Cartels have free run, thanks to toothless regulators

NEW DELHI: From cricket matches to airline fare and cement prices, the word ‘fixing’ is increasingly vexing governments across the world. And regulators are finding it increasingly difficult to prove that there was indeed a meeting of minds to establish the existence of a cartel.

With today’s advanced means of communication, it is almost impossible to prove the meeting of minds, according to government sources. Also, companies have found a way to evade the other test of cartels—price parallelism.

“Now a days, companies do not increase the price on the same day, which proves price parallelism. When the market leader increases the price, others gradually follow one by one saying that the market can absorb further price increase”, said an expert in competition law.

With the Monopolies and Restrictive Trade Practices (MRTP) Commission losing its staff strength and resources and the Competition Commission of India (CCI) still not becoming functional, suspected cartels are working without any trouble. There are quite a few sectors where there is an urgent need for an effective regulatory intervention to bust suspected cartels.

For example, the government has noticed some unnatural shortage and price fluctuations in cement supplies in Hyderabad. In pharmaceuticals, MNCs are increasingly tying up with local companies to transfer patented technology to some players in the industry and excluding some others with suspected intent to cartelise.

Besides, there seems to be a case for the government investigating into the issue of cross-holdings in sectors where cartels are suspected, for example, in the cement sector. In the airline industry too, suspicions of the existence of cartelised behaviour is quite strong.

The competition commission, had recently brought the issue to the attention of the government, but since the regulator lacks teeth, it is unable to crack down on its own. Feeble attempts by the Monopolies and Restrictive Trade Practices Commission have not yielded desired results in breaking cartels.

Fragmented industries are more conducive for carteilised behaviour by firms as there could be concentration of market in select pockets. Industries that have traditionally been considered unlikely to cartelise such as the pharmaceutical industry also is under the gaze of competition regulators internationally due to new marketing arrangements.

For instance, even as patent monopoly exists, the patent holder can virtually run a cartel by voluntarily giving the licences to a select group of companies in markets where it does not hold monopoly. Mergers in foreign countries can also result in cartelisation in the local market if the merging entities cross threshold market shares in some market segment. The regulatory position on curbing catrelisation should be made explicit and enforceable without further delay.