2.
3 Economic Methods of Detecting a Cartel: Structural Changes and
Behavioural changes
Cartels are given u/s 3 of Competition Act, 2002. So before we deal with cartels, we
should have a basic understanding of section 3 as a whole. Section 3 of the CA deals
with anti-competitive agreements or agreements having an appreciable adverse effect
on competition. The main aim to curb such agreements has been given under
Northern Pacific Railway Co. & Northwestern Improvement Co. vs. USA (356
US 1). It was held that the main aim of this act is to be used as a comprehensive
charter of economic liberty aimed at preserving free and unfettered competition as the
rule of trade, and that unrestrained interaction of competitive forces will yield the best
allocation of economic resources of the country, the lowest prices, the highest quality,
and greatest material progress.
Section 3(1) basically states that only those agreements which have an appreciable
adverse effect on competition are restricted and prohibited. It casts a duty upon the
enterprises to ensure that the agreements do not have or cause an appreciable adverse
effect on competition within India. This is in order to ensure that the agreements
entered into by the enterprises do not distort the competitive structure of the market.
Mr. Ramakant Kini v. Dr. L. H. Hirandani Hospital, Mumbai - s.3(1) prohibits
any agreement in respect of provision of services which causes/is likely to cause
AAEC & .’. the ambit of s.3 is extremely wide & covers all kinds of commercial
agreements (even if not mentioned in 3(3)/3(4)) & the CCI has to check whether such
commercial agreements will cause AAEC based on principles laid down in s. 19(3).
S.3(2) - if agreement entered into 3(1) then it shall be void.
S.3(3) - mentions cartels as being an agreement which causes an AAEC. Provisions of
horizontal agreements. The burden of proof is on the other party to prove that no
AAEC is caused by the agreement. Horizontal agreements are agreements between
parties at the same level of supply chain like competing manufacturers, retailers, etc.
S.3(4) - vertical agreements
Section 19(3) has factors to determine whether an A causes AAEC or not.
1. New entrants in the market are confronted with barriers;
2. Excluding existing competitors from the market;
3. The elimination of competition by hindering entry to the market;
4. The accrual of consumer benefits;
5. Production, distribution, or service improvements;
6. Promotion of technical, scientific, and economic development using production
or distribution of goods or provision of services.
Rule of reason analysis is focused upon while dealing with allegations u/s 3. Firstly,
the informant and CCI has to discharge the burden that the agreement causes AAEC
or limits or restricts competition. Once this is discharged with, the burden shifts to the
opposite party to prove how this is not an AAEC and that it has some pro-competitive
features. One of the main things to be looked at, apart from the objectives and
contents of the agreement, is determining the market share and power of the
enterprises involved in the agreement. Dominance is not a necessary prerequisite for
the agreement to be held as AAEC.1
Cartels
Collusion of companies basically refer to when strong competitive firms, which have
an advantage to grab huge amounts of profits from the public for selling its products
and services, merge together to curb competition arising out of individual enterprise
and also to attain a higher amounts of profits collectively. Basically, rival firms
cooperate with each other over time to raise prices above competition levels through
coordinated actions. It is of two types:
1) Explicit - by words - this is termed as cartel
2) Implicit/Tacit - by willingness/by actions
Cartel2 is a group of firm that conspire to reach an agreement over such conduct by
explicitly communicating with each other for the purpose of collusion. A cartel has
less command in economy than monopoly. Cartels fall in that category of pernicious
agreements which tend to cause great harm to consumers and economy in general.
One of the most distortive conducts. It leads to price collusion’s unfair practice, which
leads to reduction in choice for consumers. Cartels are harmful to consumers,
businesses, economy. These are contrary to efficient competitive market structure.
These are considered as the supreme evil of antitrust regime. Cartels have been
subjected to the highest penalty. They are considered to be a civil offence, prohibited
under CA. Criminal case can also be filed like non-compliance with orders of CCI or
breaking an order of NCLAT w/o reasonable grounds.
1
Mr. Ramakant Kini vs. Dr. L. H. Hirandani Hospital, Powai, Mumbai, case no.
39 of 2012.
2
Section 2(c) of CA as: an 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.
U/s 3(3) there are four kinds of cartels:
A. Price fixing agreements: an agreement that directly or indirectly determines
the price. ‘Price’ has a broader meaning within this section - it not only includes
the final price but also other instances of terms of trade and discounts that have an
impact on the final price.
B. Output controls/limiting production agreements: agreements which
limit/control the supply, markets, technical development, production, or provision
of services. CCI focuses on demand analysis, production capacity, and utilization
of capacity of the market participants to understand the pattern of other similar
parties.
C. Market sharing agreement: when the parties decide the production, supply,
or provision of services based on the geographical area of the market. Market
sharing means division of markets so that there will be no competition among the
competitors in the market and one will enjoy an absolute monopoly over profits in
their market division.
D. Bid rigging/collusive bidding: any agreement b/w market players and
enterprises involved in similar production or trading of goods or provisions of
services, which directly or indirectly reduces the competition for bids. Rule of
presumptive approach is applied here that when once the essential ingredients are
proved then there is no need to find out the impact of such conduct.
What is a Cartel?
A cartel is a secret agreement between firms to fix prices, limit production, divide
markets/customers and avoid competition. Illegal under: Section 3 of the
Competition Act, 2002. Regulated by: Competition Commission of India (CCI)
Why Do Cartels Form?
1. To act like a monopoly and earn higher profits
2. To avoid price wars and market uncertainty
3. To divide customers, geography, or tenders
Economic Methods of Detecting a Cartel
A. Structural Indicators (Market Patterns)
1. Price Parallelism – All firms raise/lower prices together
2. Stable Market Shares – No one gains or loses customers
3. Barriers to Entry – New firms can’t easily enter the market
B. Behavioral Indicators (Firm Conduct)
1. Uniform Business Conduct – Identical terms, discounts, or practice.
2. Bid Rigging – Firms take turns winning tenders
3. Direct Evidence – Emails, WhatsApp chats, or whistleblower tips
C. Screening Tools (Statistical/Economic)
1. Variance Screens – Prices are too stable
2. Bid Screens – Unnatural patterns in tender wins
3. Profit Margin Analysis – All firms show abnormal profits
Key Legal Provisions
1. Section 3 – Prohibits anti-competitive agreements, including cartels
2. Section 19 – Powers of CCI to investigate based on structural or behavioral
evidence
Common Misconceptions
1. Same price = cartel ❌
2. Only large companies form cartels ❌
3. Cartels need written agreements ❌
4. Detection always requires direct evidence ❌
Important Case Laws
1. Cement Cartel Case (CCI, 2012)
Major cement firms were penalized for fixing prices and limiting supply — detected
through price parallelism.
2. Airlines Fuel Surcharge Case (CCI)
Airlines were found charging identical fuel surcharges simultaneously — clear
behavioral uniformity.
3. Explosives Manufacturers Case (CCI, 2016)
Firms colluded during public procurement — direct evidence via emails and meetings.
4. EU Truck Cartel Case
Truck makers divided the European market and fixed prices — stable market shares
exposed the cartel.
5. South Korea Highway Bid-Rigging Case
Companies used a rotation system for tender wins — detected through screening tools
and bid pattern analysis.
Exam Pointers & Quotes
“Cartels eliminate competition and harm consumer welfare.”
“Economic and behavioral evidence can substitute direct proof.”
Use keywords like: CCI, price parallelism, bid-rigging, dominance, CA 2002.
