Cartelisation

People of the same trade seldom meet together,

even for merriment and diversion, but the
conversation ends in a conspiracy against the
public, or in some contrivance to raise prices.

Adam Smith in ‘The Wealth of Nations’.

 Cooperative Oligopoly
 When there are only small number of firms Non
Cooperative & Cooperative behaviour .
 Firms operate in a cooperative mode when they
try to control competition
 They engage in collusion.
 Two or more firms jointly set prices

 Divide the market among them

 Make business decision jointly

What is cartelisation?
 Cartel is an arrangement of independent
firms, producing similar products.
 They work together
 Organise and Control distribution
 To set Prices
 To Reduce Competition
 To Share Technical Expertise
 To Lower Total Production
 To Raise list Prices
When cartelisation grows
 When the economics slows down,
corporate crimes go up. These include
scams, cheating and collusive business
practices (cartelisation).
 The regulators, therefore, need to
tighten their oversight rules.
 State acquisition of any industry can be
as disastrous as private sector cartels.
Cartels are formed .
 Economies of Scale
Standardized products offer consumers
price reductions driven by economies of
scale and supplier substitution effects.
However a relatively small number of
suppliers of any commodity gives rise to the
possibility of price fixing and collusive
behaviour.
 Barriers to Competition
 Strategic Interaction
Cost Marginal Cost
Revenue

Average Cost

Total Demand
Of the Industry

Average Revenue
Marginal Revenue

Output
 G

E
Same hike on the Same day!
 GSM operators are
free to fix any tariff
for their services,
“But it can not be
mere coincidence”
that the tariff
revision by them is
of the identical
scale.”
GSM Operators get slammed
for forming cartel

 GSM operators Bharti Airtel, Vodafone

Essar and Idea Cellular for allegedly
forming a cartel .
 Together they control around 65% of
the GSM-based mobile services
market to distort competition.

 Coincidences……
 They all fixed the tariff of
their local call at Rs 1.20 a
minute…
 All the three respondents
revision of tariff rates
effective from same date
 All intimated the TRAI post
revision on same day (i.e.
August 16, 2007).
 Cartel in union for 17 years

• Prices of cement
artificially high.
• Government
warned that these
companies should
work to bring down
the cement prices.
• Companies
suggested to
Nationalise the
companies.
Cartelisation in cement sector
 An internal investigation of the MRTPC, which revealed
cartelisation leading to 'exorbitant' increase in cement
prices.
 The MRTPC in 2007-end ordered cement manufacturers
to stop cartelising.
 When the government allowed imports from Pakistan.
 The price of cement is approximately 50 per cent higher
then the landed price of imported cement.
Cartelisation in cement sector

 Apparently such a high price differential

between the international prices and the
domestic prices was a indication that all is
not well within the cement industry.
 The cement lobby raised the issue of
Pakistani factories not having ISI license.
 This represent the dirty cartel between our
politicians and industry.
Penalised Cartels
 October 2005 The United States Department of
Justice slapped a fine of $300 million on
Samsung Electronics for participating in an
international conspiracy to fix prices in the DRAM
market.

 October 2004 Infineon Technologies AGcompany

was sentenced a fine of $160 million for
participating in the conspiracy to fix prices in the
DRAM market.
The Cartel Attack
 October 2003 The European Commission fined
Aventis €99 million for its alleged involvement
in a cartel alongside four Japanese companies
for controlling price of the sorbates. The five
companies controlled up to 85% of European
sorbates market and met twice a year to set
prices and production quotas.
 Why Cartels exists in India?
 The MRTP Act is still the extant competition law in
India, as the Competition Act has not yet been fully
implemented
 It might take at least three years from now for the
Competition Act to come into full swing .
 Competition Commission of India can actually
impose monetary penalties on companies, but it
hasn’t done yet since the commission is not fully
operational yet .
Success of Cartels in India
 Even if monetary penalties are imposed, that is not a
deterrent for companies to return back to such
malpractices.
 Both the Central and State governments are empowered
to take complaints to the MRTP Commission.
 not a single case has been filed under the MRTP Act by
any government.
 cease and desist’ orders were issued, which were often
ignored.
How to Handle cartels in india?
 In United States and Brazil there are
provisions of imprisonment, which nowhere
exist in India.
 Belgium – member of the European Union
has this provision of rewarding cartel whistle
blowers.
 Authorities have power to tap phones
 Conduct raids to unearth evidence of cartels.
Cartelisation in Aviation industry

 the Jet-Kingfisher alliance is seen as one

such. Though the professed reason for the
alliance is to combat the havoc of soaring
aviation fuel prices, the outcome could well
be the exploitation of passengers through
such means as route rationalisation and
higher tariffs.
Thank you

DeepaChandrasekar
Ekta Yadav
Nithika Daihya
Parmeswari Dayal
Suman Devi