GREETINGS
TO
PARTICIPANTS
AT THE
NATIONAL TRAINING WORKSHOP ON
COMPETITION POLICY AND LAW
ACCRA, GHANA
27-28 APRIL 2010
Dr. S Chakravarthy
1
HORIZONTAL RESTRAINTS
PRESENTATION
BY
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
Dr. S Chakravarthy
2
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
Dr. S Chakravarthy
3
COMPETITION
POLICY - GOALS
PRESERVATION AND PROMOTION OF THE
COMPETITIVE PROCESS
EFFICIENCY IN PRODUCTION AND
ALLOCATION OF GOODS AND SERVICES
INNOVATION AND ADJUSTMENT TO
TECHNOLOGICAL CHANGE
SUSTAINED ECONOMIC GROWTH
Dr. S Chakravarthy
4
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
Dr. S Chakravarthy
5
AGREEMENTS OUTLAWED
• AGREEMENTS
THAT
PREVENT,
RESTRICT OR DISTORT COMPETITION
ARE OUTLAWED
• THIS
APPLIES
TO
WRITTEN
AGREEMENTS, ORAL AGREEMENTS,
UNDERSTANDINGS AND CONCERTED
PRACTICES
Dr. S Chakravarthy
6
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
Dr. S Chakravarthy
7
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)
Dr. S Chakravarthy
8
RESTRICTIVE TRADE PRACTICES
HORIZONTAL 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)]
Dr. S Chakravarthy
9
VERTICAL AGREEMENTS
VERTICAL 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)
Dr. S Chakravarthy
10
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.
Dr. S Chakravarthy
11
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.
Dr. S Chakravarthy
12
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.
Dr. S Chakravarthy
13
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
Dr. S Chakravarthy
14
HARDCORE CARTELS
DEVASTATE CONSUMERS
• AVERAGE
FIXING IS
PRICE
ILLEGAL
GAIN
ABOUT 10% OF
FROM
PRICE
THE SELLING
• 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
Dr. S Chakravarthy
15
IMPORTS OF 12 CARTELISED PRODUCTS BY
DEVELOPING COUNTRIES, 1990-2000
12
10
8
6
US $
billion
4
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
0
1990
2
YEAR
Dr. S Chakravarthy
16
CONCLUSIONS FROM THE BAR CHART
• CUMULATIVELY
IMPORTS
US$ 80 BILLION SINCE 1990
EXCEEDED
• PRICE
40%
AT
OVERCHARGE
ASSUMED
20
• DEVELOPING COUNTRIES PAID US$ 12.5 TO 25
BILLION MORE THAN THEY SHOULD HAVE FOR
THE 12 PRODUCTS
• EVEN THIS IS AN UNDER ESTIMATE
Dr. S Chakravarthy
17
-
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
Dr. S Chakravarthy
18
DAMAGES INFLICTED BY CARTELS ON
DEVELOPING COUNTRIES
CARTELS IN HEAVY ELECTRICAL EQUIPMENT,
STEEL AND ALUMINUM
DAMAGES
•ZIMBABWE
•KENYA
•SOUTHERN AFRICA
CUSTOMS UNION
- US $ 44 MILLION
- US $ 34 MILLION
- US $ 270 MILLION
Dr. S Chakravarthy
19
BID RIGGING
BID 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.
Dr. S Chakravarthy
20
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.
Dr. S Chakravarthy
21
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.
Dr. S Chakravarthy
22
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.
Dr. S Chakravarthy
23
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.
Dr. S Chakravarthy
24
CONCLUDING COMMENTS ON ANTICOMPETITIVE AGREEMENTS
• HORIZONTAL
AGREEMENTS
CAN
POSITIVE OR NEGATIVE EFFECTS
HAVE
• 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
ANTICOMPETITIVE EFFECTS TO ARRIVE AT A JUST
CONCLUSION
Dr. S Chakravarthy
25
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
Dr. S Chakravarthy
26
THANK YOU
FOR YOUR
KIND
ATTENTION
Dr. S Chakravarthy
27