Price Fixing in Pakistan’s Poultry Market: Is There a Case of False Positive?

By Owais Hassan Shaikh*

Introduction

The Competition Commission of Pakistan (CCP) is the national competition authority in the country. It was created in 2007 as a successor to the Monopoly Control Authority and operates under the Competition Act, 2010 (Act). To date the CCP has issued around 100 orders in various cases. In February 2016, the CCP issued an Order against the Pakistan Poultry Association (PPA), finding that the PPA violated section 4 of the Act, which relates to prohibited agreements.

Facts

The PPA advertised prices of broiler chicken (live and meat) and chicken eggs in various Pakistani newspapers between 6 and 9 October 2015. The CCP issued a show cause notice to the PPA as it considered the advertisements to be ‘decisions’ under section 4 to fix prices in the broiler chicken and egg markets having the object or effect of restricting competition in those markets. The PPA responded arguing that the local governments fix the prices of the poultry products and that PPA members face arbitrary price fixation by many city administrations. In this regard it also provided an official assurance that the prices are set by the government and not by the PPA.

Analyzing the PPA arguments, the CCP came to the conclusion that by advertising these prices, the PPA violated section 4(1) of the Competition Act. In coming to this conclusion the CCP held that the PPA’s defense that the poultry product prices are not determined by it, and therefore that it has no liability, is not tenable as the ‘discussion, approval or advertising of prices’ falls within the ambit of anti-competitive behavior; and even if the defense is accepted, advertising prices under its own name signals to the market that the PPA approves the prices, that they are an optimum rate to be followed and that the alleged advertisements could influence the overall market prices. It stressed that the PPA’s ‘standing as an association ensures a certain authority which has the implicit effect of manipulating the behaviour of players in the relevant markets’. According to the CCP, the advertisements also constituted ‘the exchange of data which encourages more uniform prices than might otherwise exist.’ The CCP fined the PPA Rs. 50 million (approx. $ 0.48 million) for the broiler chicken and the egg markets each and ordered it to immediately suspend such advertisements. In imposing the high fines, the CCP observed that the PPA had already been cautioned in a previous Order to ‘desist from taking any decision, even if merely suggestive in nature, regarding pricing, production and sale of poultry products.’

Analysis

The main issue in the Order was whether the advertisement by the PPA of broiler chicken and egg prices could be considered a ‘decision’ under section 4 of the Act. Paragraph 1 of Section 4 prohibits an association of undertakings from taking a decision that may have the object or effect of restricting competition with certain exceptions.

The CCP defined ‘decision’ of an association of undertakings in its earliest Order pertaining Section 4.[1] It held that ‘a decision of an association of undertakings reflects an understanding between its members’. ‘Agreement’ includes ‘understanding’ as defined in Section 2 of the Act, therefore, a decision by an association of undertakings is an agreement between its member. It is generally held that the concept of agreement or understanding requires a concurrence of wills or meeting of the minds.[2]

However, the problem in this Order is that the CCP did not provide any evidence showing a concurrence of wills or meeting of the minds with regard to fixing prices in the two markets by the PPA or its members. It does not even provide any evidence to rebut the PPA’s assertion and assurance that it does not fix the prices, but that it is forced to take them as they are from the local governments. Unlike the CCP’s Order in 2010 against the PPA, which relied extensively on the documents recovered from the PPA offices to prove cartelization, the current Order is uncharacteristically short (only 8 pages as compared to 36 pages in 2010) and does not provide any evidence of the alleged conduct. Instead, it implies that advertising the prices by the PPA itself is tantamount to a decision as it has the ‘object’ of preventing or restricting competition in the relevant markets. However, as analyzed above, in the absence of a ‘decision’ in the meaning of section 4, there is no basis of claiming that the advertisement per se had the object of restricting competition in the market.

According to the CCP, advertising prices by an association of undertakings falls within the ambit of anti-competitive behaviour. Therefore, the publication of prices in these advertisements under the PPA’s name may reflect to the different market players, including the consumers, that these prices have the approval of the PPA and are the optimum rates to be followed. In general, advertisements are pro-competitive tools in that they provide consumers information about the various characteristics of a product. They reduce consumers’ information and search costs. According to the CCP, the said advertisements carried the daily prices for the products in the broiler chicken and egg markets. The Order does not mention whether the government also provided the information about prices to the consumers. If this was not the case, the PPA advertisements did disseminate useful information to the consumers.

Without convincing evidence of independent meeting of the minds regarding price fixing by the PPA or its members, especially where the association provides additionally an assurance with regard to its stance, the imposition of a fine to the tune of Rs. 100 million appears to be unjustified. Though there is merit in the CCP’s argument that without an appropriate disclaimer that these prices are fixed by the government and the advertisements are not endorsements of these prices by the PPA, they may be seen as such by the market players, including the consumers, the CCP could direct the PPA to include the same, or a variation thereof, so that no one would be misled with regard to the PPA’s role in fixing poultry prices.

Moreover, by fining the PPA, the CCP fails to remedy the actual anti-competitive conduct in the market i.e., price fixing by the local governments. To solve this, the CCP should have focused on the concurrence of wills between the local governments and the PPA or its member undertakings. This could be done, for example, by investigating whether there was any coordination, communication or understanding between the PPA and the local governments prior to fixing prices on a daily basis.[3] Penalizing the PPA would definitely not discourage the local governments from fixing the prices, but it will deprive consumers from acquiring the most relevant information regarding broiler chicken and chicken eggs i.e., their prices.

* Visiting Lecturer, EU Business School, Munich; PhD, Ludwig Maximilians University, Munich; LL.M, University of Augsburg, Augsburg; MBA, Institute of Business Administration, Karachi.

[1] In the matter of Show Cause Notice dated 24 December 2007 for Violation of Section 4 of the Ordinance ¶ 46 available at http://cc.gov.pk/images/Downloads/Order_of_Banks.pdf.

[2] Bayer v Commission, Case T-41/96, [2000] E.C.R. II-03383 ¶ 69

[3] This was the actual line of inquiry in the Dole food case that the CCP cited in the Order where supplier of bananas coordinated wholesale prices which was then signaled to the market, though, the final market price would be negotiated with ALDI, as the biggest buyer. See Dole Food and Dole Fresh Fruit Europe v Commission, C-286/13 P, [2015] E.C.R. II ___ (delivered 19 March 2015). The CCP, however, did not adopt this line of inquiry in its own investigation in the current Order.

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