Price-fixing, restricting output, allocating customers, market shares and territories, bid-rigging and so on are all behaviour characteristic of cartels. Note that a cartel has to be a formal and explicit agreement on paper. In its absence, competition policy instruments cannot be invoked. That is the reason one uses the word “cartel”, with the same etymological root as “paper”. The probability of cartel formation depends on factors like elasticity of demand, homogeneity in products, market concentration, ability of authorities to detect cartels and ability of cartel members to enforce contracts. But the existence of prerequisites doesn’t establish the existence of cartels. The former is about market structure, the latter is about market behaviour, a distinction the Monopolies and Restrictive Trade Practices (MRTP) Act, 1969 failed to make. And the mindset lingers. Like several industries in India, the steel sector is fragmented too. One doesn’t only have major producers, there are smaller stand-alone plants as well. Taken together, there are 173 producers. (The National Steel Policy mentions 3000, but this includes secondary producers too.) In the public domain, we don’t seem to have precise market shares and these also depend on the way a product is defined, apart from market shares constantly changing.

But clearly, when the cartel finger is pointed, we have larger producers in mind (SAIL, Tata Steel, Jindal, Essar, Ispat). More specifically, we target the private sector, there being a suggestion that private cartels are bad and public cartels are fine. Note that government policy encourages cartel formation. The Trade Unions Act encourages cartels, so does the Sixth Pay Commission, or for that matter, the telecom policy. What evidence do we have of cartel formation in steel? Ram Vilas Paswan points to simultaneous hikes in steel prices by Essar, Jindal and Ispat. If input costs (including landed cost of imports) increase simultaneously, you would expect simultaneous increase in output prices. The degree to which this occurs depends on the homogeneity of the product and the similarity in production structures, something that requires technical expertise to probe. Without this examination, any conclusion about collusion is premature. Since SAIL is Caesar’s wife, let’s place Tata Steel in the dock. If it charges the same price as Jindal, Essar, Ispat, it can be accused of collusion. If it charges a lower price than Jindal, Essar, Ispat, it can be accused of predatory intent. If it charges a higher price than Jindal, Essar, Ispat, it can be accused of monopolistic pricing.

... contd.