The Ink Cartel: HP’s $14.4 Million Fine and the High Cost of Capture

The Indian government has fined HP India and its partners a total of 1.4 billion rupees, about $14.4 million, for working with reseller partners in the cartelization of computers, ink cartridges, and toner. The Competition Commission of India found that HP India had colluded with some channel partners to drive up the cost of bids for government contracts for computers, as well as for selling ink cartridges, toner, and other printing supplies.

The company was aiming to outcompete other OEMs and discourage resellers from selling counterfeit ink and toner. HP was fined 1.3 billion rupees, about $13.1 million, for coordinating bid prices with five resellers to increase the chances of an HP partner winning government contracts. This is not a story about a few bad actors. It is a story about how a business model, when pushed to its logical extreme, can corrupt an entire ecosystem.

The Anatomy of a Cartel

The CCI’s order reveals a systematic arrangement that was almost bureaucratic in its sophistication. Resellers approached HP India to help facilitate an arrangement that would enhance their chances of securing government supply contracts against other competing HP India resellers. These requests included restricting participation of resellers from other territories in local tenders, seeking support in dividing the accounts and relevant tenders amongst themselves, restricting the number of manufacturer’s authorization forms issued to other resellers, addressing instances where bid prices offered by other resellers were below the government e marketplace platform price, and facilitating cover bids.

WhatsApp records showed that HP and 16 of its Tier 2 reseller partners operated in a collusive arrangement. The messages showed the companies engaging in bid rigging, including cover bidding, price fixation, and customer allocation during 2017 to 2020. HP India played a central role in this scheme. The use of WhatsApp as a coordination tool is particularly telling. It suggests a casual, almost routine approach to what is essentially a criminal conspiracy. The messages were not coded or hidden. They were the normal course of business for these companies.

HP was also fined 119.8 million rupees, about $1.2 million, for indulging in cartelization in the sale and supply of toner, cartridges, and other consumables used with print hardware products. The agency also fined 21 HP resellers a total of 35.2 million rupees, about $365,335. The fines are significant, but they are also a fraction of the profits that were likely generated by the scheme.

The Defense and the Irony

HP India’s defense is revealing. The company said that high printing supply prices led some resellers to threaten to shift to low cost counterfeit products to compete on price. HP India claimed it was commercially forced into a position where it had to support the collusive arrangement adopted by the Tier 2 resellers.

HP India humbly objected to its role being characterized as the kingpin of the entire collusive arrangement. But the revelation that some HP resellers are struggling with the exorbitant price of printer ink and toner underscores a problem many printer users face. The economic challenge is exacerbated by HP’s tendency to block third party ink in already purchased printers through firmware updates. At the same time, with even its own partners threatening to take their ink business elsewhere, HP is pressured to get more HP printer users to only use HP brand ink and toner.

This is the core irony of the situation. HP’s business model, which relies on locking customers into expensive consumables, created the very conditions that led to the cartel. The resellers, squeezed by the high cost of HP’s supplies, turned to collusion to maintain their margins. And HP, rather than addressing the root cause of the problem, chose to facilitate the collusion. It was a rational choice within a system that had become detached from any notion of fair competition.

The Broader Context: A Systemic Problem

This case highlights a long standing tension in the printer industry. Printer manufacturers have traditionally sold hardware at low margins and made up the difference through high margin consumables like ink and toner. This business model has led to numerous complaints about the cost of printing and the practice of blocking third party supplies.

The CCI’s order is a significant enforcement action that sends a message about anti competitive behavior in government procurement. The agency also ordered HP India and its channel partners to cease and desist from anti competitive conduct and to hold competition compliance training programs within 60 days. But the question is whether this will be enough. The incentives that drove the cartel are still in place. HP’s business model has not changed. The pressure on resellers to maintain margins has not gone away. Without fundamental changes to how the printer industry operates, similar schemes are likely to emerge again.

The fine, while significant, is a fraction of HP’s overall revenue. But the reputational damage and the scrutiny of its business practices may have longer lasting effects. The case also raises questions about whether similar practices exist in other markets and whether other regulators will take action.

The Consumer Impact and the Question of Capture

For consumers, this case is a reminder of the high cost of printing and the practices that sustain it. The cartelization of government contracts ensured that taxpayers paid more for computers and printing supplies. The collusion among resellers reduced competition and drove up prices.

But the case also raises a deeper question about regulatory capture. The fact that HP India felt comfortable enough to facilitate such a scheme suggests a certain confidence that it would not be caught or penalized. The use of WhatsApp for coordination suggests that the participants did not believe their communications would be scrutinized. This points to a broader failure of oversight and enforcement. The CCI’s action is a step toward correcting that failure, but it is only one step.

The threat of counterfeit products is real, but the solution is not to engage in anti competitive behavior. Consumers and governments alike need transparent and competitive markets to ensure fair prices and quality products. The CCI’s action is a step toward that goal. It remains to be seen whether HP and other companies will change their practices or whether they will continue to find ways to maintain their profits at the expense of consumers and competition. The ink cartridge cartel is a symptom of a larger disease: the willingness of companies to sacrifice integrity for profit, and the failure of regulators to keep pace.

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