Unmasking Collusion: The Inclusion of Hub and Spokes Cartel in the Indian Competition Regime

The Competition Amendment Bill (“bill”) received the President’s assent on April 12, 2023. The bill seeks to clarify Section 3 of the Competition Act (“Act”), which will include the “hub-and-spoke cartel“. The absence of a direct connection between the horizontal rivals (spokes) distinguishes hub and spoke cartels from other cartels. Such cartels communicate the information and influence the market through a third party (“hub”). A hub could be an algorithm or piece of software, or it could be engaged in the same kind of trade.

Existing regime of the Competition Commission of India

The Jasper Infotech (Snapdeal) v. Kaff Appliances case was the first matter where the opposing party was accused of participating in hub-and-spoke cartels. According to the informant, the opposing party had particular relationships with its suppliers and distributors that allowed it to keep the price of its products at a high level. The Competition Commission of India (“CCI”) chose to bury the issue of a hub-and-spoke system in the case by instructing the Director General (“DG”) to only look into concerns of violations of “resale price management” under Section 3(4)(e) of the Act.

The same result was reached in the dispute between Fx Enterprise Solutions India and Hyundai Motor India Limited. The informant described several hub-and-spoke arrangements that led to price collusion, including bilateral vertical agreements between suppliers and dealers and horizontal agreements between dealers through the use of a common supplier. To hold Hyundai accountable, the CCI focused on resale price management and ignored the assertions of a hub-and-spoke structure, much like in the previous case.

In Samir Agrawal v. Competition Commission of India through the platforms of the cab aggregators, the informant claimed that there was collusion amongst drivers. The informant stated that in accordance with Section 3(3)(a), read with Section 3(1) of the act, collaboration amongst drivers through the Ola and Uber applications constitutes concerted activity. The regulator stated that the claims were negated because hub-and-spoke cartel behavior was not proved in the case and there was neither an agreement nor an intention between the drivers to act in collusive activities.

After the employees’ strike at Air India, the airlines in the case of Re: Domestic Air Lines started pricing extravagantly. The DG claimed that all of the airline companies had engaged in parallel activities to raise prices, which amounted to a tacit collusion. However, CCI disagreed with the DG’s report due to the lack of material evidence demonstrating the existence of any agreement between airlines and pilots that would have contributed to the collision.

CCI is mistakenly fixated on this strategy, particularly when dealing with instances of tacit collusion. The ruling of the former Monopolies and Restrictive Trade Practises Commission (“MRTPC”) in Ghai Enterprise Ltd and Quality Ice Creams, which was cited by CCI in Re: Aluminium Phosphide Tablets Manufacturers, is cited in support of the argument. In this ruling, MRTPC linked a tacit agreement with price parallelism. Eight percent of the market was held by both ice cream companies, who announced comparable prices. The MRTPC stated that the ‘preponderance of the probability’ in this situation implied that there was tacit collusion and a concerted effort among the corporations.

The Peruvian Authority also believes that hub-and-spoke activity exists when a third party merely shares information about collusion and related talks with rival firms. No direct evidence was found to support CCI’s decision in Re: Domestic Air Lines that competitor airlines had used a shared piece of software to fix rates. The regulator, however, did not consider the implied coordination between airline businesses as suggested by the DG report.

In Re: Alleged Cartelization for Increasing Pulse Prices in India, it was decided that any exchange of information between companies in a buyer-seller connection need to be assessed in light of the multi-faced relationship. In light of this, the CCI held irregular interactions between businesses exchanging information that is already in the public domain cannot be interpreted as anti-competitive. However, by limiting the criteria for determining hub-and-spoke cartel behavior to just direct evidence tests leaves out tacit collusion and shields companies from liability by making it impossible to detect any direct agreements through third-party software.

Inference

The amended bill is a step in the right direction for assessing CCI’s ability to handle hub-and-spoke cartel conduct. By eliminating the direct proof criteria and imputing culpability on active involvement in furtherance of the agreement, the amendment will improve CCI’s ability to deal with tacit cooperation. This measure will eliminate the need to identify a direct agreement for imputation of liability, thus the authorities are optimistic that CCI’s jurisprudence will develop in establishing a practical test for such agreements. The proposed plan assumes that a party is responsible if it actively pursues cartel activity regardless of whether it engages in a similar trade or is a horizontal rival.