Indian Oil Corporation Ltd. Vs Reliance Industries Case Analysis

ECONOMIC ANALYSIS

Indian Oil Corporation Ltd. & Ors. v. Reliance Industries Ltd. & Ors.

The case of Indian Oil Corporation Ltd. v Reliance Industries Ltd. involves Indian Oil Corporation Ltd., Bharat Petroleum Corporation Ltd. and Hindustan Petroleum Corporation Ltd. as the appellants and Reliance Industries Ltd. and two other companies as the appellants. The appellants are under the complete control of the government and are in the business of refining crude oil and marketing petroleum and petroleum based products. The respondents are a part of the private sector and are engaged in business of marketing and transportation of Motor Spirit (MS) and High Speed Diesel (HSD), namely, petroleum products.

Prior to the events of the case, the government

Since it is the sole body that can create either a price floor or a price ceiling and can decide how the prices of certain goods can be regulated, it can affect the market independently and his hence, a price giver of sorts. In the case, the Government passed a notice dictating that prices of crude oil and other such products must be regulated according to international prices. When the international prices went up, they continued to keep a lower price. This ensured that the consumers flock to buy the products from government distributors as their prices were comparatively lower. The private sector distributors were unable to compete with the lower prices as they were forced to keep their prices according to international standards and were hence, losing their

Although, it was in a market with other competitors, it was able to affect the market on its own. Another thing that it did that was beneficial to itself involves barriers to entry. Firstly, they passed a notice stating that any company, including private sector companies can join the market and carry out transactions involving petroleum and petroleum products. This created a false sense of security, leading the private sector companies to believe that the Government supported them. Secondly, the government mandated that all prices be regulated according to international standards. Hence, if the international prices are high, the domestic prices would necessarily have to be kept high and vice-versa. Thirdly, they continued regulating the prices of the government distributors while the private sector was forced to alter their prices according to the international prices. Thus, when the international prices went up, the private sector was forced to put its prices high while the public sector continued to keep its prices lower and the private sector was unable to compete. The Government removed the barriers to entry and then created new ones to ensure that the companies backed by it faced maximum