Competition, Oligopolistic Market, Cartelling, and afarpooling Dominance?
November 4, 2022
Competition has existed since the dawn of mankind. A flexible and dynamic market economy requires competition in the marketplace, which is the process of business firms competing for clients. Competing manufacturers, suppliers, and service providers are encouraged to innovate, reduce slack, and raise productivity in order to meet the demand for better products at cheaper prices. Though economic agents are motivated by self-interest, the advantages accrue to society as a whole. An oligopoly is a market structure that straddles the monopolistic and perfect competition spectrums. It’s a market that’s dominated by a small number of companies. These companies have complete control over the prices of the commodities they sell, and the industry they dominate has high entry hurdles.
Oligopolistic marketplaces are generally defined by product similarities, and hence oligopolistic enterprises are typically interconnected in terms of policy development and competition strategies. Competition tactics are usually designed to make tiny distinctions in a company’s products appealing to customers so that the company can gain a competitive advantage. For fear of price wars, this type of competitiveness entails differentiating almost identical products via non-price-based techniques. Companies get a competitive advantage through investing in promotions, improving the quality of their goods and services, providing special services such as delivery, and locating their goods/services in handy places for customers, among other things. The goal of this study is to look at the oligopolistic market competition, cartelling, and afarpooling supremacy.
These companies have complete control over the prices of the commodities they sell, and the industry they dominate has high entry hurdles. Oligopolistic marketplaces are generally defined by product similarities, and hence oligopolistic enterprises are typically interconnected in terms of policy development and competition strategies. Competition tactics are usually designed to make tiny distinctions in a company’s products appealing to customers so that the company can gain a competitive advantage. For fear of price wars, this type of competitiveness entails differentiating almost identical products via non-price-based techniques. Companies get a competitive advantage through investing in promotions, improving the quality of their goods and services, providing special services such as delivery, and locating their goods/services in handy places for customers, among other things. The goal of this study is to look at the oligopolistic market competition, cartelling, and afarpooling supremacy.
Competition in an Oligopolistic Market
Since an oligopoly is distinguished by a small number of firms in an industry, each firm must forecast the response of other firms before deciding on output or price strategies. In oligopolistic markets, firms use price discrimination to maximize profits or get a larger share of the consumer base. Oligopolistic markets’ competitive strategies have a wide range of consequences for the industry. Price discrimination, for example, reduces consumer surplus and hence hurts the consumer’s welfare. The extraction of consumer surplus, on the other hand, causes corporations to produce abnormal profits that are in the firm’s best interests. Because the major objective of every corporate operation is profit maximization, such price discrimination benefits the firms. To gain a competitive edge in terms of market share, certain businesses may set prices below cost for some clients. Consumers will benefit from price discrimination, while providers will suffer. In an oligopoly market, non-price competition has a significant impact on customer behavior.
Consumers choose things that have been promoted and are convenient in terms of delivery, or goods that have minor elements, such as color, that match their preferences. Non-corporate strategic activity has a wide range of consequences for the industry. It usually leads to unhealthy competition amongst the companies involved, which benefits the consumers.
Cartels and their effect on Competition
A cartel is an anti-competitive organization formed by a legal agreement between a group of producers of an item or service to take control of supply to regulate and manipulate prices. A cartel, in its most basic form, is an agreement between firms not to compete with one another. Typically, the agreement is verbal and often informal. Consumers are harmed by cartels since their existence results in increased pricing and limited supplies. The Organization for Economic Cooperation and Development has made the investigation and prosecution of cartels a top priority (OECD). Price fixing, production limits, market allocation, and bid-rigging are the four key factors that describe how cartels operate.
A cartel, as defined by the Supreme Court of India inUnion of India and Ors. v. Hindustan Development Corporation and Ors., is “an association of producers who strive to regulate sale and price schemes by agreement among themselves to gain a monopoly.” In a 1998 recommendation, the OECD declared cartels to be the most dangerous kind of anti-competitive behavior. The most serious violations of competition law are cartels. Cartelization distorts prices and has a negative impact on the market’s overall competitive structure. The fact that cartels have been punished to the harshest punishment under Section 27 of the Competition Act, 2002, demonstrates the seriousness of this behavior.
The harm caused by cartels: Cartels affect consumers and economies, and this is widely acknowledged and agreed upon. According to Japan, recent cartels hiked prices by an average of 16.5 percent. Following enforcement action against asphalt cartels, competition authorities in Sweden and Finland saw price drops of 20-25 percent. Following the OFT’s enforcement action in the ‘football replica kits issue,’ long-term prices in the UK have been reduced by 30 percent. According to estimates in the United States, certain serious cartels can result in price rises of up to 60% to 70%.
Based on a survey of a wide number of cartels, the average markup is estimated to be in the 20-30% range, with international cartels having higher overcharges than domestic cartels. Cartels have been accused in several sectors in India, including cement, steel, and tyres. India is also thought to be a victim of international cartels that control soda ash, bulk vitamins, petrol, and other commodities. All of this tends to raise prices or limit consumer choice. Cartels have the greatest impact on businesses because they raise the cost of acquiring inputs or limit their options, rendering them uncompetitive, unviable, or content with lower profits.
Bridging the Gap in Indian Competition Law
The concept of ‘collective dominance’ could fill the gap between misuse of power among enterprises through a cartel and abuse of dominance through mere understanding. It is past time for Indian courts to reconsider the Competition (Amendment) Bill, 2012, which proposed amending Section 4 of the Act to cover abuse of dominant position by undertakings acting “individually or collectively.” This incorporation will be viewed in accordance with EU competition legislation (Article 102 of the TFEU) and will provide authorities with another tool to monitor market competition from a new perspective. The limits that the nature of oligopoly imposes must surely be considered, and authorities must properly examine market conditions when dealing with ‘collective domination.’
In this approach, the market’s nature is preserved while apparent artificiality is actively weeded out. Because India’s competition legislation is still in its infancy, and the Indian economy is growing at a breakneck speed, such quandaries are to be expected. Instead of dismissing the claims as being outside the scope of the law, the best course of action today is to address the concerns and find an acceptable solution. By ignoring the concerns of the impacted parties, these legislative loopholes would only spawn anti-competitiveness, ultimately straying from the purposes of competition law. After all, the Competition Act’s primary goal is to promote fair competition and consumer welfare.
The informant in Amazon & Flipkart v. Competition Commission of India (‘CCI’), accused both e-commerce giants of anti-competitive practices, such as giving preferential treatment to selected sellers, having exclusive tie-ups, and providing deep discounts, as defined by section 3(4) of the Competition Act. Furthermore, the informant claimed that, under section 4 of the Act, both e-commerce businesses were jointly dominant in the relevant market. The CCI, on the other hand, ruled that there is no basis for using Section 4 because the statute does not recognize “collective dominance,” making it unworkable in CCI’s eyes. The concept of ‘collective dominance’ was rejected in Ashok Kumar Vallabhaneni v. Geetha SP Entertainment LLP, and the CCI instead chose to examine the case’s chances for cartelization based on the evidence gathered.
It can be concluded the function of oligopoly is complicated by the fact that only a few enterprises have a large concentration in the relevant market. Because market power is concentrated in a few large companies, the temptation to create shared dominance or collectively control the market to reap benefits is unavoidable. Furthermore, with vital sectors such as telecom and mobile phone markets teetering on a duopoly, it is past time for Indian competition law to acknowledge and appreciate the importance of implementing the concept of ‘collective dominance.’
The regulatory authorities must be torn between the risk of letting joint dominants get away with it while also being wary of overly regulating the market, which would hurt existing competition. The nature of oligopoly markets must be considered because the level of interdependence among enterprises is higher due to a small number of market players, resulting in their deliberate parallel behavior. This inherent constraint in its market structure makes it impossible to determine the true cause and precise impact on competition, forcing legislators and regulators to be hesitant in putting the notion into practice. The Competition Act’s primary goal is to promote fair competition and consumer welfare, the legislative loopholes would only spawn anti-competitiveness, ultimately straying from the purposes of competition law.
Editor’s Note The article talks about oligopolistic markets and the various cartels that have grown in power and begun to control various sectors of the market. The article introduces oligopolistic markets and defines the term cartel. It then presents facts and statistics regarding various cartel activities and how prices are inflated due to their cooperation in the market. The article explains that collaboration in an oligopolistic market is bad for consumers as it leads to efficient cartels and increased prices for consumers. It concludes that cartels are worrisome and should be avoided in consumer-centric economies.