Damn! It’s a Cartel

A Few weeks back, I learned that bitter rivals Vijay Mallya and Naresh Goyal have joined hands to cooperate in the bad times of the airline industry. Well, to laymen it might sound like a moral thing, but deep inside, there is something else cooking. And it smells like a Cartel.

So what exactly does this word cartel mean? As per the Oxford dictionary “an association of manufacturers and suppliers with the purpose of maintaining prices at high level and restricting competition.” When Vijay Mallya and Naresh Goyal got together, pundits feared it as cartel. So why is cartel a bad thing? Cartel, basically, gives more power to the firms over the market and as a result, there is fear of lack of competition aka monopoly. This act is known as cartelization. It is practiced in most \ sectors, but is often just an alliance on purely commercial terms.

As we know that the aviation industry is going through a rough phase, and both Vijay Mallya’s and Naresh Goyal’s firm find it hard to maintain the costs, thanks to the rising fuel prices, less passenger traffic and high operational costs. So, logically they made a move to save their own firms. But what makes this cartel interesting is that after this alliance, both firms will control 60% of the market. That will make competition useless as the other airlines will find it hard to keep up with the prices set by the alliance. These kinds of trade practices have their set of rules. One such rule is the Monopolies and Restrictive Trade Practice (MRTP) Act, which prohibits cartels in any industry. Ultimately, it is the consumer who will feel the burden, as he will have to pay the prices set by cartel instead of competitive prices in the case of healthy competition. So don’t be surprised if you have to pay more for flying in the days to come.

So what does the Government do to prevent such a thing? The answer is not very effective. The Government finds it hard to spot the cartel as it exists in virtually every sector. And even if the Government starts investigation, then it will take them ages to prove that it’s a cartel. Though at all times, the Government is vigilant of such practices as it would enhance the inflation if not taken seriously.

Not just in India, cartelization is rampant everywhere. For instance, Yahoo and Google have formed an alliance that would make them control over 90% of the market. But this deal could not be sealed as it was put out by government citing, the rightful reason of monopoly. Even telecom giants such as Airtel, Vodafone have been accused of practicing cartelization.

Cartel may be seen as an unfair trade practice, but in other words, it’s a conspiracy. Cartelization is done either in the time of a crisis, or at the opportunity. But it can have benefits too. Let’s say there is sector in which is strictly regulated by the government, which in turn, affects firms. Firm A and firm B alone cannot survive due to these regulations. So when they form an alliance, they do it because it will help them to stand on their feet and at the same time, control the market. But the only thing that makes it dirty is the elimination of competition and establishment of a monopoly in the market.

In today’s world, no government can ignore cartel, as it is a threat to the country’s economic security. Cartels have a long history of firing up the inflation. It can trigger economic fall down by increasing prices and manipulating the market as per their needs, and the as a result, consumer will spend less. For a healthy economy, cartelization is like cancer that at first remains undetected, but silently kills. So all the bureaucrats need to come out of their slumber and see that they are not the only ones who are shaking hands with their enemy. If necessary steps are not taken, then the economy is prone to collapse without notice. Hence, cartelization should not be taken for granted or it will threaten the economic security of the country.
Prateek Jain

[Image source: http://www.apakistannews.com/wp-content/uploads/2008/11/opec11.jpg]