INSIGHT
Newsletter - Untangling the Web of Cartels in Indonesia: Their Impact on the Economy and Consumers
In Indonesia’s evolving economic landscape, the presence of cartels poses significant challenges to fair competition and consumer welfare. This newsletter delves into the nature of cartels, their characteristics, types, and their far-reaching impacts on both the economy and consumers.
Understanding Cartels
A cartel is a formal agreement between multiple producers or companies that seeks to manipulate market conditions, primarily by controlling prices or distribution, with the aim of suppressing competition and maximizing profits. According to Article 11 of Law No. 5 of 1999 on the Prohibition of Monopoly Practices and Unfair Business Competition, as amended by Law No. 6 of 2023 ("Competition Law"), the above-mentioned arrangements are illegal as businesses are prohibited from making agreements that influence prices by controlling the production or marketing of goods or services, which may result in monopolistic practices or unfair competition.
Key Characteristics of Cartel Activities
Cartels typically exhibit several defining traits, including:
- Conspiracy Among Businesses: Multiple entities collaborate to achieve mutual financial goals.
- Involvement of Senior Executives: Key leaders from participating companies engage in negotiations.
- Use of Associations: Cartels often hide their activities within trade organizations.
- Price Fixing: Establishing fixed price to control market dynamics.
- Enforcement Mechanisms: Threats or sanctions for members who violate agreements.
- Information Sharing: Collaborating on sensitive market data.
- Compensation Mechanism: Systems for distributing profits among cartel members.
Common Types of Cartels
Cartels can take various forms, including:
- Price Cartel: Sets a minimum or standardized selling prices.
- Condition Cartel: Aligns sales conditions for all members.
- Rayon Cartel: Divides market territories to minimize competition.
- Contingent Cartel: Restricts production to maintain price levels.
- Profit Cartel: Pools profits and distributes them according to pre-agreed terms.
- Sales Cartel: Centralized sales through a single distribution entity.
Conditions Favoring Cartel Formation
Several market conditions facilitate the formation of cartels in Indonesia:
- Market Concentration: A small number of similar companies make it easier to reach collusive agreements. Greater market diversity reduces this likelihood.
- Entry Barriers: High entry barriers make it difficult for new companies to enter the industry, allowing established companies to maintain control.
- Sales Method: Sales conducted through auctions, where prices are opened through bidding, and other cartel members respond until a certain price is reached.
- Product Homogeneity: The similarity of products means that only companies with specific characteristics can enter the controlled market.
- Cooperation Mechanism: This mechanism aims to standardize products and regulate sales prices.
Economy Impact on Cartels
The influence of cartels on Indonesia’s economy is profound:
- Stifled Industrial Growth: Cartels discourage balanced industrial growth, leading to decreased productivity.
- Reduced Competitiveness: Limited competition hinders the development of industries capable of competing globally.
- Higher Consumer Costs: Cartels often result in inflated prices, meaning consumers pay more for goods and services.
Case Study: Airline Ticket Price Fixing
A notable example of a cartel activity in Indonesia is the case involving airline ticket prices. The Business Competition Supervisory Commission (KPPU) found seven national airlines guilty of price-fixing, as outlined in Decision No. 15/KPPU-I/2019. A notable example of a cartel activity in Indonesia is the case involving airline ticket prices. The Business Competition Supervisory Commission (KPPU) found seven national airlines guilty of price-fixing, as outlined in Decision No. 15/KPPU-I/2019.
Conclusion
From a legal perspective, it is imperative to acknowledge the detrimental effects that cartels have on market integrity and consumer rights in Indonesia. The enforcement of antitrust laws is vital for maintaining a competitive landscape, safeguarding consumer interests, and promoting fair business practices. By advocating for stringent oversight and robust enforcement mechanisms, we can contribute to a more transparent and equitable marketplace that benefits all stakeholders.
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NOTE
This article provides general information and does not constitute legal advice. Readers should seek specific legal counsel for their circumstances.
