CCI ruling sets norms for further probes
Though the cement firms, and their association, accused of collusive behaviour by the Competition Commission of India (CCI), are certain to contest the R6,307 crore fine levied on them—this equals half their profits for FY10 and FY11—the order sets important precedents and indicates how the CCI plans to approach future investigations into collusive behaviour. With yesterday’s ruling, CCI has passed four major orders, two on abuse of dominance and two on collusive behaviour—while DLF was fined R630 crore and NSE R55.5 crore for abuse of dominance, three suppliers of aluminium phosphide which is used for preserving foodgrain were fined R318 crore for collusive behaviour similar to the cement firms.
The difference between the aluminium phosphide case and the cement one, however, lies in the manner in which it has been investigated. In the first case, the CCI showed how the three companies were charging the Food Corporation of India the same price even though they had different cost structures and were located in different parts of the country, but in the cement case, there is no such clear-cut evidence. What the CCI’s investigation wing did, in the absence of such data, was to examine the movement of prices of each cement firm—it found prices were moving in the same direction and were going up in a broadly similar range; indeed, the correlation between them was very high, leading the CCI to talk of ‘price parallelism’. The fact that industry’s capacity utilisation was falling steadily, even in years of high demand, has also been cited as proof of collusion. Given there are other industries where tariffs of market leaders move in the same direction and are of roughly similar magnitudes, the ruling should set off alarm bells. Similarly, the CCI report talks of how, the prices of cement rose after various cement association meetings where top cement firms’ representatives were present—given the plethora of industry associations where information on industry conditions are routinely discussed, this suggests CCI could find a lot of interesting material for future investigations.
Of course, all of this will have to be proved in the appellate tribunal, but with a series of large fines, the CCI has emerged as a force to reckon with, a body that industry needs to watch out for. The next step, perhaps, is CCI examining government decisions—is a bailout for Air India anti-competitive since Air India’s owner, the government, has unlimited funds while its competitors like Jet don’t? Similarly, in the case of the oil PSUs, is the fact that all charge similar prices, if not the exact same, a sign of collusion? India’s competition landscape is getting more vibrant.