On Competition Law and price-fixing

Outside the commonly understood media connotation of the term, a ‘cartel’ in economics refers to market participants that conspire together to establish market dominance, often by creating a monopoly or oligopoly. One familiar way to do this is through price-fixing agreements, in which market actors agree not to sell or buy certain products at prices below or above a determined level.

When a group of sellers agrees to fix the sale price of goods, it becomes a case of ‘horizontal’ price-fixing. Horizontal, because it is an agreement among participants on the same market level, such as competing sellers, as opposed to ‘vertical’ price-fixing, which denotes a relationship between different market levels, such as manufacturers and retailers.

Agreements that can have the effect of horizontal price-fixing are banned across jurisdictions for their competition-killing nature. When left unregulated, price-fixing by sellers can create price of products that bear no correlation to production costs, even for essential goods. Regardless of the apparent reasonableness of the fixed price, and even taking into account that the majority of sellers are willing participants in this, common law precedents such as Trenton Potteries have held that all agreements among sellers to fix and maintain uniform prices are violations of competition law. The European Union also prohibits horizontal price-fixing in language similar to that used in Bangladesh’s own Competition Act 2012, section 15(2)(a)(i).

A noteworthy difference in Bangladesh’s price-fixing prohibition is that the law introduces a unique qualifier, ‘abnormal’, before price-fixing activities are deemed illegal. But addressing that requires an acknowledgement of a wording discrepancy in section 15(2)(a)(i) between the Bengali and the authentic English text.

In what may be an unmissable curiosity at the very least, a straightforward translation from the Bengali text of the subsection reads that a practice shall be deemed anti-competition and prohibited if it ‘abnormally determines the purchase or sale price of any goods or services’; whereas the authentic English text published in 2017 prescribes that an agreement shall only be deemed adverse to market competition and illegal when it ‘determines abnormal purchase or sale prices’. Quite clearly, ‘abnormally determining price’ and ‘determining abnormal price’ have significantly different legal interpretations and implications. Moreover, while section 45(2) of the Competition Act 2012 does declare the primacy of the Bengali text, the authentic English text with its ‘abnormal price’ has already made its way into policy discussions, peer reviews, and broader academic discourse.

Going by the precedent set in Trenton Potteries mentioned earlier, the Competition Commission or any body adjudicating competition matters would be poorly positioned to determine what constitutes an ‘abnormal price.’ It would be an arrangement tediously volatile and sector-specific. Indeed, the normal price fixed today may become the abnormal price of tomorrow.

It makes more sense to take the process-based approach of ‘abnormally determining price’, as in the Bengali text, which is still uncomfortably far from normative practices. But what would be considered an abnormal determination? Rationally, competitors should not be able to fix prices at all, whether in a normal manner or an abnormal one. Once a sale price is set by competitors, there remains no value in offering something better to purchasers. It becomes a race to the bottom: the lower the production cost, the higher the profit at a fixed sale price. As a result, quality is often among the first things sacrificed, followed by innovation.

Even in developing countries with similar economic output as Bangladesh, such as section 14(a)(1) of Philippine’s law or Article 11(1) of the Vietnamese competition law, the abnormality qualifier is wholly absent. Attempts to horizontally fix prices are generally banned per se (illegal without needing analysis), including under the Sherman Act in the US, leaving market actors without ‘normality’ or any other justification for price-fixing among competitors. There is no real necessity in Bangladesh to deviate from this general practice of prohibiting all horizontal price-fixing without a normality qualification.

On the other end of this spectrum, there may be a concern that in a market where prices are not fixed, one competitor can set a product’s price too low, incurring losses to poach buyers with a lucrative deal and drive competitors out by absorbing the market. While it sounds plausible on paper and remains prohibited under section 16(2)(a) of the Competition Act 2012 if the price is set below the production cost of a product or service, this is an exceedingly rare maneuver unlikely to succeed in any real market with any form of consistency. For a seller engaging in predatory pricing to recoup their losses, they would have to raise their prices at some point after monopolising. At which time the market would become open to new competitors who can now undercut the desperate-to-recover seller, in a sense regulating this anti-competitive behaviour through market mechanisms.

In terms of consumer harm, horizontal price-fixing poses a greater threat to market competition than the rare occurrences of predatory pricing. One mechanism that has time and again helped uproot price-fixing cartels is a leniency programme often found in competition legislation, where the first person or association to come forward with information about the cartel is granted amnesty in exchange for cooperation. Unfortunately, the Competition Act 2012 does not provide such whistleblower protection, and its incorporation may be one of many steps that Bangladeshi antitrust regulation can take to strengthen fair trade practices.

The writer is student of Law, University of Dhaka.