Information exchanges and joint negotiations EU position. Keith Jones (London)

Transcription

1 Information exchanges and joint negotiations EU position Keith Jones (London)

2 Agenda Topics for Today 1. Information exchange 2. Joint negotiations 2

3 Both are Horizontal Co-Operation Agreements Agreements between companies active at the same level of the market Can create competition problems: disguised cartels, direct limitation of competition, collusion, foreclosure But can give rise to substantial economic benefits: risk sharing, creating scale, efficiency of combined operations, reduced costs/greater output through collaboration Note - some JV s, mergers and acquisitions can be horizontal but structural in nature and generally assessed under merger control rules Practical starting point for assessing is EU Horizontal Guidelines (7 Chapters, covering various horizontal arrangements between competitors) NB, info exchanges exist in context of other arrangements assess as part of that arrangement 3

4 Summary of Market Share Safe Harbours Information exchange / standardisation no market share safe harbour 100% 10% - De minimis 4

5 1. Information Exchange Demystifying Dominance: Practical Rules for the Business on Abuse of Market Power 5

6 Information Exchange Common activity in the information age Competitor price comparison websites Consultants engaging in benchmarking exercise on competitor costs structures or plant efficiency Collection of industry data by trade association or industry analysts Can be pro-competitive and bring significant efficiency benefits but can also lead to coordination (largely dependent on market structure and / or the nature of the information exchanged) 6

7 Why does it matter? Complex area where clear guidance is to be welcomed Cartel risk of information sharing: EUR 331m penalty on DRAM suppliers in relation to a network of contacts and sharing of secret information (DRAM, press release of 19 May 2010) Fines on L Oréal and others in Spain and Italy for extensive information sharing (Euro 50 million on L Oréal in Spain) Case law sets wide test: Agreements on the exchange of information are incompatible with the rules on competition if they reduce or remove the degree of uncertainty as to the operation of the market in question with the result that competition between undertakings is restricted (ECJ in Asnef-Equifax v Ausbanc) Case by case assessment leaves many grey areas 7

8 Recognition that Information Exchange Can Bring Efficiencies Cost efficiencies/solve information asymmetries (HG, para 57) Benchmarking against best practices Reducing inventories Quicker delivery of perishable products to areas with high demand and reduction in areas of low demand Address market failures Market share information as a signal of quality Reduction of search costs for consumers: public exchange But Can facilitate coordination in the market eg help companies reach a common understanding, help monitor deviations, help target a new entrant (HG, paras 65-68). Can also lead to anti-competitive foreclosure 8

9 Horizontal Guidelines on Info Exchanges Structure of HGs is to identify object and then discuss effect then Guidance on when information exchange a restriction by object versus a restriction by effect trying to draw a bright line Object (ie problematic- and likely cartel conduct) narrowly defined Information exchanges between competitors of individualised data regarding intended future prices or quantities should therefore be considered a restriction of competition by object within the meaning of Article 101(1) (para 74) (Unstated reasoning future prices = easy to agree terms of coordination) All other forms of information exchange restrictions by effect. Requires proof of anticompetitive effects mix of: Sensitivity and age of information (note several times contract; fn refers to 12 months/uk Agricultural Tractors) Market concentration if tight oligopoly, more likely problematic Frequency/regularity of exchange (more frequent facilitates monitoring) Collection costs relevant to whether public information may lawfully be exchanged but even if public no guarantee no problem (92-94) 9

10 Price announcements Price signalling not thought to have been caught (Dyestuffs, Wood Pulp) (although a one-way disclosure is) HG, para 63 says that a unilateral announcement that is genuinely public does not generally constitute a concerted practice; but can t be excluded where subsequent announcements of other competitors take place What appeared to be unilateral is (now being) dragged in

11 Risk factors regarding price related exchanges Lower Risk Factors / Indicators Public announcement by one competitor alone of immediate price increases Public announcement of future pricing where not, in the overall context, an invitation to coordinate / part of a strategic dialogue with competitor Co receives information about competitors' future Pricing where: (i) it is supplied voluntarily by a customer; and (ii) is in the context of legitimate negotiations / bargaining with that customer (note, this may be general pressing by the customer of its commercial interests and not a narrow definition of contract negotiation). Ad hoc receipt of information, especially where the origin and context of the information are then marked clearly on the document. Paper trail for Co pricing decisions that clearly reflect unilateral and independence of decision - and fact that not variable depending on announcement by competitor Heightened Risk Factors / Indicators Public or non-public announcement of materially future price increase (many weeks before implementation where lead time not necessary) Co / competitor "responding" to (future) price announcement with similar future price announcement Pattern of above such behaviour over time Co /a competitor expressly requires or otherwise encourages customers (or any other third party) to provide information regarding other competitors' future Pricing / its own Pricing to other competitors. Co (or competitor) "continually" obtains Pricing information in a particular way / from particular parties (If so, it may be difficult to persuade a competition authority that this was not part of a systematic arrangement - consider the picture over time) Loose internal s / documents referring to signalling to market / competitor and expecting a reaction / disciplining a competitor if not s to individuals at any competitor "checking" position, reactions etc all internal documents and s etc discussing or leading to a decision that relates to possible "price communications" must be drafted appropriately

12 2. Joint negotiations 12 Demystifying Dominance: Practical Rules for the Business on Abuse of Market Power 12

13 What do we mean? Important to be clear on the situation Can be that parties are required to act jointly eg by the State Can be joint buying Can be joint selling Can be pursuant to eg R&D agreement (i.e. commercialisation of R&D) or a strategic alliance Context materially impacts on assessment see e.g. safe harbours 13

14 Production Agreements General concerns if (i) agreement on competitively important parameters, (ii) coordination leading to higher prices etc or (iii) foreclosure through acquiring market power. Guidelines recognise that no restriction by object where The parties agree on the output directly concerned by the PA; or a PA that also provides for the joint distribution of the m/f products foresees the joint setting of the sales prices of these products, provided that it is necessary for integrating the production and distribution functions of the PA No change in formal threshold (20%) above, must self-assess 14

15 Purchasing Agreements Aimed at creating buyer power - can lead to lower prices for consumers Need to assess horizontal and any vertical elements Consider impact on purchasing and selling markets Generally no issue unless (combined) market power on selling market, possibly through likely downstream coordination Safe harbour combined 15%; note recent OFT opinion more liberal (but market shares not v high)) 15

16 (Other) Commercialisation Agreements eg Joint Selling Cooperation in (primarily) selling, distribution or promotion of substitutable products (rather than production etc) Some such agreements cover price; others more limited Distribution also need to consider VBE if e.g. vertically integrated supplier also distributes via a (downstream) competitor If reciprocal or large undertakings - risk is market sharing If limited to joint selling alone (price), likely restriction by object (even if non-exclusive) (paras ) No restriction if allows market entry when could not enter otherwise Safe harbour at 15% market share combined (240) Effects - consider commonality of costs and whether oligopolistic market If no more than a sales agency without investment, likely to be a disguised cartel 16

17 What if the State encourages? Or buyer? If the state mandates an arrangement, even if anti-competitive, will fall outside of EU competition rules (State compulsion doctrine) But very narrow. Must be compulsory and no room to make any competitive decision (straight jacket) Not even if think managing the inevitable (eg Irish Beef) If merely encouraging cooperation, no enough Similarly, need care if purchaser encourages. Are consumers disadvantaged downstream? May need to stop the upstream collective selling (analyse as commercialisation agreement transparency helps, as not an object restriction).

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