Bust a cartel, gain a friend

The Financial Express, August 31, 2010

By Pradeep S Mehta

Generally, it is the level of confidence that the general public has in the competition authority that determines the extent to which the authority would be able to garner support to deal with difficult cases. This means that the competition authority, especially a young one like the Competition Commission of India (CCI), should be able to decisively tackle cases that affect Mungeri Lal or the aam aadmi.

Confidence-building requires strategising, and one common strategy adopted by some competition authorities is prioritisation and targeting, with the competition authority striving to ensure that its decisions can clearly, without any ambiguity, relate to promotion of the interest of the general public.

A good example is that of South Africa, where the South Africa Competition Commission came up with a list of priority areas and acknowledged that these areas are where it feels its decisions would have the greatest impact in the economy. Therefore, the authority gives priority to the food, agro-processing and forestry sectors. Its decisions, including pending cases, get popularised due to anticipated impact on the general welfare of the public.

For example, an investigation into a suspected cartel of millers of white maize, the staple food for most of South Africa’s population, in April 2010 was positively greeted by the public. This enhanced the visibility and support for the authority. Prioritisation is also found in other jurisdictions. For example, the health sector is considered a priority area by the Competition Bureau of Canada.

Following prioritisation, competition authorities have gained confidence and support through busting cartels on critical services, which constitute a big proportion of the poor’s budget, such as for food and medicines. The products involved form part of the daily requirements of most of the population, leaving them with no choice but to buy the cartelised products at higher cartel prices. The price reduction following the authority’s intervention directly protects consumers.

Recently, there was wide media coverage in Pakistan following the imposition of a Rs 50 million fine on the Pakistan Poultry Association by the Competition Commission of Pakistan for organising and operating an output-restricting and price-fixing cartel. The Bulgarian Competition Commission also endeared itself to the general public in 2008 by fining producers of poultry and eggs a total of BGN 2,93,000 for cartelisation, especially since this was in reaction to a drastic increase in the price of poultry.

It is now over a year since CCI started operation. Stakeholders, who were disappointed by the performance of the MRTP Commission, had a lot of expectation from CCI, especially given its stronger legal mandate. Alas, CCI is yet to endear itself to the general public through decisions with significant impact on people’s lives. This is taking place against the backdrop of several cases concerning alleged anticompetitive practices in the food and health sectors. CCI’s appropriate intervention would go a long way in enhancing both its credibility and economic importance.

At a recent launch of a CUTS project for identifying some anticompetitive issues in the healthcare sector, it was pointed out by a member of CCI that it has initiated investigations into practices of drug trader associations, a remark that was widely welcomed. However, such cases need to be prioritised over other cases that CCI has handled to date.

For example, an order in cases of alleged collusive behaviour between doctors and pharmaceuticals would go a long way in boosting the general public’s confidence in the competition regime compared to an order in the motor vehicle sector.

Taking action against cartels even in sectors outside food and health goes a long way in boosting the public sector confidence in a competition authority. Cartels are considered the most harmful of anticompetitive practices as they affect consumers directly and, at the same time, are the most difficult to prosecute. Successfully prosecuting a cartel is a sign of strength of the competition authority, which is very important from the public point of view.

Recently, the Competition Council of Vietnam issued its first order on a cartel, fining 19 insurance companies for cartelisation through colluding to increase insurance fees for motor vehicles. Cases of this kind go a long way in building confidence in a competition authority.

Similar strategies can be adopted by CCI in building public confidence. The public at large would be happier to see CCI becoming more visible in investigating cases in the food and health sectors, where inflation is high and spending is mandatory, and where anticompetitive practices cause a big dent in the people’s budgets.

Successfully prosecuting a cartel would also go a long way in convincing sceptics, particularly those doubting the expertise of the competition authority to the extent of lobbying against notification of the merger provisions of the Competition Act, 2002.

The author is the secretary general of CUTS International

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