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Cartel Theory & Indian Tyre manufacturers

, March 7, 2022, 0 Comments

CCI fined five Tyre companies namely Apollo, MRF, CEAT, JK, Birla and their association i.e. Automotive Tyre Manufacturers Association (ATMA) for indulging in price-fixing in concert to increase the prices of cross ply/bias tyres variants sold by each of them in the replacement market and to limit and control production and supply in this market.

cartel-tyre-manufacturers-india-marketexpress-inPenalties imposed – Rs. 425.53 crore on Apollo, Rs. 622.09 crore on MRF, Rs. 252.16 crore on CEAT, Rs. 309.95 crore on JK and Rs. 178.33 crore on Birla, besides passing a cease and desist order. In addition, a penalty of Rs. 0.084 crore was also imposed on ATMA. ATMA was also directed to disengage and disassociate itself from collecting wholesale and retail prices through the member tyre companies or otherwise.

Snooping & CCI

Why did CCI snoop on the conspiracy theory of 5 big tyre manufacturers?

The economist Adam Smith famously wrote in 1776, inThe wealth of nations that :

People of the same trade seldom meet together even for merriment and diversion but the conversation and in a conspiracy against the public or in some contrivance to raise prices.’

Back in 400 BC, in ancient India, kautilya’s Arthashastra
( a treatise relating to economic policy ) prohibited cartel activity.

The system designed for a competitive market that is enforced through the Competition law regime aims to protect competition, typically concerning three aspects –

  1. Anti-competitive agreements that have the the object or effect of preventing, restricting or distorting competition
  2.  Abusive behavior by monopolist or dominant firms harming consumer welfare
  3.  Mergers and acquisitions that may reduce rivalry between firms in the market

This research article focuses on horizontal anti-competitive agreements, often referred to as ‘hard core’ cartels.

Although exchanging price-sensitive data amongst OEMs / Suppliers is a violation of competition law, it has been a practice of manufacturers / Suppliers to take collective decisions on prices to achieve targets in a highly competitive market. Considering the investigation can be quite intrusive, is it worth the price to pay heavy fines and harm reputation? The management and sales executives do have their own concerns as they need to chase business targets but they may, even inadvertently at times, share price sensitive information, coordinate their pricing / supply strategies which can be very tricky. At such times, CCI will not spare the big boys club indulging in rigging prices.


The conspiracy story of the beer cartel

In 2016, the world’s largest brewer ABInBev  ( ABI) acquired its rival SABMiller ( India ) which owns popular brands, Haywards and Fosters. During the deal the Indian executives discovered the secret cartel for price-fixing and tipped-off the CCI by way of an application’. While CCI started it’s investigation, United Breweries and Carlsberg also came forward to cooperate with CCI, to get ‘leniency’ on fines. The All India Brewers Association ( AIBA ) was acting as conduit to meet and discuss market pricing.

CCI raided the offices of the brewers who control 88% of India’s $7 billion beer market in 2018 – seized files and more than 2 terabytes of data from laptops, pen drives and smartphones.

The DG’s office found emails and WhatsApp chats revealing how executives of carlsberg, SABMiller and UB fixed beer prices in India over 11 years.In 2021, Som Distilleries office was also raided as part of the same investigation.

CCI penalty – Rs. 870 crores – $102 million on United Breweries Limited (UBL) and $16 million on Carlsberg India Private Limited (‘CIPL’). ABI benefitted with 100% immunity, others ( UBL ) got 40% and ( CIPL ) 20% benefit.

In terms of a cartel’s size and complexity, the the biggest international cartel enforcements have been –

The auto parts cartel cases of the recent past with 13 guilty parties. Fines : 18 million euros in EU; $2.9 Billion in US.
The vitamins cartel of the late 1990s. Fines : $917 million in US, around $1.9 billion Worldwide, prosecuted more than 12 companies for fixing the price of multiple vitamins.
The LCD screens cartel – $2.9 billion – had nearly every manufacturer of LCD screens in the world,

Cartels work in secrecy which are hard to be detected. There is a thin line between price-parallelism and price-fixing, however, the presumption is drawn against the conspirators i.e in favor of price-fixing if there are factors implying intend to collude which parties fail to rebut. To curb this menace of inflated prices that harm consumers, CCI incentivizes insiders to blow the whistle, avail of — ‘The Leniency Program.’

The author is a specialist in competition, commercial and regulatory practice and part of MiNDTeam– management consulting firm specializing in Technology & Business Strategy, Policy and Compliance)
The views and opinions expressed on this web site are solely those of the author. These views and opinions do not necessarily represent those of MarketExpress, the MarketExpress staff, and/or any/all contributors to this site.