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