Competition Issues Regarding Procurement for Large Companies and Suppliers The Gazprom Case

Svetlana Golovanova, Andrey Shastitko, Nov 27, 2013

This article demonstrates that even established and verified facts of agreements among producers are not sufficient conditions for either cartel identification and, as a consequence, prosecution of agreement participants. Qualifying sellers’ interactions on a market as collusion is not a simple task, although it might seem so if using an oversimplified world vision. It doesn’t mean there is no ground to fight against cartels. It simply means this battle is not so straightforward.

To establish a cartel requires looking at institutional details and the wider context of related documents, actions, appearances, and occurrences. To illustrate, we looked at the recent antitrust case against Russian producers of large diameter pipes (“LDPs”) which sold to one large buyer-OJSC Gazprom. This case illustrates that avoiding wasteful outcomes from a so-called traditional hostile view in antitrust is an important and possible task, although a hard one.

This article explains the Russian LDPs antitrust case within the framework of the New Institutional Economics and, more precisely, the research tradition rooted in Oliver Williamson works. Overall, however, there is lack of academic interest regarding competition issues in procurement of LDPs for one large buyer. One restriction to exploring this subject matter, and in developing the discussion, is the availability of information concerning both the materials of the antimonopoly proceedings (as the materials may contain information which constitutes a commercial secret of a particular market participant) and the research conducted (which is true not only for Russia).

This article is based on analysis including information posted on the Web page of the Russian Federal Antimonopoly Service, and has the following structure. Section II discusses the economics of collusion looking at the initial position of the antimonopoly authority in the case against the pipe-manufacturing companies. Section III presents the circumstances to be considered when testing a collusion hypothesis. Section IV proposes a theoretical interpretation of the actions by pipe-manufacturing companies in light of the economics of contractual relations. Conclusions are provided at the end.

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