Confronting cartelization

The formation of cartels and monopolies to exploit the consumers is one of the major curses of a free market economy and different countries have tried to tackle the issue through designing appropriate policies and legal procedures. In Pakistan, the Competition Commission of Pakistan (CCP) is charged with the task to oversee the relevant policy framework and take suitable action against the offending parties. In response to a query from the Senate Standing Committee on Finance as to how the CCP will ensure the protection of consumer interests in the area of HR – irregular hiring of people, offering out-of-line benefits in violation of rules and regulations etc in line with the scope of its work, the CCP has submitted that it is dealing with deceptive marketing practices under section 10 of the Competition Act, 2010. It was explained that there was not a single generic definition of deception but there were certain elements which were necessary part of deception. Firstly, there must be an omission or practice that was likely to mislead the consumer. Practices that have been found deceptive in the specific areas include oral or written misrepresentation, misleading price claims, sale of defective products without adequate disclosures, use of bait and switch techniques, and failure to perform promised services and meet warranty obligations. Secondly, the CCP examines the practice from the perspective of a consumer acting reasonably in the prevailing circumstances. If the representation or price affects or is directed towards a particular group, the CCP examines reasonableness from the perceptive of that group. However, HR practices and management are not products but only services and as such may be considered only to that extent under section 10. Normally, items included in services are well covered under labour laws, company’s own HR manuals, HR policies, service rules and employment agreements. Section 10, therefore, does not apply directly to the area of HR and the CCP has so far not received a single complaint in this regard.

The CCP, in another note, also specified major “risk factors” which increase the chances of market players to form cartels. These include the existence of homogenous products, small number of firms, high entry barriers, natural barriers like heavy investment and access to technology, strategic barriers and regulatory barriers. Large firm sizes, stable demand over time, low capacity utilisation and changing cost to sales ratio also increase the chances of cartelization.

To those who are well-versed with the working of the CCP, its explanation, particularly with regard to the domain of its legal responsibility and purpose of its existence, would appear to be quite logical and suitable. As a matter of fact, the CCP, given the prevailing situation in the country and compared to other public organisations has done admirably well since its inception by taking strict enforcement actions for the protection of consumers. The industries where anti-competitive behaviour was sought to be curbed include sectors like banking, cement, sugar, telecom, poultry, fertilisers, ghee/cooking oil, power equipment producers and medical services providers. CCP has so far made 46 formal enquiries and issued 65 orders. In total, it has imposed a sum of Rs 26.34 billion as penalties on anti-competitive behaviour. An “Office of Fair Trading” has been set up in CCP to address issues pertaining to deceptive marketing practices which pose problems for the consumers. The CCP has also conducted extensive competition-related research in eight sectors of the economy, identifying competitive gaps and vulnerabilities. It does not mean, however, that there was no need to do more. The role of CCP in curbing anti-competitive practices by taking greater enforcement action is so important that it could still force the producers to offer the most attractive array of price and quality options, satisfy consumer needs by increasing the spectrum of available choices and motivate sellers to provide truthful and useful information about their products. Consumers, in nutshell, should be fully enabled to punish a seller’s deceit or its reneging on promises by voting with their pocketbooks.

It goes to the credit of the CCP that it has been doing reasonably well despite certain limitations imposed on its working by a peculiar set of circumstances prevailing in the country. The unholy nexus between business, landed aristocracy and government’s top functionaries, for instance, is so strong that it is very difficult for the CCP to challenge the forces which own and manage various industries and are likely to be the target of the CCP because of their exploitative behaviour. Also, barriers to entry for the new entrepreneurs are so formidable in the country that strict action by the CCP could cause a great deal of loss to the economy. Only established parties could offer the necessary collaterals and get bank loans as well as raise funds through the equity market for setting up new undertakings. The discouragement of new entrants into a sector could act as a limitation for the CCP. Unfortunately, the CCP also needs strong political backing and non-interference from the vested powerful quarters for its optimal functioning. The lack of such a level of support is obvious from the very question posed by the Senate Standing Committee on Finance which seems to be more concerned with HR policies and practices and is less bothered by the requirement of consumer protection. In order to make the CCP more effective and relevant, the government and other stakeholders need to ask the right questions and let the CCP act as a watchdog of consumers’ interests by curbing monopolies without any let and hindrance.