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India – CCI’s Approach In Cartel Cases.

19 April, 2013

 

On October 10, 2012, CCI issued its order in a cartel investigation (‘Tyre Cartel Case’) against the Tyre Manufacturers (as defined above). CCI rejected the findings made by DG and held that there was no “substantive evidence” to prove the existence of a cartel agreement amongst the Tyre Manufacturers.


CCI’s approach and decision in the Tyre Cartel Case is in stark contrast with its decision in the cartel case concerning cement manufacturers (‘Cement Cartel Case’). While both the tyre and cement industry in India display similar characteristics and may appear conducive for cartelisation, CCI has viewed the evidence on price parallelism in the two industries differently.


In the Tyre Cartel Case, CCI expressly observed that “on a superficial basis, the industry displays some characteristics of a “cartel”, but concluded that there was no evidence of cartelisation. In contrast, in the Cement Cartel Case, CCI took the view that parallelism in prices, production and dispatch are a result of a cartel agreement. The question which arises is, what was so different in the conduct of Tyre Manufacturers as compared to the cement manufacturers, that helped them
come out clean? This article seeks to highlight the inferences drawn by CCI upon examining the economic evidence available before it in the two cases. Equally, the article seeks to highlight the crucial plus factors, the lack of which helped the Tyre Manufacturers avoid sanctions, and whose presence led to an adverse finding against the cement manufacturers.


The key point of inquiry, in both cases, was price fixing, either directly by coordinating on retail level prices, or indirectly by limiting production, restricting supplies or controlling dispatch. DG could not adduce direct documentary evidence of price fixing in either of the two cases. Consequently, CCI evaluated circumstantial evidence on price fixing made available to it by DG. In doing so, in both cases, CCI observed that, ‘parties to an anti-competitive agreement will never come out in the open and reveal their identities to be punished by the competition agencies’. Accordingly, CCI proposed and adopted the following two-step analysis.

 

First, CCI examined whether the data on prices, production and dispatch moved in tandem. Thereafter, CCI examined the role of the respective trade associations of the cement manufacturers and the tyre manufacturers in inducing parallelism in prices, production and dispatch. 

 

In the Cement Cartel Case, CCI found that the prices, capacity utilization and dispatch of cement of various manufacturers moved in parallel. CCI considered such parallelism to be a result of conscious co-ordination amongst the cement manufacturers and not a reflection of noncollusive oligopolistic market conditions.

 

Similarly, in the Tyre Cartel Case, CCI found signs of parallelism in terms of prices, capacity utilization and dispatch. But unlike its decision in the Cement Cartel Case, CCI did not conclude that the parallelism was a result of collusion. Instead, CCI took note of extraneous factors which could explain such parallelism. For instance, though the tyre prices of various manufacturers had moved within a band of 6% to 12%, CCI did not view this with suspicion.

 

It took the view that high volume of imports meant that the Tyre Manufacturers could not earn high profits by limiting supply or by willful under-utilization of capacity. On uniform decrease in capacity utilisation by the Tyre Manufacturers, CCI reasoned that there was no collusion, since reduction in capacity utilisation and production was a reflection of the global economic slowdown and
decreased demand. 

 

In stark contrast to its approach in the Cement Cartel Case, CCI was a lot more generous in accepting economic factors which could explain parallelism in the Tyre Cartel Case. Parallelism in terms of prices, capacity utilisation, production and dispatch in the Cement Cartel Case could also have been explained on the basis of various factors, other than collusion, but CCI did not pay heed to any such justifications. The question that arises is: what made CCI more accommodating of economic reasons justifying parallelism in the Tyre Cartel Case. Perhaps, the key differentiator in the two cases was the conduct of parties at their respective trade associations. In the Cement Cartel Case, CCI found evidence of concerted price increase following trade association meetings. 

 

On the other hand, in the Tyre Cartel Case, CCI did not find any such evidence. A review of CCI’s decision in the Cement Cartel Case indicates that the increase in cement prices immediately after two meetings of the high powered committee of the Cement Manufacturer’s Association may have prejudiced CCI and coloured its analysis. On the contrary, lack of any such evidence linking price increases to prior meetings of the Tyre Manufacturers caused CCI to take into consideration economic factors justifying parallelism in prices more favorably. To sum up, CCI’s decision and approach in the Tyre Cartel Case is a welcome development. 

 

It provides important lessons for industries which have strong and active trade associations. The message is clear–if trade associations do not serve as a platform for discussions and coordination on prices, production, capacity and any such similar competitive factor, CCI is likely to view instances of parallelism with a little less suspicion and may be more willing to take note of economic factors explaining what may very well be innocuous market driven trends.

 

AZB

 

For further information, please contact:

 

Rahul RaiAZB & Partners
rahul.rai@azbpartners.com
 
Saiyam ChaturvediAZB & Partners
saiyam.chaturvedi@azbpartners.com

 

 

 

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