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CAVEAT EMPTOR

Consumers vs. cartels

In “The Wealth of Nations”, Adam Smith observed “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.& #8221;

Better known as “cartels”, these conspirators are generally a group of formally independent producers whose goal is to increase their collective profits by means of price fixing, limiting supply, or other restrictive practices. Cartels are prohibited by competition or antitrust laws in most countries; however, they continue to exist nationally and internationally, openly and secretly, formally and informally.

In the most recent case of cartel-busting, the U.K. Office of Fair Trading imposed a record £121 million fine on British Airways for price fixing. During the investigation, British Airways admitted to fixing rates for air cargo shipments between March 2002 and February 2006, and co-ordinating fuel surcharges with another airline, Virgin Atlantic, between August 2004 and January 2006. During that period, the surcharges rose from £5 to £60 per ticket for British Airways and Virgin Atlantic long-haul flights. Similarly, in the U.S., British Airways was fined almost $550 million for fixing prices on fuel surcharges, with the U.S. Department of Justice compounding the U.K.’s £121.5 million ($249 million) fine with a separate $300 million criminal penalty. The British penalty is the highest fine ever imposed by the Office of Fair Trading.

Quite obviously, this is an issue that affects a large number of passengers that flew to the U.S. on British Airways or Virgin Atlantic during the period of the price-fixing, including Indian passengers. However, since our legal and enforcement systems are not as evolved as the systems in the U.K. and the U.S., our consumers will be denied the benefits of this landmark decision.

Theoretically, Indian consumers who flew British Airways or Virgin Atlantic during the period of investigation could file compensation claims in the courts of say, the U.K. However, this is not going to be an easy option, since seeking legal representation in the U.K. would need coordination and will be expensive. Can the U.K. or U.S. courts give a blanket order to the company to compensate individual passengers since they are likely to have the records of all passengers who used their services during this period? Who will enforce and monitor compliance of such an order?

Competition law experts argue that some of this money could be used to strengthen competition culture, law and enforcement in countries like India, rather than giving it to individuals, but how this can be ensured is not clear. However, there is no debating the need for a pro-active Competition Commission with strong investigative and enforcement powers in India. Despite drafting a new law that establishes the Competition Commission of India in 2002, India (and therefore the Indian consumer) has not seen any further steps being taken that would suggest more insightful investigations or action against anti-competitive practices in the country.

On the contrary, anti-competitive practices are extremely common in the country. At the macro level, there are allegations of cartelisation in government procurement and instances of bid-rigging (where contractors collude). The recent discussions on the existence of ‘cement cartels’ is another example. At the micro level, there are allegations that, for instance, schools force students to buy uniforms and notebooks from specific identified shops, and that there are similar links between medical professionals, diagnostic centres and pharmacies. This is not to argue that these are all anti-consumer practices, since issues of quality, standardisation and sameness are genuine and valid.

Everyday, newspapers bring us information of another merger, another acquisition, signalling that producers and service providers are growing larger and larger, trying to further consolidate their position in the market. In this scenario, it will become increasingly difficult for consumers to fight for an equal space in this market place, unless we are supported and strengthened by regulation and regulators. It may be several years before our Competition Commission will levy multi-crore fines on large corporations engaging in anti-competitive practices, but the first steps can be taken now. There is no greater time than now, for a pro-active Competition Commission with a keen understanding of the market and a finger on the consumer pulse.

The writer works with CAG, which offers free advice on consumer complaints to its members. For details contact 24460387 / 24914358 or cag.helpdesk@gmail.com

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