Barium oxide producers' collusive behaviour in auction

Mexico

On December 10, 1994 the Commission began an ex officio investigation into possible absolute monopolistic practices by five barium oxide producers, namely Baramin, S.A. de C.V., Baricosta, S.A. de C.V., Minerales y Arcillas, S.A. de C.V., Barita de Sonora, S.A. de C.V., and Barita de Santa Rosa, S.A. de C.V. The investigation arose from an agreement reached by the companies to jointly offer their products to Pemex Exploraciy Producci (Pemex) under terms previously agreed upon by them.

The arrangement was reached in preparation for national public call to bid PEP-94-SMC-NA-004, made by Pemex Exploraciy Producci to purchase barium oxide meeting Pemex Standard IMP-1/92. The companies, all long-standing suppliers of Pemex, obtained the auction guidelines and participated at meetings held both to clarify them and to explain the modifications made thereto by Pemex.

In this context, the companies reached an agreement among themselves and presented Pemex with the following proposals:

The tonnage of barium oxide to be supplied by each producer.

A single price for all producers at the delivery site, to be equal to the average price paid by Pemex to its different domestic suppliers of barium oxide adjusted to the inflation rate over the period during which those prices had remained in force.

The proposal assumed that Pemex would not complete the bidding process. The companies argued that this measure was necessary in view of:

The difficult situation prevailing in the domestic barium oxide industry, caused by falling demand for its product, increased imports of the product through intermediaries and contractors, and adverse impacts of a financial and operational nature.

The high probability that the bidding process would leave two or three of the domestic producers without orders, which would lead to the cessation of their mining activities and cause job losses.

In spite of these efforts, Pemex continued with the bidding process.

The investigation carried out confirmed that (1) the companies were competitors and that (2) they reached agreements to determine and fix the price of a specific good (barium oxide). These elements constitute the absolute monopolistic practice described in article 9, section I of the Federal Law of Economic Competition which is prohibited by article 8.

Experience has shown that practices of this kind do not lead to improvements in efficiency and that their aim is clearly to restrict competition. This case supports such observation. Indeed, the fixing of prices among the competitors involved in this operation could have led to monopolistic profits, without the existence of the possibility of greater activity in the barium oxide industry.

On account of these companies' proven breach of the law, the Commission's Plenum resolved to impose a fine on each of them. In so doing, it took into consideration their levels of intent and economic capacities, and the fact that the practice had not yet yielded concrete results.