CARTELS

One way to hamper the competition and creating monopoly in the market is forming cartels. Cartels have got
adverse effect on competition. It hampers promotion and sustenance of competition in markets. It fails to protect
the interests of consumers and restricts the freedom of trade carried out by other participants present in the
market.

The Competition Act, 2002 (the Act) prohibits any agreement which causes, or is likely to cause, appreciable
adverse effect on competition in markets in India. Any such agreement is void.

Cartels are agreements between enterprises (including association of enterprises) not to compete on price,
product (including goods and services) or customers. The objective of a cartel is to raise price above competitive
levels, resulting in injury to consumers and to the economy.For the consumers, cartelization results in higher
prices, poor quality and less or no choice.

A cartel is said to exist when two or more enterprises enter into an explicit or implicit agreement to fix prices, to
limit production and supply, to allocate market share or sales quotas, or to engage in collusive bidding or bid-
rigging in one or more markets.

Cartel is defined in section 2 (c) of the Act as under: "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, or, trade in goods or provision of services;

MAJOR TYPES OF CARTELS

An international cartel is said to exist, when not all of the enterprises in a cartel are based in the same country or
when the cartel affects markets of more than one country.

Import cartels comprise enterprises (including association of enterprises) that get together for the purpose of
imports into the country.

An export cartel is made up of enterprises based in one country with an agreement to cartelize markets in other
countries. In the Competition Act, cartels meant exclusively for exports have been excluded from the provisions
relating to anti-competitive agreements.

CARTELS PRESUMED INJURIOUS

Any agreement entered into between enterprises or associations of enterprises or persons or associations of
persons or between any person and enterprise or practice carried on, or decision taken by, any association of
enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or
provision of services, which

(a) directly or indirectly determines purchase or sale prices;

(b) limits or controls production, supply, markets, technical development, investment or provision of services;

(c) shares 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;

(d) directly or indirectly results in bid rigging or collusive bidding, shall be presumed to have an appreciable
adverse effect on competition:"

CONDITIONS CONDUCIVE TO FORMATION OF CARTELS

If there is effective competition in the market, cartels would find it difficult to be formed and sustained. Some of
the conditions that are conducive to cartelization are :

high concentration - few competitors

high entry and exit barriers

homogeneity of the products (similar products)

similar production costs

excess capacity

high dependence of the consumers on the product

history of collusion

ANTI-CARTEL ENFORCEMENT

The Commission is empowered to inquire into any cartel, and to impose on each member of the cartel, a penalty
equivalent to three times of the amount of profits made out of such agreement by the cartel or ten per cent of
average of the turnover of the cartel in the preceding three financial years, whichever is higher.

In case an enterprise is a 'company' its directors/officials who are guilty are liable to be proceeded against and
punished.

In addition, the Commission has the power to pass inter alia any or all of the following orders (section 27):

(i) direct the parties to a cartel agreement to discontinue and not to re-enter such agreement;
(ii) (ii) award compensation on an application to any person for any loss or damage caused as a result
of cartel;
(iii) (iii) direct the enterprises concerned to abide by such other orders as the Commission may pass
and comply with the directions, including payment of costs, if any; and
(iv) (iv) pass any other order as it may deem fit.

INTERIM RELIEF

During the pendency of an inquiry, the Commission may, by order, grant a temporary injunction restraining all
members or any member of the alleged cartel from carrying on such act until the conclusion of such inquiry or
until further orders, without giving notice to the parties, where it deems necessary.

The Act empowers the Commission to grant leniency by levying a lesser penalty on a member of the cartel who
provides full, true and vital information regarding the cartel. The scheme is designed to induce members to help
in detection of cartels. This scheme is grounded on the premise that successful prosecution of cartels requires
evidence supplied by a member of the cartel.

CARTEL INVESTIGATION The Commission, on being convinced that there exists a prima facie case of
'cartel', shall direct the Director General to cause an investigation and furnish a report. The Director General, for
the purpose of carrying out investigation, is vested with powers of civil court besides powers to conduct 'search
and seizure'.

Here are many provisions relating to cartel detection. The related sections are as follows:
Section 19 which says about the grounds of enquiry in certain agreements.

Section 26 which says about the procedure of the inquiry.

Section 27 says about the orders which may be passed by the Commission.

Section 32 says about the extra territorial jurisdiction of the Act.

Section 33 deals with the power to issue interim order.

Section 36 gives a clear idea about the power of the commission to regulate its own procedure.

For the rectification of orders you can go through section 38.

Section 39 says about the execution of order of the commission imposing money penalty.

Section 46 is one of the most important sections regarding cartel detection. It says about the lesser penalty
process of the commission. It should be read with the regulation which gives minute detail of this system.

Section 48 says about the liability of the company and its members regarding contravening of any of the
provisions of the Act [25] .

Examples Of Cartels

Cement cartel, Cartel in Road Transport, Railway cartel, Trucking cartel

The Explanation to section 3(3) of the Act defines "bid rigging" as "any agreement, between enterprises or
persons referred to in sub-section (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 for bidding" .

Bid rigging takes place when bidders collude and keep the bid amount at a pre-determined level. Such pre-
determination is by way of intentional manipulation by the members of the bidding group. Bidders could be
actual or potential ones, but they collude and act in concert.

Collusive bidding or bid rigging may be of different kinds, for instance-

o agreements to submit identical bids;

o agreements as to who shall submit the lowest bid;

o agreements for the submission of cover bids (voluntary inflated bids);

o agreements not to bid against each other, agreements on common norms to calculate prices or terms of

bids;

o agreements to squeeze out outside bidders;

 o agreements designating bid winners in advance on a rotational basis, or on a geographical or

customer allocation basis.

Types of bid rigging

Bid rigging can take a variety of forms. They include:

cover bidding - where competitors choose a winner and everyone but the winner deliberately bids
above an agreed amount to establish the illusion that the winners quote is competitive

bid suppression - where a business agrees not to tender to ensure that the pre-agreed participant will
win the contract

bid withdrawal - where a business withdraws its winning bid so that an agreed competitor will be
successful instead

bid rotation - where competitors agree to take turns at winning business, while monitoring their market
shares to ensure they all have a predetermined slice of the pie

non-conforming bids - where businesses deliberately include terms and conditions that they know will
not be acceptable to the client.

Impacts of bid rigging

Bid rigging leads to uncompetitive tender processes that can result in organisations paying higher prices or
receiving lower quality goods or services. Businesses that are the victims of bid rigging can pass on extra costs
or reduced quality to consumers and other businesses in the supply chain.

If a government agency pays an inflated price for services provided by tender, these additional costs or reduced
quality are eventually passed on to taxpayers.

Certain patterns in bids can give rise to suspicion of collusion. Situations of suspicious behavior are the
following (illustrative and not exhaustive):

1. The bid offers by different bidders contain same or similar errors and irregularities (spelling, grammatical and
calculation). This may indicate that the designated bid winner has prepared all other bids (of the losers).

2. Bid documents contain the same corrections and alterations indicating last minute changes.

3. A bidder seeks a bid package for himself/herself and also for the competitor.

4. A bidder submits his/her bid and also the competitor's.

5. A bidder submits an offer, which is not capable of being successfully honoured/performed. 6. A party brings
multiple bids to a bid opening and submits its bid only after coming to know as to who else is bidding.

7. A bidder makes a statement indicating advance knowledge of the offers of the competitors. 8. A bidder makes
a statement that a bid is a 'complementary', 'token' or 'cover' bid.
9. A bidder makes a statement that the bidders have discussed prices and reached an understanding.

COMMISSION'S POWERS Section 27 empowers the Commission to pass cease and desist order, impose
penalty, award compensation to parties, direct modification of agreements or pass any such other order as it may
deem fit, when after inquiry the Commission finds that any agreement is in contravention of section 3.