As part of an investigation against tractor manufacturers for prima facie violation of Sections 3 and 4 of the Competition Act, 2010, the Competition Commission of Pakistan entered and searched the premises of Millat Tractors Ltd. in Lahore and Al-Ghazi Tractors Ltd in Karachi today.
The search inspections were carried out under Section 34 of the Act. Both the undertakings fully cooperated by providing the required record, documents, minutes of meetings, and computer-stored information to the two CCP search teams. Some critical data was been impounded during the inspections.
The Competition Commission of Pakistan (CCP) initiated the enquiry upon receiving concerns through the Pakistan Citizen Portal about a drastic increase in the prices of tractors at different points in time despite the subsidy relief on sales tax given by the government and a great extent of localization in the tractors’ industry. The complainants had also alleged that the tractors being manufactured were of substandard build quality which had caused frequent breakdowns.
Pakistan’s tractor industry appears to have a duopoly market structure which makes it more susceptible to collusive activities. Among the three manufacturers, Millat Tractors has a 70 percent market share (in FY2020-21), and Al-Ghazi Tractors has a 29 percent market share (in FY 2020-21). Both have a collective market share of 99 percent.
The CCP’s preliminary investigation shows that both the tractor manufacturers sequentially increased their prices in 2021, and the quantum of percentage increase was approximately similar in the case of alternative products (tractors). Such a sequential price pattern was also observed in 2018–2020. Millat tractors had increased its prices by one to five percent in October 2018, seven to thirteen percent in July 2019, two to three percent in March 2020, and five to seven percent in July 2020.
Similarly, Al-Ghazi Tractors had increased the prices of its various models by three to five percent in October-November 2018, five to ten percent in August 2019, one to four percent in March 2020, and five to seven percent in July 2020.
It is worth noting that the tractor industry is over 90 percent localized and there are hardly any technological advancements by the tractor manufacturers. Thus, the price increases by the market leader — Millat Tractors — followed by the second biggest market player — Al-Ghazi Tractor — in close succession and similar quanta indicate the possibility of price coordination between the tractor manufacturers.
The investigation revealed that the Provisional Booking Order (PBOs) forms of Millat and Al-Ghazi also appear to be similar, unreasonable, and exploitative in terms of the Act, and indicate the possibility of collusion.
The CCP is also investigating the possibility of Resale Price Maintenance (RPM) by one of these two companies. Through RPM, a supplier pressures a business not to sell products below a specific price, Hence, it is detrimental to competition.
The search inspections have been carried out to see if the tractor manufacturers are involved in alleged anti-competitive activities such as collusion and collective decision-making with respect to the price hike of tractors, undue shortage despite excessive capacity, identical clauses in the PBOs of both companies, and RPM.
The CCP is mandated under the Act to ensure free competition in all spheres of commercial and economic activity to enhance economic efficiency and protect consumers from anti-competitive behavior.