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Competition Commission of India and Cartelisation:

GS Paper 2

Topics Covered: Statutory organizations.

 

Context:

Last week, the Competition Commission of India found that three beer companies had colluded to fix beer prices for a full decade — between 2009 and 2018.

  • As a result, the CCI slapped a penalty of Rs 873 crore on the companies for cartelisation in the sale and supply of beer in 10 states and Union Territories.

 

What is a cartel?

According to CCI, a “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”.

 

The three common components of a cartel are:

  1. An agreement.
  2. Between competitors.
  3. To restrict competition.

 

Features of a cartel:

  • The agreement that forms a cartel need not be formal or written.
  • Cartels almost invariably involve secret conspiracies.
  • Here, competitors refers to companies at the same level of the economy (manufacturers, distributors, or retailers) in direct competition with each other to sell goods or provide services.

 

What do these cartels do?

  1. Price-fixing.
  2. Output restrictions.
  3. Market allocation.
  4. Bid-rigging.

In simple terms, “participants in hard-core cartels agree to insulate themselves from the rigours of a competitive marketplace, substituting cooperation for competition”.

 

Challenges posed by cartels:

  1. Hurt not only the consumers but also, indirectly, undermine overall economic efficiency and innovations.
  2. By artificially holding back the supply or raising prices in a coordinated manner, companies either force some consumers out of the market by making the commodity (say, beer) more scarce or by earning profits that free competition would not have allowed.
  3. A cartel shelters its members from full exposure to market forces, reducing pressures on them to control costs and to innovate.

 

Why do companies resort to Cartelisation?

The companies blamed government rules, which require them to seek approvals from state authorities for any price revisions, as the main reason for forming a cartel.

 

About the Competition Commission Of India:

The Competition Commission of India (CCI) was established under the Competition Act, 2002 for the administration, implementation and enforcement of the Act, and was duly constituted in March 2009. Chairman and members are appointed by the central government.

 

Functions of the commission:

  1. It is the duty of the Commission to eliminate practices having adverse effects on competition, promote and sustain competition, protect the interests of consumers and ensure freedom of trade in the markets of India.
  2. The Commission is also required to give opinion on competition issues on a reference received from a statutory authority established under any law and to undertake competition advocacy, create public awareness and impart training on competition issues.

 

The Competition Act:

The Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act) was repealed and replaced by the Competition Act, 2002, on the recommendations of the Raghavan committee.

  • The Competition Act, 2002, as amended by the Competition (Amendment) Act, 2007, prohibits anti-competitive agreements, abuse of dominant position by enterprises and regulates combinations (acquisition, acquiring of control and M&A), which causes or likely to cause an appreciable adverse effect on competition within India.

 

Insta Curious:

Do you know about the International Competition Network?

How might cartels be worse than monopolies? Read this.

 

InstaLinks:

Prelims Link:

  1. About CCI.
  2. Highlights of the Competition Act and amendments to it.
  3. About NCLT and its jurisdiction.
  4. What is Cartelisation?

Mains Link:

Discuss the roles and functions of CCI.

Sources: Indian Express.