The anti-cartel watchdog has conducted raids on the premises of Pakistan’s two largest tractor manufacturers on the suspicion of collusion in increasing prices by 28% within two years.
The Competition Commission of Pakistan (CCP) on Thursday entered and searched the premises of Millat Tractors Ltd (MTL), Lahore and Al-Ghazi Tractors Ltd (AGTL), Karachi, according to a press statement.
The raids were part of an investigation into the conduct of tractor manufacturers for prima facie violation of Sections 3 and 4 of the Competition Act 2010, it added.
Both the firms fully cooperated by providing the relevant record, documents, meeting minutes and computer-stored information to the two search teams, said the CCP.
The CCP initiated the enquiry upon receiving concerns through the Pakistan Citizen Portal about a drastic increase in prices of tractors at different points in time despite the subsidy relief given by the government on sales tax and a great extent of localisation in the tractor industry.
The complainants also alleged that the tractors being manufactured were of substandard build quality, resulting in frequent breakdown.
The CCP’s own role has recently come under scrutiny after it imposed a fine of Rs44 billion on sugar millers despite a split decision.
The CCP said that the tractor industry in Pakistan appeared to have a duopoly market structure, which made it more susceptible to collusive activities. Among the three manufacturers, Millat Tractors had a 70% market share and Al-Ghazi Tractors had a 29% share in last fiscal year 2020-21. The duo has a collective market share of 99%.
The CCP’s preliminary investigation showed that both the tractor manufacturers sequentially increased prices in 2021 and the quantum of percentage increase was approximately similar in the case of alternative products, ie tractors.
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Such a sequential price pattern was also observed in the years 2018 to 2020. Millat Tractors increased prices by 1-5% in October 2018, then 7-13% in July 2019, up to 3% in March 2020 and up to 7% in July 2020.
Cumulatively, Millat Tractors increased prices by up to 28% in two years.
Similarly, Al-Ghazi Tractors increased prices of its various models by 3-5% in October-November 2018, 5-10% in August 2019, up to 4% in March 2020 and 5-7% in July 2020. In total, Al-Ghazi Tractors increased prices by up to 26% during the same period.
The CCP said that the tractor industry was over 90% localised and there was hardly any technological advancement by the tractor manufacturers.
Thus, the price increases by the market leader, ie Millat Tractors, followed by the second biggest market player, ie Al-Ghazi Tractors, in close succession and similar quantum indicate the possibility of price coordination between the tractor manufacturers.
Published in The Express Tribune, September 3rd, 2021.
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