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Understanding Buyer Cartels from an Antitrust Perspective

June 21, 2018

Most antitrust frameworks around the world have traditionally given significant attention to seller cartels and their anti-competitive implications. What has received little attention is the buyer side of the market which, as the increasing amount of literature in this area shows, displays potential for competing buyers to enter into price-affecting arrangements. 

 

Buyer cartels essentially involve a group of competitors who focus on the input side of the market and attempt to eliminate competition therein either by reducing the price associated with their purchases or by controlling the conduct of the supplier. Such cartels may result in predatory buying, whereby the group created out of a collusive arrangement buys inputs at a high price in order to drive out competitors. They may also result in the supplier granting more favourable terms to the group than those normally offered. A collusive behaviour of this kind has the tendency to discourage suppliers to invest in innovation, although there are studies indicating that bulk orders through coordinated behaviour may provide an incentive to a firm to enter the market.[1] 

 

Buyer cartels present a peculiar case for antitrust authorities partly because, while seller cartels typically affect the welfare of both consumers and competitors, buyer cartels need not lead to the same. An argument put forth by buying groups is that the benefits so accrued to them are passed on to the final consumers in the form of lower prices. Moreover, it is often difficult to distinguish a buying group from a buyer cartel. A buying group simpliciter (especially the one consisting of small buyers) that develops a joint purchasing structure may actually help the member entities achieve economies of scale and take advantage of reduced costs as regards transportation, storage and warehousing.

 

Despite such difficulty, some US courts have penalised buyer cartels that indulged in predatory buying. Such buying has been treated at par with predatory pricing that occurs on the seller side, even when the monopsonistic behaviour on the part of the buyers may not necessarily be injurious to the consumers during the predatory period, the idea being that the misallocation of resources and the consequent distortion of the input side of the market could itself be an antitrust issue, irrespective of who the actual victim is.

 

In India, some of the cases which could have prompted the Competition Commission of India (CCI) to take an appropriate action against buyer cartels are regarded as missed opportunities. In the first of the India Glycols cases, it was argued before the CCI that the joint tendering by the concerned oil marketing companies and the alleged agreement among them to procure ethanol at a fixed price were anti-competitive in nature and amounted to violation of section 3 of the Competition Act, 2002. However, this argument was rejected on the ground that the decision to fix the price was taken by the Cabinet Committee of Economic Affairs, Government of India. The case of Pandrol Rahee Technologies Pvt. Ltd. v. Delhi Metro Rail Corporation Ltd. & Ors. saw allegations of anti-competitive practices against the buyers of rail fastening systems on the ground of award of tender on a single source basis. The CCI observed that section 3(3), which deals with horizontal agreements, refers to agreements between persons "engaged in identical or similar trade." The term "trade" is defined under section 2(x) of the Act as one relating to "production, supply, distribution, storage or control of goods," and does not contemplate any form of acquisition or procurement, meaning thereby that the purchasing activity of a consumer is not covered in section 3(3).

 

It has been observed by some experts that the CCI's reservation as regards cases involving buyer power is worrisome, for cartels of this kind are a matter of significant concern for reasons mentioned above. It is hoped that the antitrust jurisprudence, both in India and elsewhere, sees some progress in this regard.  

 

[1] FAH van Doorn, The Law and Economics of Buyer Power in EU Competition Policy (Eleven International Publishing: 2015), 100.

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