Parallel pricing in oligopsony not indicative of concerted practice unless proved otherwise.

The Hon’ble Supreme Court on 01.10.2018, in the matter of Rajasthan Cylinders and Containers Ltd. v. Union of India and Anr. pronounced that where only a small number of buyers exist for a product, parallel pricing simply would not lead to the conclusion that there was a concerted practice. There should be other credible and corroborative evidence to show that where limited competition exists a reduction in price would swiftly attract the customers of the other two or three rivals, due to which such rivals shall be so devastatingly affected that they would have to react by matching the cut.

The Hon’ble Court among other things, observed:

Whereas on the one hand the economic policy of the nation has ushered in the era of liberalisation and globalisation thereby giving freeplay to the private sector in the manner of conducting business, at the same time, in public interest and in the interest of consumers, a regime of regulators has also been brought to ensure certain checks and balances. Since competition among the enterprises or businessmen is treated as service for a public purpose and, therefore, there is a need to curb anti-competitive practices, the CCI is given the task (as a regulator) to ensure that no such anti-competitive practices are undertaken. (Para 71)

One of the anti-competitive practices is cartelisation, the essential postulate whereof is agreement between enterprises or association of enterprises or persons or associations of persons in respect of production, supply, distribution, storage, acquisition or control of goods or provisions of service, which causes or is likely to cause an appreciable adverse effect on competition within India. Such an agreement is treated as void. It includes sharing the market by way of allocation of geographical areas of market and the agreements which result in bid-rigging or collusive bidding whether directly or indirectly. (Para 72) 

However, agreements mentioned in Section 3(3) of the Competition Act, 2002 raise a presumption that such agreements shall have an appreciable adverse effect on competition. It follows, as a fortiorari, that the presumption is rebuttable as these agreements are not treated as conclusive proof of the fact that it would result in appreciable adverse effect on competition. What follows is that once the CCI finds that case is covered by one or more of the clauses mentioned in sub-section (3) of Section 3, it need not undertake any further enquiry and burden would shift upon such enterprises or persons etc. to rebut the said presumption by leading adequate evidence. In case such an evidence is led, which dispels the presumption, then the CCI shall take into consideration the factors mentioned in Section 19 of the Competition Act, 2002 and to see as to whether all or any of these factors are established. If the evidence collected by the CCI leads to one or more or all factors mentioned in Section 19(3) of the Competition Act, 2002, it would again be treated as an agreement which may cause or is likely to cause an appreciable adverse effect of competition, thereby compelling the CCI to take further remedial action in this behalf as provided under the Competition Act, 2002. (Para 73)

The necessary ingredients of bid rigging, are: (a) agreement between the parties; (b) these parties are engaged in idential or similar production or trading of goods or provisions of services; and (c) the agreement has the effect of eliminating or reducing competition of bids or adversely affect or manipulating the process for bidding. (Para 75)

Though the expression ‘collusive bidding’ is not defined in the Competition Act, 2002 it appears that both ‘bid rigging’ and ‘collusive bidding’ are overlapping concepts. (Para 76)

The purpose of the Act is not only to illuminate practices having adverse effect on the competition but also to promote and sustain competition in the market. Enforcement provides remedies to avoid situation that will lead to decrease competition in the market. Therefore, effective enforcement is important not only to sanction anti-competitive conduct but also to deter future competitive practices. In any case, it is the duty of the CCI to ensure that the conditions which have tendency to kill the competition are to be curbed. It is also the function of the CCI to ensure that there is a competition so that benefits of such competition are reaped by the consumers. (Para 78)

Monopsony consists of a market with a single buyer. When there are only few buyers the market is described as an oligopsony. The other condition for the existence of oligopsony is whether the buyers have some influence over the price of their inputs. It is also to be seen as to whether the seller has any ability to raise prices or it stood reduced/eliminated by the aforesaid buyers. (Para 94)

Whenever there is a situation of oligopsony, parallel pricing simpliciter would not lead to the conclusion that there was a concerted practice, there has to be other credible and corroborative evidence to show that in an oligopoly a reduction in price would swiftly attract the customers of the other two or three rivals, the effect upon whom would be so devastating that they would have to react by matching the cut. (Para 96)

Copy of Judgement: Judgement 01-Oct-2018

-Tushar Kaushik

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