dr. s chakravarthy1 greetings to participants at the national training workshop on competition...

Dr. S Chakravarthy 1

GREETINGS

TO

PARTICIPANTS

AT THE

NATIONAL TRAINING WORKSHOP ON COMPETITION POLICY AND LAW

ACCRA, GHANA

27-28 APRIL 2010


HORIZONTAL RESTRAINTS

PRESENTATIONBY

Dr. S. CHAKRAVARTHY

(Profession : Civil Servant)

Formerly, Member, Monopolies and Restrictive Trade Practices Commission, Member, High Level Committee on Competition Policy and Law And Member of Committee for

Drafting the Law.Presently, Adviser/Consultant Competition Policy and Law

HYDERABAD INDIA


C O M P E T I T I O N…….

• IS A DYNAMIC CONCEPT

• IS AN AMALGAM OF FACTORS THAT STIMULATE ECONOMIC RIVALRY

• IS A TOOL TO MOUNT MARKET PRESSURE TO PENALISE LAGGARDS AND TO REWARD THE ENTERPRISING


COMPETITION POLICY - GOALS

PRESERVATION AND PROMOTION OF THECOMPETITIVE PROCESS

EFFICIENCY IN PRODUCTION ANDALLOCATION OF GOODS AND SERVICES

INNOVATION AND ADJUSTMENT TOTECHNOLOGICAL CHANGE

SUSTAINED ECONOMIC GROWTH


HORIZONTAL AND VERTICAL RESTRAINTS IN GHANA BILL

• IN GHANA COMPETITION BILL, THERE IS NO EXPLICIT MENTION OF HORIZONTAL RESTRAINTS/AGREEMENTS

• THERE IS MENTION OF VERTICAL AGREEMENTS

• THERE IS ALSO MENTION OF AGREEMENTS RESTRICTING COMPETITION – THESE COULD CONSTITUTE HORIZONTAL RESTRAINTS


AGREEMENTS OUTLAWED

• AGREEMENTS THAT PREVENT, RESTRICT OR DISTORT COMPETITION ARE OUTLAWED

• THIS APPLIES TO WRITTEN AGREEMENTS, ORAL AGREEMENTS, UNDERSTANDINGS AND CONCERTED PRACTICES


AGREEMENT – A DEFINITION

• AGREEMENT INCLUDES ANY ARRANGEMENT OR UNDERSTANDING OR ACTION IN CONCERT

• AGREEMENT NEED NOT BE FORMAL OR IN WRITING

• AGREEMENT NEED NOT BE ENFORCEABLE BY LEGAL PROCEEDINGS


TWO TYPES AGREEMENTS ARE OF TWO TYPES

1. HORIZONTAL

AGREEMENTS BETWEEN ENTERPRISES COMPETING IN THE SAME MARKET (OFTEN PER SE)

2. VERTICAL

AGREEMENTS BETWEEN ENTERPRISES AT DIFFERENT STAGES OF PRODUCTION/

DISTRIBUTION PROCESS (RULE OF REASON)


RESTRICTIVE TRADE PRACTICESHORIZONTAL RESTRAINTS

• AGREEMENTS, DECISIONS AND CONCERTED PRACTICES WHICH PREVENT, RESTRICT OR DISTORT COMPETITION IN GHANA ARE PROHIBITED. THEY INCLUDE, INTER ALIA:

• FIXING PURCHASE OR SELLING PRICES (CARTELS)

• LIMITING/CONTROLLING PRODUCTION, TECHNICAL

• DEVELOPMENT, INVESTMENT OR MARKETS

• SHARING MARKETS OR SUPPLY

• BID-RIGGING

THESE PRACTICES ARE PER SE ILLEGAL [SEE SECTION 21(2)]


VERTICAL AGREEMENTSVERTICAL AGREEMENTS ARE ALSO PROHIBITED.

THEY INCLUDE:

• TIE-IN ARRANGEMENT

• EXCLUSIVE SUPPLY AGREEMENT

• EXCLUSIVE DISTRIBUTION AGREEMENT

• EFUSAL TO DEAL

• RESALE PRICE MAINTENANCE

• DISCRIMINATION IN SUPPLY OR ACQUISITION

THESE PRACTICES WILL BE ADJUDICATED UPON UNDER THE RULE OF REASON

(SEE SECTION 22)


UNDERSTANDING – AN ILLUSTRATION • SIEM REAP IN CAMBODIA - POPULAR TOURIST TOWN,

HOUSING THE FAMOUS ANGKOR VAT TEMPLES. • THREE MEANS OF TRANSPORTATION FROM PHNOM

PENH, CAPITAL OF CAMBODIA TO SIEM REAP – BOAT, ROAD AND AIR.

• 8 BOAT COMPANIES - THE PRICE FOR ONE-WAY TRAVEL IS 40,000 RIELS (ABOUT US $ 10). BECAUSE OF COMPETITION PRICES PLUMMETTED 20,000 RIELS.

• THE BOATERS ENTERED INTO AN UNDERSTANDING TO FIX PRICES AT 40,000 RIELS. THEY FURTHER AGREED THAT THEY WOULD NOT COMPETE WITH EACH OTHER AND WOULD SHARE THEIR DEPARTURE SCHEDULES.

• THERE WAS NO WRITTEN AGREEMENT BUT ONLY AN UNDERSTANDING.

• THE UNDERSTANDING CONSTITUTES A CARTEL AGREEMENT.


CARTEL : DEFINED

A CARTEL IS SAID TO EXIST WHEN TWO OR MORE FIRMS, THAT ARE NOT DE FACTO OR DE JURE CONTROLLED BY GOVERNMENT, ENTER INTO AN EXPLICIT AGREEMENT

• TO FIX PRICES • TO ALLOCATE MARKET SHARE OR SALES QUOTAS, OR • TO ENGAGE IN BID-RIGGING IN ONE OR MORE MARKETS.


CARTEL IN GHANA BILL• INCLUDES A FORMAL OR INFORMAL

ASSOCIATION OF PRODUCERS, SELLERS, DISTRIBUTORS, TRADERS OR SERVICE PROVIDERS WHO BY AGREEMENT AMONGST THEMSELVES, LIMIT, CONTROL OR ATTEMPT TO CONTROL THE PRODUCTION, DISTRIBUTION, SALE OR PRICE OF, OR TRADE IN GOODS OR PROVISION OF SERVICES

• MEMBERS MAY AGREE ON PRICES, TOTAL INDUSTRY OUTPUT, MARKET SHARE, ALLOCATION OF CUSTOMERS, ALLOCATION OF TERRITORIES, BID-RIGGING ETC.


BENEVOLENCE AND MALEVOLENCE

• CARTELS ARE MALEVOLENT BUT CAN BE BENEVOLENT

• HARDCORE CARTELS ARE MALEVOLENT

Eg: R&D CARTELS MAY BRING ABOUT SYNERGIES AND DYNAMIC EFFICIENCIES – ARE BENEVOLENT


HARDCORE CARTELS DEVASTATE CONSUMERS

• AVERAGE ILLEGAL GAIN FROM PRICE FIXING IS ABOUT 10% OF THE SELLING PRICE

• HARDCORE CARTELS IMPACT DEVELOPING COUNTRIES MORE

• GENERALLY HARDCORE CARTEL ACTIVITY EMANATES FROM DEVELOPED COUNTRIES

MOST STUDIES POINT TO A 20 TO 40% FALL IN PRICES AFTER COLLAPSE OF THE CARTEL


IMPORTS OF 12 CARTELISED PRODUCTS BY DEVELOPING COUNTRIES, 1990-2000

0

2

4

6

8

10

12

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

YEAR

US $ billion


CONCLUSIONS FROM THE BAR CHART

• CUMULATIVELY IMPORTS EXCEEDED US$ 80 BILLION SINCE 1990

• PRICE OVERCHARGE ASSUMED AT 20 - 40%

• DEVELOPING COUNTRIES PAID US$ 12.5 TO 25 BILLION MORE THAN THEY SHOULD HAVE FOR THE 12 PRODUCTS

• EVEN THIS IS AN UNDER ESTIMATE


VITAMIN CARTEL - IMPACT

• WORLD MARKET DIVIDED BY THE CARTEL DURING 90s• PRICE OVERCHARGE RESULTED • 90 COUNTRIES IMPORTED VITAMINS DURING 90s

DAMAGES

• 10 EUROPEAN COUNTRIES SUFFERED OVERCHARGE OF US $ 660 MILLION• INDIA SUFFERED US $ 25 MILLION• ALL 90 IMPORTING COUNTRIES IN THE AGGREGATE SUFFERED OVERCHARGE OF US $ 2700 MILLION


DAMAGES INFLICTED BY CARTELS ON DEVELOPING COUNTRIES

CARTELS IN HEAVY ELECTRICAL EQUIPMENT, STEEL AND ALUMINUM

DAMAGES

•ZIMBABWE - US $ 44 MILLION•KENYA - US $ 34 MILLION•SOUTHERN AFRICA CUSTOMS UNION - US $ 270 MILLION


BID RIGGINGBID RIGGING IS A HORIZONTAL AGREEMENT AND PER SE ILLEGAL.

BID RIGGING MEANS ANY AGREEMENT BETWEEN PERSONS OR ENTERPRISES, ENGAGED IN IDENTICAL OR SIMILAR PRODUCTION OR TRADING OF GOODS OR PROVISION OF SERVICES, WHICH HAS THE EFFECT OF ELIMINATING OR REDUCING COMPETITION FOR BIDS OR ADVERSELY AFFECTING OR MANIPULATING THE PROCESS FOR BIDDING.


MEDICAL OXYGEN SUPPLY – A BID - RIGGING CASE

FOUR FOREIGN COMPANIES, NAMELY, AIR LIQUIDE (FRANCE), PRAXAIR (US), AGA (GERMANY) AND INDURA (CHILE) WERE THE SUPPLIERS OF MEDICAL OXYGEN TO BOTH PUBLIC AND PRIVATE HOSPITALS IN ARGENTINA.

THESE COMPANIES FORMED A CARTEL AND ENTERED INTO AN AGREEMENT TO INDULGE IN BID RIGGING AND TO DISTRIBUTE AND DIVIDE CUSTOMERS AMONG THEMSELVES.

AS A RESULT OF BID RIGGING AND COLLUSION, HOSPITALS AND CONSUMERS WERE FORCED TO PAY HIGH PRICES. AND THE CARTEL MEMBERS ENJOYED ILLEGALLY HIGH PROFITS.

THE COMPETITION AUTHORITY SUCCEEDED IN GETTING THE FOUR COMPANIES PROSECUTED AND LEVIED WITH FINES AMOUNTING TO US $24 MILLION.


LIMITING PRODUCTION AND RESTRICTING TECHNICAL KNOW-HOW

• SARABHAI M CHEMICALS PRIVATE LIMITED ENTERED INTO A TECHNOLOGICAL KNOW-HOW AGREEMENT WITH ITS OVERSEAS COLLABORATOR, E. MERCK A.G., PROVIDING FOR THE PROVISION OF KNOW-HOW BY MERCK TO SARABHAI.

• THE AGREEMENT STIPULATED THAT MERCK BY ITSELF OR ITS LICENSEES (LIKE SARABHAI) SHOULD NOT DIRECTLY OR INDIRECTLY MANUFACTURE CERTAIN ITEMS (ABOUT 520 OUT OF 600 ITEMS) IN INDIA

• SARABHAI’S REQUEST FOR TECHNOLOGICAL KNOW-HOW FOR THE MANUFACTURE OF CERTAIN PHARMACEUTICALS AND VITAMINS WAS TURNED DOWN BY MERCK.

• THE MRTP COMMISSION HELD THAT THE AGREEMENT HAD AN ADVERSE EFFECT ON COMPETITION BECAUSE OF THE DENIAL OF ACCESS TO THE TECHNOLOGICAL KNOW–HOW AND WAS ALSO A BARRIER TO ENTRY TO OTHER INTENDING MANUFACTURERS.


MANUFACTURING CARTEL DIVIDING THE MARKET

• THREE TIMKEN CORPORATIONS (AMERICAN, BRITISH AND FRENCH) MANUFACTURE ANTI-FRICTION BEARINGS.

• THEY ALLOCATED TERRITORIES AMONG THEMSELVES AND COOPERATED IN FIXING PRICES.

• THE SUPREME COURT OBSERVED THAT THE DOMINANT PURPOSE OF THEIR ACTION IN CONCERT WAS TO AVOID COMPETITION.

• THE COURT FURTHER RULED THAT AGREEMENTS BETWEEN LEGALLY SEPARATE PERSONS AND COMPANIES TO SUPPRESS COMPETITION AMONG THEMSELVES CANNOT BE JUSTIFIED AND THAT COLLUSIVE CONTROL OF THE TRADING OPERATION (ALLOCATIONS) WOULD ATTRACT COMPETITION LAW.


BOYCOTT TRENCHES COMPETITION LAW

• KARNATAKA CHEMISTS AND DRUGGISTS ASSOCIATION (KCDA) IS A PHARMA TRADE ASSOCIATION IN BANGALORE, INDIA.

• THE ASSOCIATION ISSUED A CIRCULAR THAT NO DRUG MANUFACTURER COULD APPOINT A STOCKIST/WHOLESALER WITHOUT OBTAINING A NO OBJECTION CERTIFICATE (NOC) FROM IT.

• FURTHERMORE, KCDA WAS MAKING FREQUENT AND RECURRENT BOYCOTT CALLS OF VARIOUS MANUFACTURERS CITING TRADE ISSUES WITHOUT ANY JUSTIFICATION.

• THE MATTER WAS TAKEN UP WITH THE MRTP COMMISSION. THE COMMISSION OBSERVED THAT BECAUSE OF THE INSISTENCE ON THE NOC BY KCDA, THE MANUFACTURERS WERE DEPRIVED OF THE FREEDOM TO CHOOSE THEIR DISTRIBUTION PARTNERS. THE CALL OF BOYCOTT BY KCDA OF ANY DEALER, IN ANY MANNER, WRITTEN OR ORAL, RESTRICTED COMPETITION AND THE PRACTICE WAS STOPPED BY KCDA.


CONCLUDING COMMENTS ON ANTI-COMPETITIVE AGREEMENTS

• HORIZONTAL AGREEMENTS CAN HAVE POSITIVE OR NEGATIVE EFFECTS

• WEIGH PRO AND ANTI COMPETITIVE EFFECTS TO ARRIVE AT A JUST CONCLUSION

• VERTICAL AGREEMENTS ARE NOT AS SERIOUS AS HORIZONTAL ONES

• HERE TOO WEIGH PRO AND ANTI- COMPETITIVE EFFECTS TO ARRIVE AT A JUST CONCLUSION


COMPETITIVE ADVANTAGE

“PARADOXICALLY, THE ENDURING COMPETITIVE ADVANTAGES IN A

GLOBAL ECONOMY LIE INCREASINGLY IN LOCAL THINGS – KNOWLEDGE, RELATIONSHIPS

AND MOTIVATION THAT DISTANT RIVALS CANNOT MATCH.”

MICHAEL E. PORTER


THANK YOUFOR YOUR

KIND ATTENTION

dr. s chakravarthy1 greetings to participants at the national training workshop on competition...

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