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A critical analysis of ‘Rajasthan Cylinders and Containers Ltd. v Union of India and Another’

Price parallelism is a term used in Competition law where the traders change their prices simultaneously, in the same direction and proportionally. Since such practices result in monopoly prices in goods, it is considered harmful to the consumers. This article makes an attempt to analyze this phenomenon in light of the recent Supreme Court decision, Rajasthan Cylinders and Containers Ltd. v Union of India and Another.

International Jurisprudence on price parallelism:

The international stand on price parallelism is that parallel conduct alone is not sufficient proof of cartel agreement. Additionally, evidence which proves the existence of such an unlawful agreement is also essential to prove price parallelism. Such additional pieces of evidence, known as plus factors  include:

(1) The defendant’s participation in past collisions related offences; (2) Evidence that the defendants had the opportunity to communicate or actually did so; (3) Actions contrary to defendant’s self-interest unless pursued as part of a collective plan; (4) Phenomena that can be explained rationally only as a result of concerted action; (5) Evidence that defendants created the opportunity for regular communication; (6 )Industry performance data, such as extraordinary profits, that suggest successful coordination; (7) Fixed relative market shares; (8)Market-wide price discrimination; (9) Exchanges of price information; (10) Regional price variations; (11) Identical bids for non-standard products; (12) Industry-wide ‘resale price maintenance, an agreement between a manufacturer and a wholesaler or retailer not to sell a product below a specified price; (13) Declining market shares of leaders; (14) Amplitude and fluctuation of price changes; (15) Level and pattern of profits;  (16) Exclusionary practices.

However, the abovementioned plus factors, cannot be uniformly applied to all cases. Its application depends on the facts and circumstances of each case, making the resolution of cases involving price parallelism, tricky.

Indian Jurisprudence on price Parallelism:

Raghavan’s Report on Competition Law observed in paragraph 4.3-3 as:

“When a price leader alters the price of his goods or services due to factors such as an increase in the cost of inputs, raw materials or other related costs, most other competitors will have no choice, but to follow him through the extent could vary. This cannot be said to be illegal because its behavior is not based on any prior discussion or understanding, but on the sheer economic premise that any price increase taken by a small player ahead of the price leader would imply significant penalties in terms of loss of custom. These price followers, therefore, have no choice but to wait until the price leader takes a price increase. To assume in each such case, an informal co-operation (or informal agreement), would be too harsh and would ignore a marketplace reality.”

However, a judicial decision in India has failed to follow the above stand. The Cement Cartel case is a classic illustration where price parallelism was identified by CCI and penalized. The CCI relied on the report of the DG which dealt with price parallelism in the cement industry and held the cement companies guilty of cartelization. The DG Report indicated that price parallelism indicated the possibility of prior consultation on price movement, without actually giving any specific reasons for price parallelism by opposite parties.

As opposed to the above instance, in Rajasthan Cylinders v Competition Commission of India, the Supreme Court has held that price parallelism alone cannot be held to be a ground for bid rigging.

The case dealt with allegations of price parallelism against the suppliers of LPG cylinders during quoting the price of bids. The report of the DG, after analyzing the bids, recognized a similarity of pattern in the price bids and consequently, held that the suppliers of LPG cylinders discussed the tender prices and quoted the same price in their bids. The DG had also found that the LPG Cylinder Manufacturers had formed an Association in the name of Indian LPG Cylinders Manufacturers Association and the members were interacting through this Association and using the same platform to collude.

There were 4 main factors that the CCI considered, on the basis of which it was concluded that it had an appreciable adverse effect on competition:

(i) Active trade association; (ii) Meeting of the association before the date of bid submission; (iii) Identical bids with varying costs; (iv) a Small number of suppliers and few entrants.

The Supreme Court, after duly considering the above factors reversed the above decision. The Court elaborated on a market situation ‘oligopsony’, a case where the buyers are very few and have control over the prices of the goods being sold by the seller. In the case in hand, there were three buyers, who had control over the situation as the bidders could not have sold the cylinders to anybody other than the three buyers. The Court was then of the opinion that, these market conditions accounted for the small number of suppliers in the market.

Thereafter, the Court was of the opinion that in the case of Oligopsony, the sellers cannot be held guilty of anti-competitive acts without looking into the market scenario. In such kinds of markets, before an inference of price parallelism is drawn, it has to be seen that this parallel behavior has led to conditions of competition which do not correspond to the normal condition of the market. There must also be clear evidence that excludes the possibility that the suppliers were acting independently. However, in this case, where the market condition was such that most of the control was with the bidding authority rather than with the bidders, it cannot be established that there was a tacit agreement for price parallelism.  Hence, the appellants could not be held liable for bid rigging through price parallelism in this instance.

The Supreme Court, vide the above judgment, has therefore laid down the importance of considering the market conditions prevailing at the time of the alleged anti-competitive practice before holding any entity liable for such anti-competitive acts.

About Roshanara Rauf

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