Missing Competition Commission

Collusive pricing, be it in airlines or steel, does not make for a pretty picture about India Inc

While the Monopolies and Restrictive Trade Practices Commission (MRTPC) inquires into the simultaneous near-doubling of some fares by several airlines, a sudden drop in passenger loads has forced several Low Cost Carriers (LCCs) to drop fares by 20-25 per cent; several full-service carriers are expected to announce similar cuts soon. If passenger loads still fail to improve, more cuts may well happen, and that would take fares to where they were before the sharp hikes took place. While this episode gives every appearance of collusive action, or a statistically improbable similarity in timing, it may yet have a happy ending, because of customer responses to the fare hikes.

But customers cannot be expected to act in unison every time there is cartelisation. In a recession-hit economy, many will decide to put off flying if it becomes more expensive, and so there is instant feedback to the airlines. But customers have had to accept the behaviour of mobile phone companies that continue to overcharge for their short message services (SMS), despite the sharp jump in the number of players offering mobile phone services. In the late 1990s, well-known mobile phone companies even announced pretty similar tariff plans and sent them out to the press from the same fax number! In product categories where differentiation is not significant, price collusion has in fact been assumed by many to be common practice.

Such elements in India Inc get emboldened about undertaking collusive pricing because of the slow responses to such action. A couple of years ago, the Monopolies Commission hit the headlines when it hauled up cement manufacturers for collusive pricing. The problem, however, was that the Commission was referring to action taken nearly 20 years earlier! And even then, there was no real penalty levied — it was just the opprobrium, if any, that resulted from the news being front-paged in the country’s newspapers for a day or so. That must raise questions about why, so many years after it was set up to replace the inadequately-staffed and poorly-empowered Monopolies Commission, a more contemporary Competition Commission has yet to get going.

Meanwhile, a day after the aviation authorities reacted angrily to the sudden and simultaneous hike in air fares, one large airline reintroduced concessional fares. On an earlier occasion, when the political establishment expressed its shock after an airline retrenched without notice a large number of its staffers, the airline’s boss said he had had sleepless nights thinking of the plight of those being rendered jobless and so was withdrawing the sack orders. In the past, when the sharp hike in the global commodity cycle forced steel companies in the country to hike their prices, the government forced the leading steel producers to come together and promise to hold prices for a while—except that this was restricted to a few steel products and was never fully effective. If the oil marketing companies owned by the government do common pricing, it may be explained away as being a response to instructions from a common owner, with the burden of any resulting subsidy being borne by the government. But how do you explain private sector players doing the same thing? None of this makes for a pretty picture about India Inc and how they work out pricing strategies.