Cartels are the most pernicious of anti-competitive practices!

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PRADEEP MEHTA, SECRETARY GENERAL, CUTS CENTRE FOR INTERNATIONAL TRADE, ECONOMICS AND ENVIRONMENT

"Cartels don’t only relate to price fixing, but also division of business, territory, restriction on output..."

Which are the sectors in India where cartels exist or may be in process of coming into being?
Airlines, banks (setting of bank charges and interest rates on savings A/Cs), cement and telecom sectors have come under the scanner for cartelisation in India more recently. Also, collusion has often been found in a number of government procurements, for example in construction activity. Most of these cartels work under guise of trade associations. In cases abroad, even trade associations have been charged for aiding and abetting collusion.

What is the impact of cartels in an industry and economy?
Cartels are considered the most pernicious of anti-competitive practices. In many jurisdictions cartelisation or collusion is treated as a criminal activity under the law. While companies have paid heavy fines, senior executives have even undergone jail sentences. Besides, cartels don’t only relate to price fixing but also division of business, territory, restriction on output, et al. They can create barriers to new entrants and non members to the cartel agreement.

Any efforts to quash cartelisation?
A recent example is in the cement sector where the MRTPC passed cease and desist orders on some old enquiries. The recent alliance between Jet and Kingfisher in the airline industry is being analysed from the perspective that it maybe a cartel. Few months ago the private airlines had got together to set up the Federation of Indian Airlines and proposed benchmarks for fares, but the low cost airlines fell out.

Are there steel cartels too?
I do not see any signs of cartelisation in the steel industry. Prices went up phenomenally due to high demand, which resulted from high economic growth.

The likely impact of the Jet-Kingfisher alliance on the industry?
The possibility of price fixing is very high and most likely to happen. The flip side is that if these airlines do not cooperate on prices then they would operate in a dirty way and hurt themselves badly. They may even shut down, thus affecting the whole economy.

Would you consider this the end of the low-cost regime in Indian skies?
The low cost regime will stand on its own and not relate to these major players. However, if the major players raise their prices, then smaller/low cost players will also raise prices.

Which are the international cartels operating in India and what is their impact on consumers and economy?

Very little work has been done to find out the impact of international cartels on India. One study done by Evenett on the impact of an international cartel in vitamins did show a cost of about $25 million on India. CUTS had moved the MRTPC to investigate the matter but they did not bother to do anything. Another recent case of airlines fixing prices on cargo rates across the transatlantic route and elsewhere has also had an impact on India, for both exports and imports. But nothing has been done. Perhaps there is no appreciation of facts. One hopes that the new Competition Commission of India will do something when it comes into action, as it has extra territorial jurisdiction powers.

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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