#13671 - Horizontal Agreements - International Competition and

Outcomes:

Understand some of the ways in which horizontal arrangements can restrict competition
Appreciate the methods employed in horizontal agreements to restrict competition
Identify the pro-competitive effects of horizontal agreements
Identify and use information from a number of sources of competition law and policy
Apply that information to a scenario and draft a briefing note

Outcome 1 & 2 – horizontal agreements – anti-competitive effects

What is a horizontal agreement?	Horizontal agreement those between undertakings at the same level of the market eg two manufacturers – includes Cartels (most serious type of anti-competitive behaviour)
How can it restrict competition?	Competition is based on the theory of competition between competitors and arrangements between horizontal undertakings removes this competitive dynamic
Effects on competition	Can lead to price fixing, market sharing and may limit output or exclude potential new competitors to from the market. Onus to prove alleged conduct falls on the Commission and where there is no agreement it may resort to direct or indirect evidence of a concerted practice. Where there is evidence of both parallel conduct and contact between the parties (even a single meeting) it is probable that a concerted practice will be held to exist (Case c-8/08 T-Mobile Netherlands BV v Raad van Bestuur)
Direct evidence	e.g. proof of plans, meetings, minutes of meetings or the exchange of confidential information
Indirect evidence	e.g. showing the existence of and participation in an informal system of exchange of information or joint discussions, or proof of market behaviour which can only be explained by collusion Where indirect evidence is adduced it will be open to the parties to rebut allegations by providing alternative explanations
Horizontal arrangements in context of anti-competitive agreements (Art 101(1))
Price fixing	Object of any price-fixing horizontal agreement is the restriction of competition DON’T need to show that there has been any anti-competitive effect on the market due to pernicious effect on competition of such behaviour Types of price fixing arrangements: jointly setting prices, price levels, minimum or maximum prices, or jointly observing mutually acceptable price lists; jointly agreeing on the amount and date of price increases; jointly agreeing on a price list or increase to be announced publicly by one competitor but which others are prepared to follow; jointly agreeing on an essential element of the price or, sometimes, the underlying formula for the calculation of the price; jointly setting different price levels for different customers/countries; direct or indirect setting of prices under revenue sharing agreements; jointly agreeing on identical levels of discount or setting a maximum level of trade discount; jointly setting recommended prices; and/or regularly exchanging commercially sensitive price information
Market Sharing	Price fixing is often accompanied with market sharing infringements Will be caught by Art 101 TFEU Restricts customer choice by reducing the number of products available in a territory or to particular customers Dividing up the market geographically along national lines will be particularly serious in the context of the EU since such an agreement cuts directly across the fundamental objective of a single internal market Markets can be divided geographically or by class of consumer Considered to have as their object the restriction of competition and therefore actual effects need not be proven Will rarely apply for Art 101(3) exemption
Collective tendering/bid rigging	Infringement relates to the common commercial practice of putting work out to tender – each tender submitted should be done confidentially and not in collusion with other suppliers Consists of agreeing or simply consulting in advance with competitors as to the terms of the bid they intend to make in response to an offer to tender Caught by Art 101(1) TFEU Eg agreement to quote identical prices or setting up a central administration to deal with all tendering opportunities according to a pre-determined set of rules In order to allocate contracts and fix tenders, not only is the price competition process eliminated, but a situation may also result in which markets are allocated and customers are shared out along lines other than those which would arise under normal competition (PreInsulated Pipes [1999] OJ L24/1) It is unlikely that any system of bid-rigging will satisfy the conditions set out in Article 101(3) TFEU and thereby qualify for an exemption from the prohibition
Information sharing between competitors	Often information sharing is a necessary and legitimate part of business activity Where information sharing does not have an anti competitive object must see whether it has an anti competitive effect Question - whether the information exchange is capable of providing an ‘artificial transparency’ between the parties which influences their conduct to the detriment of consumers Factors to consider if there has been a breach of Art 101(1): Market structure a market with oligopolistic tendencies (ie where there are only a few very large operators on the market) is more likely to result in a finding that information sharing will have a negative impact on competition information exchanges which appear only to be capable of marginally affecting the commercial decisions of competitors will take on greater significance if those competitors together control a significant proportion of the market Nature of information specific information on pricing policies or intended conduct in the future (whether it be in relation to pricing, investments, R&D or otherwise) will tend to lead to further and closer investigation may raise competition concerns if it is commercially valuable Access to information fact that the information exchanged is available publicly elsewhere on a less convenient basis will reduce but not eliminate the competition risk associated with the information exchange Category of person having access to information Frequency of the information exchange
Restrictions on productions/quotas	Ensuring that only a pre-agreed amount of the product is released onto the market at any one time (therefore ensuring demand for the limited supply remains high)
Exclusive purchasing	Here a number of suppliers and retailers may agree to enter into an exclusive purchasing agreement, whereby they agree to purchase only from one another The concern is that other suppliers may be prevented from using the retailers subject to the arrangement to sell their goods Eliminates the threat of other competitors This is referred to as a ‘horizontal restraint’
Horizontal arrangements and abuse of market power (collective dominance) – Art 102
Collective dominance	For there to be collective dominance separate economic entities must ‘‘present themselves or act together on a particular market as a collective entity’ In Case C-395/96 P Compagnie Maritime Belge Transports SA v Commission [2000] ECR I-1365, the ECJ upheld a Commission decision that the collectively dominant members were found to have engaged in practices attempting to eliminate competition such as selective price cutting and the grant of loyalty rebates It should be noted that abuse for the purpose of collective dominance will not be satisfied just because the activity would amount to an agreement or concerted practice under Article 101(1) TFEU
Cartels in the UK – CMA (Chapter I section 2 Competition Act 1998)
Price fixing	The price they will charge or the discounts/credit terms they will offer their customers for goods or services
Bid Rigging (S188(2)(f) of Enterprise Act 2002 and Chapter I section 2 CA 1998)	Deciding who should win a contract in a competitive tender process Signs of bid-rigging do certain suppliers unexpectedly decline an invitation to bid? is there an obvious pattern of rotation of successful bidders? is there an unusually high margin between the winning and unsuccessful bids? do all bid prices drop when a potential new bidder (ie, who is not a member of the cartel) comes on the scene? is the same supplier the successful bidder on several successive occasions in a particular area or for a particular type of contract? are there one or more suppliers who continue to submit bids although they consistently fail to win a contract?
Output Quotas/restrictions	Limiting the levels of products or services supplied to a market in order to increase the price,
Market sharing	Choosing which customers or geographic areas they will supply, or preventing competitors (eg, foreign competitors) from entering the market
What would need to be proven for a claim of damages to be successful?	S2 CA 1998: Between undertakings (not subsidiaries) Agreement (low bar – Quinine Cartel agreement) that may affect trade in the UK Have as their object or effect the prevention restriction or distortion of competition within the UK (does not need to adversely affect, just has to have the possibility of the distortion of trade) Unless exempted in accordance with provisions Similar to EU law but within UK Third party damages claim – claimant must also show on the balance of probabilities that not only a competition infringement has taken place (above) but also that they have suffered harm
Action by CMA against Cartels	Impose substantial financial penalties (of up to ten per cent of worldwide turnover) on businesses...

#13671 - Horizontal Agreements - International Competition and Anti-Trust

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