By Omatseyin Fredrick Esq.
A very concise and explicit definition of cartels was given by the Competition Act of India, which defines cartels as ‘an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of or, trade in goods or provision of services.¹
From the above definition, cartels harm consumers and have pernicious effects on economic efficiency. A successful cartel raises prices above the competitive level and reduces output. Consumers in such circumstances choose either not to pay the higher price for some or the entire cartelized product, thus foregoing the product, or they pay the cartel price and unknowingly transfer wealth to the cartel operators. A cartel thus shelters its members from market forces, by reducing pressure on them to control cost and innovate. The objective of cartels is to maintain the parties’ respective positions on the market and to achieve pricing stability by an increase in price. The parties thus deliberately set out to interfere with free competition and to act instead to protect the prosperity of the industrial group as a whole. Such cartels diminish social welfare, create allocative inefficiency and transfer wealth from
consumers to the participants in the cartel. The formation and successful operation of a cartel is easier for firms operating in an oligopolistic market, where each firm’s profits are strongly dependent upon the course of action chosen by its competitors².
M. Monti in his article states that:
Cartels do not occur with the same frequency in all sectors. Indeed, some sectors have been particularly prone to cartelization. These sectors are
generally characterized by a relatively high degree of concentration, significant barriers to entry, homogenous products, similar cost structures
and mature technologies. In such stable sectors, it is easier to reach a consensus on collusive outcome and maintain it. The steel, cement and
chemical industries can be mentioned as examples of sectors that fit this description and in which the commission has in the past uncovered cartels.
However, our experience has shown that cartel behavior is not limited to such traditional industries. Recent investigations concerning the banking sector and the liberal professions demonstrate that we should certainly not lose sight of other sectors. In the case of liberal professions collusion has
generally involved the fixing of tariffs. In these sectors, it is often quite difficult to assess with precision the level of quality. Price competition is
therefore quite an important aspect of competition. It is also interesting to note that these cartels have virtually always been operated by a trade
association. The involvement of an association is necessary due to the large numbers of operators. One study has found that trade associations were
involved in most of the cases that involved more than 10 undertakings. Moreover, in the case of the liberal professions, the rules of the profession can
be a very effective weapon in maintaining discipline³.
In a report given by the Organization for Economic Corporation and Development (OECD) which urged an OECD anti cartel programme, it was estimated that cartels cost society billions and thwart gains sought to be achieved through global market liberalization. The average increase from price fixing is estimated to amount to 10% of the selling price and the corresponding reduction of output to be as high as 20%.
It provided that:
Cartels harm consumers and have pernicious effects on economic efficiency. A successful cartel raises prices above the competitive level and reduces
output. Consumers (which include businesses and governments) choose either not to pay the higher price for some or all of the cartelized product that
they desire, thus foregoing the product, or they pay the cartel price and thereby unknowingly transfer wealth to the cartel operators. Further, a cartel
shelters its members from full exposure to market forces, reducing pressures on them to control costs and to innovate. All of these harm efficiency in a
It is common knowledge that all major sectors of the Nigerian economy were regulated and controlled by major government agencies. These agencies are created by an Act of the National Assembly or Military decrees which require amendments before any other competitor can be allowed in the sector. Prominent of these sectors, albeit not exhaustive, include former Nigerian Telecommunications (NITEL), former National Electric Power Authority (NEPA) and the Nigerian National Petroleum Corporation (NNPC). With the recent liberalization of these major key sectors, which are a welcome initiative by the fourth republic, it is fair to say that consumers enjoy various value-added services so to speak. For instance, the introduction of Global Satellite Mobile Systems would be salutary, due to the perplexing character of NITEL, but what are the checks and balances in place for these new entities? What measures are put in place to prevent anti-competitive agreements amongst these industries that may have formed cartels. There is an endless list on the presence and continued emergence of cartels in Nigeria, which has simply been ignored due to lack of enforcement frameworks or criminal regimes, consequently there are obviously no reported cases, fines imposed or imprisonments to deter such abusive market behaviors⁵.
In the UK for example, it is an offence for an individual to dishonestly agree with one or more other persons that two or more undertakings will engage in specified cartel arrangements such as price fixing, limiting production or supply, sharing markets, or rigging bids. The offence applies to agreements concluded outside the UK if implemented within it. The UK has resolved to deploy all the resources necessary to take effective action against them despite the major effort in terms of manpower and lengthy procedure that their identification and combating involves⁶.
The European Commission has adopted numerous cartel decisions, adopting between 5-10 decisions per year. In the Cartonboard⁷ case, the commission fined nineteen producers of cartonboard for their participation in price fixing cartel. The producers had met secretly but regularly in order to plan and implement uniform and regular price increases within the community, to plan and coordinate price incentives in advance, to freeze market shares, to control output, and to organize the exchange of confidential information⁸.
In the Polypropylene case⁹, the commission fined producers of polypropylene approximately €57 million for their participation in an agreement and /or concerted practice to implement price initiatives, to set target prices, and to operate production and sales quotas¹⁰.
In the US, hard core cartel activity is prosecuted criminally and since the mid-1990s the Department of Justice has concentrated its enforcement resources on international cartels that victimize American consumers and businesses. Huge fines are now imposed on corporations and executives are sent to prison for long periods.
In the Hoffman – la Rouche case¹¹, this organization was fined £500 million in the US in 1999 for its participation in the vitamins cartel; by dividing up the world market and price fixing for different types of vitamins, this went on for as long as 10 years. The defendants also agreed to pay $1 billion dollars in damages to customers¹².
The Organization of Petroleum Exporting Countries (OPEC) operated simply by the members voluntarily restricting their output following the negotiation quotas in 1973. As a result of the output restrictions, the world price of oil nearly quardrupled within a year. The increase in wealth to the participants was so enormous that, initially at least, there was little temptation to cheat on the cartel¹³.
There is evidently an effective regulatory and enforcement framework existent in other jurisdictions, as can be seen from the reported cases in the EU and the US, but still these developing economies still strive to implement and update their fight against these cartels. In the recent panel session held in Brasilia, the European commissioner recognized that cartels have plagued capitalism since industrialization began, from the conspiracies to raise prices noted by Adam Smith and onwards, cartelists have had a long time to perfect their tactics¹⁴.
Some interesting recommendations were made at the panel:
1. International cooperation –coordinated searches and inspections and confidential exchanges of information are essential for meaningful cooperative relationships. Cooperation is further fostered by creating an atmosphere of trust between agencies and close day-to-day relationships between staffs.
2. Building an evidence base on cartel harm;- by building solid comprehensive and up to date figures about the damage cartels can wreak, and how they
harm us all.
3. Robust Fines: Each fine must relate to the companies turnover in the affected product or services and the severity and duration of the offence.
4. Forensic IT: digging through computers, and the need to train staff on forensic technologies¹⁵.
THE FEDERAL COMPETITION AND CONSUMER PROTECTION ACT 2018 ON CARTEL
Cartel activities proscribed under the FCCPA includes price-fixing, conspiracy and bid rigging.¹⁶ An undertaken is prohibited from conspiring directly or indirectly by agreement, threat, promise or any other means to influence upwards or discourage the reduction of the retail price of other undertakings, unless the undertakings are interconnected undertakings as defined under the Act.¹⁷ An interesting and important provision to note is that of sub-section 3 of the above section 107 which provides that a notice of advertisement by an undertaking other than a retailer which mentions the resale price of any product constitutes an attempt to upwardly influence the product’s price, unless the advert makes it clear to a reasonable person that the product may be sold at a lower price. Furthermore, refusal to supply goods or discriminating against another undertaking due to its pricing policy is equally
caught up by the above section.
Similarly, an undertaking is prohibited from conspiring with another undertaking to limit, prevent or unduly reduce competition in the production, purchase, sale, supply, rent or transportation of any product, except where such was made in relation to the provision of a service via the practice of a profession, where the maintenance of standards of competence are necessary in the protection of the public.¹⁸
Likewise, where more than one undertaking agrees not to compete against each other in response to a bid, or make a bid submission based on agreement with one another, except where one of the undertakings is an affiliate or agent of the other, a case of bid-rigging will be established.¹⁹
Cartel activities are criminalised by the FCCPA, and the penalty upon conviction is a fine not exceeding 10% of the annual turnover in the preceding business year for a corporate body. Where the violator is a natural person, the penalty upon conviction is a prison term not exceeding 3 years and/or a fine not exceeding 10 million naira.²⁰ Also, each director of the violating corporate body is liable to be proceeded against in person, and upon conviction, be dealt with in accordance with the above penalty prescribed for a natural person.
The above provisions show that the FCCPA holds a very strong anti-cartel position and criminalizes cartel activities. Only time will tell if and how effective this will be on implementation, having regard to the capacity of the FCCPC and the absence of a leniency regime under the Act.
DISCLAIMER: This article is for information purposes and may not reflect the current state of the law, and is therefore not intended to provide legal advice, guidance on litigation, or commentary on any pending case or legislation.
1. L. Ani, ‘Rethinking Competition Law and Policy: Building a Framework for Implementation in Nigeria’. NIALSJournal (2012) maiden Edn.< www.nials-nigeria.org/journals/Laura > Accessed on 4 May 2023.
3 M.Monti, ‘Fighting Cartels Why and How? Why Should we be Concerned with Cartels and Collusive Behaviour? <http://europa.eu/rapid/pressreleasesaction.do? > Accessed on 4 May, 2023
4 Op cit.p1
5 Op cit.p1
6 Op cit. p1
7  OJ L243/1,5 CMLR 547
8 Op.cit. p1
9 OJ L152/24, 5 CMLR 322
10 Op.cit. p1
11 ECR 461, 3 CMLR 211, para.39
12 Op.cit. p1
13 Op.cit. p1
14 Op.cit. p1
15 Op.cit. p1
16 Part XIV of the FCCPA
17 Section 107 of the FCCPA
18 Section 108 of the FCCPA
20 Sections 107-109 of the FCCPA