cartel behaviour where market shares are expected to
remain stable.
– Also, it pointed out that it was not rational for a firm
to participate in a cartel where it will lose market
shares. This could only be possible in a competitive
environment.
 Tyre Industry Case contd.
– Net Margins
• The CCI recognised the large variation in absolute
margins across firms to refute the DG’s claims of
concerted action on part of the manufacturers.
• Taking into consideration the act and conduct of the
tyre companies/ ATMA, CCI concluded that on a
superficial basis the industry displays some
characteristics of a cartel but there has been no
substantive evidence of the existence of a cartel.
 Express Industry Council of India v. Jet
Airways Ltd & Ors., 2013
• The only issue before the Commission was whether the airlines operated
in a concerted manner in fixing the FSC (fuel surcharge) and thereby
violated the provisions of Section 3(1) read with Section 3(3)(a) of the
Competition Act?
• Competition Commission of India penalized airlines for engaging in
concerted action to impose fuel surcharge on air cargo transport.
• CCI drew adverse inference against airlines for their failure to submit
documents relating to costing studies.
• CCI acknowledged freedom of parties to fix price based on competition.
But it was held that in the absence of corroborating information, an
inference of collusion may be drawn.
• CCI reiterated the well settled principle of law that “there is rarely direct
evidence of concerted action and thus presence of cartels must be
determined on the basis of preponderance of probabilities”.
 Exclusive Motors Pvt. Ltd. v. Automobile
Lamborghini SPA, 2012
• Automobile Lamborghini, by an agreement in 2005, appointed Exclusive
Motors Pvt. Ltd. as the importer and dealer of sports cars manufactured by
it through a dealership agreement.
• In 2011, Automobile Lamborghini appointed its own group company, i.e.
Volkswagen India as exclusive importer of it’s cars and Exclusive Motors
Pvt. Ltd. was requested to terminate the existing dealership agreement and
to bring in place a fresh dealership agreement with Volkswagen India.
• Exclusive Motors Pvt. Ltd. Refused to enter into new agreement and thus
Automobile Lamborghini served a notice to the informant for terminating
the existing dealership agreement with 12 months notice period.
• It is alleged that during the notice period the opposite party had offered its
products to the informant at a much higher price than its own company i.e.
Volkswagen India thereby adopting discriminatory pricing policy
 Exclusive Motors Pvt.Ltd. contd.
• CCI held as:
– To establish a contravention under Section 3, an agreement
is required to be proven between two or more enterprises.
Agreement between Automobile Lamborghini and its group
company ‘Volkswagen India’ , cannot be considered as an
agreement between two enterprises, envisaged under
section 2(h) of the Act.
– This is also in accord with the internationally accepted
doctrine of ‘single economic entity’.
– As long as the Automobile Lamborghini and Volkswagen
India are part of the same group, they will be considered as
single economic entity for the purposes of the Act.
– Any internal agreement between them is not considered as
an agreement for the purposes of Section 3 of the Act.
Thank you