Cartelisation

27th September, 2021 Economy

Figure 1: No Copyright Infringement Intended

Context:

The Competition Commission of India found that three beer companies — United Breweries Ltd (UBL), Carlsberg India Pvt Ltd (CIPL) and Anheuser Busch InBev India — had colluded to fix beer prices for a full decade — between 2009 and 2018.
As a result, the CCI slapped a penalty of Rs 873 crore on the companies as well as the All India Brewers Association (AIBA) and 11 individuals for cartelisation in the sale and supply of beer in 10 states and Union Territories.

The agreement that forms a cartel need not be formal or written. Cartels almost invariably involve secret conspiracies.
The International Competition Network, which is a global body dedicated to enforcing competition law, has a simpler definition. The three common components of a cartel are:

“participants in hard-core cartels agree to insulate themselves from the rigours of a competitive marketplace, substituting cooperation for competition”.

According to ICN, four categories of conduct are commonly identified across jurisdictions (countries). These are:

A successful cartel raises the price above the competitive level and reduces output. Consumers choose either not to pay the higher price for some or all of the cartelised product that they desire, thus forgoing the product, or they pay the cartel price and thereby unknowingly transfer wealth to the cartel operators”.
Further, a cartel shelters its members from full exposure to market forces, reducing pressures on them to control costs and to innovate. All of these effects adversely affect efficiency in a market economy.

Monopolies are a source of social loss through two sorts of productive inefficiencies. The first sort, reduced product innovation, is a greater problem with cartels than monopolies.
Monopolies perceive the entry of new players as a threat which encourages them to continuously innovate while cartels are able to continue with their informal agreement.
Threat of new players make monopolies to undertake investment in research and innovation while cartels enjoy their position by being in sheer position to challenge the any entry.
Government of the day becomes aware of the monopolistic position and brings law to challenge the position while it is not the same of the cartels as there is a semblance to the competition.

experts often suggest providing a strong deterrence to those cartels that are found guilty of being one. Typically this takes the form of a monetary penalty that exceeds the gains amassed by the cartel.
the threat of stringent penalties can be used in conjunction with providing leniency — as was done in the beer case when Anheuser Busch InBev India was provided with 100% relief from the CCI penalty — in order to incentivise whistleblowers exposing cartels and their functions.

The Competition Act, 2002 was passed by the Parliament in the year 2002.
The Competition Act, 2002, as amended by the Competition (Amendment) Act, 2007, follows the philosophy of modern competition laws.
The Act prohibits anti-competitive agreements, abuse of dominant position by enterprises and regulates combinations (acquisition, acquiring of control and M&A), which causes or likely to cause an appreciable adverse enect on competition within India.
In accordance with the provisions of the Amendment Act, the Competition Commission of India and the Competition Appellate Tribunal have been established.
The Competition Commission of India is now fully functional with a Chairperson and six members.
The provisions of the Competition Act relating to anti-competitive agreements and abuse of dominant position were notified under this Act.

The objectives of the Act are sought to be achieved through the Competition Commission of India, which has been established by the Central Government with effect from 14th October 2003.
CCI consists of a Chairperson and 6 Members appointed bythe Central Government.
It is the duty of the Commission to eliminate practices having adverse effect on competition, promote and sustain competition, protect the interests of consumers and ensure freedom of trade in the markets of India.
The Commission is also required to give opinion on competition issueson a reference received from a statutory authority established under any law and to undertake competition advocacy, create public awareness and impart training on competition issues.