Academia series – Part 1
The treatment of information exchange in Article 101 TFEU cases
Explicit, ‘naked’ cartels are almost universally condemned as unlawful. Conversely, conduct resulting purely from oligopolistic interdependence (tacit collusion) is not seen as a competition law violation. In between this conduct, firms can engage in a range of practices to reduce strategic uncertainty and more effectively coordinate their conduct. These strategies may include unilateral communication to the market about future strategies, information exchanges, such as ‘cheap talk’ about planned price increases, capacity, to other future conduct, and more formalised industry wide information sharing systems.
In the EU, the law on information exchanges is shaped by several decisions of the Commission and the Court of Justice, which will be discussed in this paper. Until 2011, there was only very limited guidance available to undertakings, in the form of a report issued by the Commission in 1968 and superseded in 1978 followed by the Horizontal Cooperation Guidelines of 2001 which unfortunately excluded information exchanges from their scope. The 1968 ‘Notice’ established for the first time that exchanges of information may fall within the scope of application of Article 85EC (currently Article 101 TFEU), but stated that the assessment of such practice may vary according to the structure and characteristic of the industry and the specific facts of the case. Information exchanges were becoming a ‘hot topic’ both on the EU level and in the Member States. In response to the court pronouncements, the Commission sought to provide more comprehensive guidance by including information exchanges in the 2011 Guidelines on Horizontal Cooperation (‘the Guidelines’). Whilst the Guidelines’ treatment of information exchanges has been welcomed by many as a step in the right direction and positive reactions can be found in various literature, they have also been the target of harsh criticism ‘usually based on their overstating of the anti-competitive dangers and there understating of the pro-competitive and efficiency-enhancing aspects’. It has also been stated that:
‘The Guidelines have the merit of providing a structured framework for assessing the effects of information exchange, a defined category of restriction of competition by object, and principles for assessing the efficiencies of information exchange. On the less meritorious side, they can be criticised for not providing a safe harbour and more generally, for being overly cautious to the point of discouraging undertakings in engaging in perfectly legitimate information sharing.’
Contrary to some criticism, the Guidelines are based on sound policy and reflect both EU case law and the European Commission’s practice in the area. For the first time these guidelines, although not binding, offer general and practical guidance on when exchanges of information between competing companies might breach EU competition rules. The Guidelines are heavily influenced by the case law of the EU Courts, in particular, John Deere v Commission, Asnef-Equifax v Ausbanc, and T Mobile v Nma.
Information exchange may primarily be seen as giving rise to competition concerns, however the benefits from this exchange may surprisingly be positive and pro-competitive.
Exchange of information between competitors and the creation of a transparent market may be ‘harmless or even highly beneficial to the competitive structure of the market’. The role of transparency and access to information were always deemed by economists to be the heart of the competition process and of the economic benefits generated. Market transparency, is thus a factor which can promote or restrict competition depending on the circumstances. Increased market transparency is thus perceived as a factor to be encouraged. From the supply-side, for instance, the knowledge of the market and its key features (e.g characteristics of demand, available production capacity, investment plans …etc) facilitates the development of efficient and effective commercial strategies by market players. New entrants or even fringe-players may benefit from the exchanged information and as a consequence enter the market more effectively and compete more fiercely. Consumers may also benefit from increased knowledge of market conditions permitting them to compare terms and conditions of the various offers available on the market and to freely choose the most suitable in a most cost-effective manner.
Notwithstanding the significant pro-competitive effects of information exchanges between competitors, such conduct may also ‘present the opportunity for competitors to coordinate their behaviour and to achieve and maintain collusive equilibrium over time’. In effect these exchanges may be ‘used to bolster or facilitate the operation of a cartel’, or to support price fixing or other hard core cartel activity.
The Guidelines identify two main competition concerns arising from the exchange of information between competitors: (i) it may enable undertakings to predict each other’s future behaviour and to coordinate their behaviour on the market (collusive outcome); and (ii) it may result in anti-competitive foreclosure of the market in which the exchange of information takes place or a related market. The key concern here is how can a balance be achieved between those exchanges of information which restrict competition and facilitate collusive behaviour and on the other hand, the flow of information which increases market transparency generating efficiencies in the market.
It is generally understood that for collusion to be sustainable, the following three elements should hold: the ability to reach agreement, the ability to monitor adherence to the agreement, and the ability to punish deviation from the agreement. As regards foreclosure, information exchange can restrict competition on two levels: between competitors who are not parties to the exchange and between the members of the exchange. Furthermore, anti-competitive foreclosure can occur on the same market where the exchange takes place as regards unaffiliated competitors. It can also occur as regards third parties in a related market. For instance, by exchanging information in an upstream market, vertically integrated undertakings may be able to raise the price of a key component for a market downstream, with the effect of raising the costs of their rivals downstream.
The exchange of information between competing companies may take various forms. Direct exchanges (pure information exchange) between competitors is the most obvious way of exchanging information and can rarely disguise the anti-competitive object of such agreements. However, even if there is no direct exchange between competitors, information sharing can still fall within the scope of competition law. The exchange may be part of another type of horizontal agreement (e.g., the parties to a production agreement share certain information on costs). The assessment of the latter type of information exchanges would normally be carried out in combination with an assessment of the respective horizontal co-operation agreement.
Information exchange may also facilitate the implementation of a cartel by enabling companies to monitor whether the participants comply with the explicitly agreed terms. These types of exchanges of information are normally assessed as part of the cartel. In Gas insulated Switchgear the Commission imposed hefty fines (€750.7 million) on twenty companies for their participation in a cartel on the gas insulated switchgear market. From at least 1988, when a written agreement between the members was adopted, GIS suppliers informed each other of calls for tender for GIS and co-ordinated their bids in order to secure projects for the cartel members according to their respective cartel quotas. Alternatively, they would agree to respect minimum bidding prices. The companies also fixed prices, allocated projects to each other, shared markets and exchanged commercially important and confidential information. The illegality of the information exchanges of this kind is established by virtue of the fact that it is a mechanism for supporting behaviour that is illegal anyway. Therefore, exchange of information pursuant to an illegal agreement is itself illegal.
Finally, information exchange may be found to have the object of fixing prices or quantities, and in those situations would normally be considered and fined as cartels.
For instance pricing rules in vertical agreements could contain ‘contingency clauses or commitment obligations’, meeting competition or price matching clauses or resale price maintenance clauses which will allow the supplier to be immediately aware if rivals have undercut its price. There are also situations where commercially sensitive information occurs through the so-called ‘hub and spoke arrangements’ where data flows from one retailer to another via their common supplier. Traditionally, vertical exchanges of information between manufacturers and retailers are not objectionable if the information relates only to the retail sales. A competition infringement may be detected if vertical exchanges allow for the identification of sales of other competitors and ‘if such information allows interference with the retail activity of the dealers or of the parallel importers’.
Trade Associations also facilitate the dissemination of information by collecting industry data (relating to prices, outputs, capacity and investments and circulate this information to their members which in turn makes it easier for these undertakings to plan their own business strategies. In many cases, independent consultants disseminate information on the structure of the market. The main activity of these third parties is to monitor markets, collect and compile industry data and market study to the market players. If the market study prepared by the consultant third party is jointly commissioned by the market players and the information is not collected from independent source but fro the competitors themselves, the role of the consultant could be construed to be similar that a trade association and ‘exposure to antirust enforcement could be higher’.
Private information exchanges, as opposed to public information exchanges (where data is equally accessible to the supplier and customers leading to market transparency), may also be deem to restrict competition. Some authors have suggested that ‘cheap talk’ between firms can assist in a meeting of minds and allow firms to reach an understanding on ‘acceptable collusion strategies’. Unilateral announcements, on the other hand, have been accepted by the CJEU as creating a potential benefit to consumers in comparing prices and adjusting their purchasing strategies. In Wood Pulp, the CJEU announced that public announcement of prices ‘constitute in themselves market behaviour which does not lessen each undertaking’s uncertainty as to the future attitude of its competitors. At the time when each undertaking engages in such behaviour, it cannot be sure of the future conduct of the others’. Following this reasoning the Court concluded that the system of price announcements represented a rational response to the fact that both buyers and sellers needed the information in advance in order to limit their commercial risk in a long term market. Despite the general harmless effects of public announcements or published data (for example, published via websites), these may in certain circumstances still act as an indirect exchange of information or as an indication to competitors of a company’s future intentions. Following such an announcement, competitors may be in a position to align prices in such a way as to facilitate collusion. For this reason, competition authorities are still eager to monitor public exchanges of information to identify and regulate those which may be anti-competitive nature.
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