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Role of Cartels in Market Manipulation: A Legal Perspective

This article explores the issues consumers face due to cartels and the ways in which these entities manipulate the market. Cartels are formed when two or more businesses, either formally or informally, collaborate to advance their own interests, distorting free and fair competition by regulating prices of goods and services. The Competition Act of 2002 in India includes provisions relevant to enforcing antitrust laws, increasing the likelihood of effectively dealing with anti-competitive agreements and cartels. However, the operational guidelines for the Competition Commission of India's (CCI) operations require further strengthening.

A cartel, defined under Section 2(c) of the Competition Act, refers to an agreement among competing firms to coordinate their actions in a way that restricts competition, typically to increase profits by manipulating prices or output levels. Cartels are illegal under the Competition Act because they undermine fair competition, harm consumers by driving up prices, and stifle innovation. Cartels often operate covertly, with members colluding to fix prices, allocate markets, or control production and distribution of goods or services, resulting in severe penalties, including fines and imprisonment for individuals involved.

  • Control or limit competition in a specific market.
  • Fix prices artificially high or low.
  • Allocate market share or territories among members.
  • Coordinate production, distribution, or marketing strategies.
  • Restrict entry of new competitors into the market.
  • Maintain or increase profits for cartel members.
  • Minimize uncertainty and risk in the market.
  • Exert influence over industry standards or regulations.
  • Enhance bargaining power with suppliers or buyers.

History of Cartels
The history of cartels dates back to the early 20th century when businesses started forming agreements to control production, distribution, and pricing of goods and services. In India, the concept of cartels was initially addressed under the Indian Contract Act of 1872, which prohibited agreements against public interest. The Monopolies and Restrictive Trade Practices (MRTP) Act of 1969 was introduced to specifically deal with cartels and other anti-competitive practices. The Competition Act of 2002 replaced the MRTP Act, introducing stricter provisions to combat cartels, defining them explicitly, and setting up the Competition Commission of India (CCI) to enforce these laws.

Types of Cartels
According to a study by CUTS International, cartels can be categorized into four types:
  • Price Fixing: Competing businesses agree to fix prices, eliminating competition and maintaining high prices.
  • Market Sharing: Competitors divide and allocate markets geographically to minimize competition.
  • Quantity Limiting: Businesses create artificial scarcity of products to maximize profits.
  • Bid Rigging: Enterprises agree not to compete for tenders, ensuring one participant wins the tender.

Leniency Scheme
Section 46 of the Competition Act 2002 allows the CCI to grant leniency by imposing lesser penalties on members who provide vital information regarding the cartel. This scheme aids in detecting and investigating cartels, with the CCI having notified the CCI Lesser Penalty Regulations 2009 to outline the process for granting leniency.

Effects of Cartelization on the Market
Cartels manipulate markets by:

  • Price Fixing: Coordinating to fix prices at artificially high levels, leading to consumer harm by depriving them of competitive pricing.
  • Output Restriction: Limiting production to maintain scarcity and drive up prices.
  • Market Division: Dividing markets or customers among members, reducing competition.
  • Bid Rigging: Manipulating procurement processes to secure contracts at inflated prices.
  • Barriers to Entry: Deterring potential competitors from entering the market.
  • Reduced Innovation: Disincentivizing innovation by reducing competitive pressures.
  • Economic Inefficiency: Distorting market signals and misallocating resources.
  • Consumer Harm: Higher prices, reduced choices, limited access to goods and services, and diminished quality or innovation.
  • Global Impact: Operating across borders and exploiting differences in regulations.

Impact on Online Markets
Cartels can significantly impact online markets by fixing prices, dividing clients or territories, and restricting output. These actions disadvantage consumers by raising prices, limiting choices, and stifling competition and innovation.

Case Laws:
  • Builders Association of India vs. Cement Manufacturers & Ors: The CCI fined cement manufacturers for price fixing and restricting supply.
  • Faridabad Industries Association (FIA) vs. M/s. Adani Gas Limited (AGL): AGL was fined for abusing its dominant position by imposing unfair conditions in the Gas Supply Agreement.
Cartels pose a significant threat to market integrity and consumer welfare. While the Competition Act of 2002 provides a robust framework to combat cartels, continuous vigilance and stringent enforcement are necessary to deter such anti-competitive behavior. The CCI's active role in penalizing cartel activities and promoting fair competition is crucial for maintaining a healthy market environment.

  • IJFMR Article:
  • Investopedia Definition of Cartel:
  • StudySmarter Explanation of Cartels:
  • Lesson on Cartels:
  • ICLG Overview:

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