In A Situation Of Oligopsony, Parallel Pricing Simplicitor Wouldn’t Lead To The Conclusion That There Was Collusive Bid Rigging: SC [Read Judgment]

“Whenever there is a situation of oligopsony, parallel pricing simplicitor would not lead to the conclusion that there was a concerted practice there has to be other credible and corroborative evidence to show that in an oligopoly a reduction in price would swiftly attract the customers of the other two or three rivals, the effect upon whom would be so devastating that they would have to react by matching the cut.”

The Supreme Court has held that, whenever there is a situation of oligopsony, parallel pricing simplicitor would not lead to the conclusion that there was a concerted practice.

Setting aside the Competition Commission of India orders against LPG cylinder suppliers, the bench comprising Justice AK Sikri and Justice Ashok Bhushan observed that, in such a scenario, there has to be other credible and corroborative evidence to show that in an oligopoly, a reduction in price would swiftly attract the customers of the other two or three rivals, the effect upon whom would be so devastating that they would have to react by matching the cut.

Background

The Competition Commission of India had found that some suppliers of Liquefied Petroleum Gas (LPG) cylinders to the Indian Oil Corporation Ltd. (IOCL) had indulged in cartilisation, thereby influencing and rigging the prices, thus, violating the provisions of Section 3(3)(d) of the Competition Act, 2002. The Competition Appellate Tribunal though upheld these findings of CCI, but reduced the penalty. The suppliers, faced with adverse orders, approached the apex court.

The CCI had come to the conclusion that it did suggest collusive bidding. It had analyzed the bids for each state and found that all 50 participating bidders had secured the order; that the orders were placed on the said 50 bidders who had quoted identical rates or near to identical rates in a particular pattern common to all the parties.

The bench, in a detailed judgment (Rajasthan Cylinders and Containers Limited vs. Union of India), considered the contention put forth by the suppliers, observed: “We may say at the outset that if these factors are taken into consideration by themselves, they may lead to the inference that there was bid rigging. We may, particularly, emphasise the fact that there is an active trade association of the appellants and a meeting of the bidders was held in Mumbai just before the submission of the tenders. Another very important fact is that there were identical bids despite varying cost. Further, products are identical and there are a small number of suppliers with few new entrants. These have become the supporting factors which persuaded the CCI to come to the conclusion that these are suggestive of collusive bidding.”

But the bench took note of the ‘other side of the coin.’ It noted the following aspects:

• There are only three buyers (IOCL, Bharat Petroleum Corporation Ltd. (BPCL) and Hindustan Petroleum Corporation Ltd. (HPCL)). If these three buyers do not purchase from any of the appellants, that particular appellant would not be in a position to sell those cylinders to any other entity as there are no other buyers.


• There are only three buyers, it may not attract many to enter the field and manufacture these cylinders. It is because of limited number of buyers and for some reason if they do not purchase, the manufacturer would be nowhere. That may deter the persons to enter the field.


• The manner in which the tenders are floated by IOCL and the rates at which these are awarded, are an indicator that it is the IOCL which calls the shots insofar as price control is concerned. It has come in evidence that the IOCL undertakes the exercise of having its internal estimates about the cost of these cylinders.


• It has also come on record that there are very few suppliers. For the 75 tenders in question, there were 50 parties already in the fray and 12 new entrants were admitted. Number of 12, in such a scenario, cannot be treated as less. Therefore, the conclusion of CCI that the appellants ensured that there should not be entry of new entrant may not be correct.

Monopsony and oligopsony

The bench then noted: “Monopsony consists of a market with a single buyer. When there are only few buyers the market is described as an oligopsony. What is emphasised is that in such a situation a manufacturer with no buyers will have to exit from the trade. Therefore, first condition of oligopsony stands fulfilled. The other condition for the existence of oligopsony is whether the buyers have some influence over the price of their inputs. It is also to be seen as to whether the seller has any ability to raise prices or it stood reduced/eliminated by the aforesaid buyers.”

The bench then went on to observe that the suppliers have been able to discharge the onus by referring to various indicators which go on to show that parallel behaviour was not the result of any concerted practice. It said: “In Dyestuffs, the European Court held that parallel behaviour does not, by itself, amount to a concerted practice, though it may provide a strong evidence of such a practice. Nevertheless, it is a strong evidence of such a practice. However, before such an inference is drawn it has to be seen that this parallel behaviour has led to conditions of competition which do not correspond to the normal conditions of the market, having regard to the nature of the products, size and volume of the undertaking of the said market. Thus, we examine the matter from the stand point of market economy where question of oligopsony assumes relevance. Whenever there is a situation of oligopsony, parallel pricing simplicitor would not lead to the conclusion that there was a concerted practice there has to be other credible and corroborative evidence to show that in an oligopoly a reduction in price would swiftly attract the customers of the other two or three rivals, the effect upon whom would be so devastating that they would have to react by matching the cut.”

Competition Act also to promote and sustain competition in the market

In the judgment, the bench reemphasized that the purpose of the Competition Act is not only to illuminate practices having adverse effect on the competition, but also to promote and sustain competition in the market. “Enforcement provides remedies to avoid situation that will lead to decrease competition in the market. Therefore, effective enforcement is important not only to sanction anti-competitive conduct but also to deter future competitive practices. In the present case itself, there are sixty suppliers of the product for which there are three buyers. After all, each supplier would like to be L-1 or L-2 so that it is able to get order for larger quantities than the other. In this sense, there would be a competition among them. Further, it would also be in the interest of the buyers like IOCL etc. that the elements of healthy competition persists in the market. In any case, it is the duty of the CCI to ensure that the conditions which have tendency to kill the competition are to be curbed. It is also the function of the CCI to ensure that there is a competition so that benefits of such competition are reaped by the consumers.”