Judging from cartel cases in Indonesia, it is important to understand the definition of cartel itself. Cartel practices are also mentioned in Article 11 of Law No. 5 of 1999 on Monopolistic Practices and Unfair Business Competition (Law No. 5/1999). It states:
“Business Entity are prohibited from making agreements with rival businesses, which intends to influence prices by adjusting production and or marketing of goods and or services, which may result in monopolistic practices and or unfair business competition”.
According to Leo Kusuma in his presentation, to understand the cartel, we would have to understand the principle of monopoly behavior. Understanding monopolies focuses no longer on the number of businesses, but rather the behavior to control the price and product distribution or production capacity.
It’s very much possible that monopolistic behavior is displayed in a competitive structure consisting of several companies, usually about 2 to 4 large companies. When a market competition in which a large number of customers, are only served by a few companies, there is a strong early indication for the existence of cartel practices.So, the monopolistic behavior occurs.
In general, a cartel has the following characteristics:
- There is a conspiracy among business entities.
- Involving the role of senior executive positions in the company
- Usually using the association to cover the conspiracy
- There is a price fixing or an action to do price fixing, including the determination of production quotas.
- The existence of threats or sanctions for members who violate the agreement or treaty.
- The existence of information distribution to all members of the cartel. The information referred to the financial statements, sales reports, or reports of production.
- The existence of a compensation mechanism for members who have a larger production or production that exceeds the agreed quota. The compensation can be money, securities, distribution of dividends interest in a bigger portion, or any other partnership.
The following conditions make the cartel perpetrator remain conducting monopolistic practices. In this case, the cartel practices should have the following conditions:
- The number of business entities less, or at least dominated by some of companies which usually consist of as many as 5 to 10 companies. Nevertheless, for a cartel practice there are only 1 to 4 companies dominated the association.
- The product is homogeneous or it is only conducted if the members have the same product.
- The elasticity of demand for its products is relatively low. No matter how they are set relative prices, it doesn’t have a significant impact on demand. This is where the strength points of the cartel, because the consumers are not conditioned. They do not have a lot of choices other than to use products made by members of the cartel.
- There are always attempts to prevent the entry of new entrants (competitors)
- The practices of fraud in the form of fictitious financial reports, fictitious sales data, and so forth are carried out.
- Cartels are usually presence in business sectors that require substantial investment. This is where their strengths, at the same point are used to enlarge the restrictions or barriers for newcomers to entry.
Are there any exceptions or form of agreements and business agreements among business entities in order to avoid the chapter on cartels?
Not all forms of agreements among business entities are prohibited under Law No. 5/199. The exemption is granted to the following conditions:
- The act or an agreement aimed at implementing the existing law/regulation;
- Agreements related to intellectual property rights such as licenses, patents, trademarks, copyrights, designs of industrial product, integrated electronic circuits, and trade secrets, as well as agreements related to the franchise;
- An agreement of technical standard-setting for products and or services that do not restrain or hinder competition;
- The agreement in the framework of the agency that does not contain provisions for the supply of goods and or services at prices lower than the price that has been agreed upon;
- The agreement of research cooperation for upgrading or improvement the living standard of the general public;
- International treaties that have been ratified by the Government of the Republic of Indonesia;
- An agreement and or an act aimed to export a product that does not interfere with the needs and or supply of the domestic market;
- Entrepreneurs who belong to the Small Business; or
- The business activities of cooperatives that specifically aims to serve their members.
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