Analysing the Judgment of Competition Commission on collusion for monopoly
The Competition Commission (CC), Bangladesh in a suo moto rule warned Viqarunnisa Noon school (VNS) authorities and imposed a financial penalty of Tk 79,897 on Chowdhury Enterprise for a contract to supply uniforms to students of VNS by violating section 15 (1) of Competition Act 2012. This clause prohibits the collusion for purchase, sell, and bid manipulation etc.
The controversy has arisen on account of excusing the school authority from administrative penalty and instructing to select at least 3 suppliers through tender for supply of dress at an agreed price. This is tantamount to creation of oligopoly (with a fixed price set by tender); those appointed suppliers will sell school dresses at a fixed price, but customer will not enjoy the benefits of the competition. Both parts of the decision of the commission for exemption of one party of collusion of bid fixing and direction for creation of oligopoly are not consistent with the Competition Act, 2012 of Bangladesh.
Chowdhury Enterprise was selected as lone supplier against 3 bids of different suppliers but the evidence revealed that the two bids were also arranged by Chowdhury Enterprise itself and these activities are apparently in collusion with the VNS authority. The Rule asked the authority to cancel the contract with Chowdhury Enterprise and to select at least three tailors for each of its three campuses for preparing the uniforms.
The evidence revealed that the existence of supply agreements between schools and suppliers give the suppliers an unfair advantage over other suppliers thus distorting competition in the market. It is noted that when school fees are inclusive of school uniform, the consumer has no choice but to buy school uniform from the school, thereby indirectly restricting competition in the market.
During the investigation as per section 17 and 18, the offences have been proven for the creation of barriers to entry, exit by competitors, limited choice of uniform suppliers to consumers, foreclosure, and limited access to the market by competitors.
This type of conduct by the schools also encourages exclusive dealing between schools and suppliers of school uniform because the school has the discretion to choose the supplier. Furthermore, countervailing power is diminished as school uniform prices are determined by the school thus also taking away the power of the consumers to purchase school uniforms from other suppliers in the market.
In this case, to sum it up, it has revealed that (a) the agreement between school and the supplier created a strategic barrier since new entrants in the market are unable to effectively penetrate the market; (b) according to the counterfactual, the market for the supply of school uniform would have more suppliers or players; (c) customers do not have countervailing power in the market for the supply of school uniform.
The VNS and the suppliers of school uniforms are proven to be parts of a collusion whose object or effect is the restriction, prevention or distortion of competition to an appreciable or substantial extent, thus contravening section 15 (1) of the Competition Act. The nature of the offence committed by schools in collusion with the suppliers warrants a corrective penalty. The Commission in their verdict on February 24, 2021 exempted the schools from the penalty on the basis of "no intention of any business" on the part of school authority but only penalised the supplier for the offence. The law does not provide such clause to exempt any person / authority for any offence whatsoever.
In the second part of the judgment, the CC has given direction to the school authority regarding future procedure of selection of at least 3 suppliers (section 4 –3), through an open tender and regarding allowing suppliers to sell school dresses at the fixed bid price (section 4-4), further noting that the price list should be displayed in the open place of the shop(s). This direction seems an instrument for the creation of oligopoly of 3 suppliers at a fixed price. This means the process will not create competitive market for school dresses.
The CC has limited work force and poor logistics. They are facing much limitation in day-to-day activities. Their activities are appreciable. On the other hand, the judgement of the commission in this case needs reevaluation through appropriate legal procedure.
The writer is a Legal Economist.