The ne bis in idem Principle in Proceedings Related to Anti-Competitive Agreements...
Anti-competitive Agreements
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Transcript of Anti-competitive Agreements
Anti-competitive Agreements
Allan Fels, Professor of Government, The Australia and New Zealand School of Government (ANZSOG)
Overview Horizontal agreements
Cooperation, collusion, and cartels Per se prohibitions Other anti-competitive agreements Joint ventures
Vertical agreements Price restraints Non-price restraints
Case studies 2010 South African bread cartel 2007 Dutch beer cartel
Other Issues
Agreements under Malaysian Competition LawPer se illegal – horizontal agreements
Fix price or any other trading conditions Market sharing or share sources of supply Limit or control production, market outlets or market access,
technical or technological development, or investment Bid rigging
Other anti-competitive agreements – horizontal or vertical agreements Object or effect of significantly preventing, restricting or
distorting competition in any market for goods or services
Individual exemptions and block exemptions
Cooperation vs Non-CooperationFirms face a choice between cooperation and non-
cooperationFirms recognise the possibility of higher profits if they
coordinate their activitiesBut there is a strong private incentive to not cooperate
Certain forms of cooperation are per se illegal as 99% of the time they are harmful and should be banned
Other forms of cooperation should be assessed on a rule of reason basis
Cooperation, collusion, cartels
Economics of CooperationPotential anti-competitive effects
Higher pricesReduced productionWelfare transfer from consumer to producersDeadweight lossCosts of forming and enforcing
cooperation/collusion/cartelProtects inefficient firms Increased consumer search costsLower quality and variety of productsDecrease productive efficiency or innovation
Economics of CooperationPotential pro-competitive effects
Economies of scale and scope Improve planning of production and distributionAdvantages in marketing and distributionResearch and developmentReduces risk
CollusionCollusion will be successful if:
1. Potential for monopoly power, given the characteristics of the market
2. Expected high gains3. Organisational problems can be overcome
Unsuccessful cartelsCartels that are caught are the unsuccessful cartelsSometimes easier to catch
CollusionGenerally 3 types of collusion – agree to:
1. Fix prices, restrict output, market sharing, divide markets, bid rigging
• Prohibited per se under Malaysian Competition Law2. Take joint action to harm rivals who are not party to
the collusion, eg collective boycotts• Only illegal if object or effect of significantly
preventing, restricting or distorting competition in any market for goods or services
3. Manipulate the rules of competition in a manner that will lessen forms of competition other than price competition, eg restrict advertising
CollusionMarket characteristics for successful collusion
Inelastic demand at competitive priceAbsence of large and sophisticated buyersHomogenous productsStable/predictable demandMature marketsSeller concentrationLack of competitive fringe with elastic supplyDifficult to enter marketSimilar cost structuresEg cement, coffee, fruit and vegetables, mobile phones
CollusionConditions for successful, stable collusion
1. Competitors reach an understanding on price, output or another factor of competition
2. Detect deviations3. Punish deviations
Collusion1. Reaching agreement
What is an agreement?Firms might find it difficult to agree on a particular
outcome as their interests are not perfectly alignedNon-price variables and changing market conditions
complicate mattersCommon strategies
1. Cheap talk and focal points2. Basing point pricing3. Use trade associations
Collusion2. Detecting deviations – requires monitoring• Likelihood of successfully imposing/maintaining a
cartel depends on• Short term benefits of non-cooperation vs Longer term
loss of non-cooperation• Likelihood that cheating will be discovered and
punished• Devices for detecting deviations
1. Information sharing2. Meeting competition clauses3. Repeated interaction
Collusion3. Punishing deviations – examples• Quota reduction• Side payments• Non-cheating members to revert to the non-
collusive prices by raising output for some time• Most favoured customer clause• Multi-market contacts• Increasing cross-ownership among rivals interests• Threat of a price war
Per Se ProhibitionsProving the agreement
Evidence of explicit agreement between membersEvidence of parallel conduct
Mere parallelism? Conscious parallelism/oligopolistic interdependence?
Evidence of facilitating/concerted practices Information exchange?
Per Se ProhibitionsUS approach
Contract, combination, or conspiracyParallel conduct + “plus factors” (typically
circumstantial evidence that tends to exclude the possibility that the parties acted independently)
EU approachAgreements, decision of associated undertakings, or
concerted practicesConcurrence of willsParallel conduct is not proof of concertation unless
concertation is the only plausible explanation for such conduct
Per Se ProhibitionsAustralian approach
Contract, arrangement, or understandingRequires communication, consensus, and
commitmentPrice signalling and information disclosure re:
banking sector
Leniency ProgramsIncreases the probability of detection and punishment
by placing cartel members in a prisoners’ dilemma Interest in keeping cartel unproven vs Incentive to
confessLeniency increases the incentive to cheat and confess =>
increases cartel instabilityIncreases the probability of detection and punishment
by placing cartel members in a prisoners’ dilemmaLowers the cost of detectionProvides information
Leniency ProgramsFactors that increase the effectiveness of leniency
programsThreat of firm sanctionsFirms perceive a significant risk of detectionTransparency
Other Horizontal AgreementsExamples
Information sharingRestrictions on advertisingStandardisation agreementsR&D joint ventures
Apply rule of reason analysis
Rule of Reason Analysis1. Facts peculiar to case
Eg market power of the parties, competitive relationship between parties, economic conditions
2. Nature and scope of the restraint• What does the restraint actually do, how far does it
extend• Reasons for its entry and adoption• Business purpose?• Is the restraint ancillary to the main and lawful
purpose of the arrangement
Rule of Reason Analysis3. Anticompetitive effects of the restraint
Compare the condition of the market before and after the restraint
4. Pro-competitive justifications• Eg efficiencies, economies of scale, non-economic
benefits
5. Is the restraint reasonably necessary to achieve those justifications, is it the least restrictive means
6. Weigh up
Example: Joint VenturesGenerally treated like other general anti-
competitive horizontal agreementsPotential pro-competitive effects
Economies of scaleSpreading the risks and costs of research and
development Increasing incentives for research and developmentAcquiring new technologies or skillsSynergies from pooling of complementary resources
or capabilities
Example: Joint VenturesPotential anti-competitive effects
Spillover collusionCollateral restraintsBuild or secure monopoly power by erecting barriers
to entry and eliminating competitionDenying access to essential resources or facilitiesDecreased dynamic efficiency
Reduction of competitive pressure leading to less incentive to engage in research and development
Reduction in diversity of research paths
Horizontal MergersNormally dealt with under merger lawA merger maybe anti-competitive but there are
greater chances of achieving efficiency gainsIn the absence of a merger law, a cartel
prohibition may generate mergers between competitors
Vertical AgreementsPrice and non-price restraintsGenerally less of a concern than horizontal agreements
from an economic perspective and treated more leniently
There is no economic reason to distinguish between price and non-price restraints The nature of the restraint on its own does not allow
prediction of whether will have positive/negative welfare effects
Cf position taken by MyCC in its guidelines
Analysed using Rule of Reason
Vertical Price RestraintsResale price maintenance
Maximum resale priceMinimum resale priceRecommended retail priceExamples
Perfumes Sporting goods Electronics Shoes
Vertical Price RestraintsPotential pro-competitive effects
Enhances interbrand competition Encourages non-price competition between retailers Protects investment in brand image Prevents free riding Prevents loss leader selling Attracts retailers by ensuring a certain level of profit Preserves small business from national chains or discount
operations Avoids double marginalisation
Potential anti-competitive effects Aids collusion at both the manufacturer and retailer levels Reduces intrabrand competition
Vertical Non-Price RestraintsNon-price restraints
Geographic restrictionsCustomer restrictionsExclusive contracts
Requirements contracts Exclusive distributorship Tying conduct
Vertical Non-Price RestraintsExamples
A will only supply B on condition that B not acquire any of its stock from C (a competitor of A)
A will only supply B on condition that B not sell to customers who live in the Eastern region
A will only supply B on condition that B also acquire washing powder from A
B agrees to acquire stock from A on the condition that A not supply to any another retailer in a certain area or of a certain kind
Vertical Non-Price RestraintsPotential pro-competitive effects
Enhances interbrand competition Prevents free riding Avoid double marginalisation Reduces distribution costs Rationalises production Greater control over standards and services
Potential anti-competitive effects Less choice and potentially higher prices Market foreclosure Increases barriers to entry at manufacturers’ level Limits intrabrand competition
Rule of ReasonNeed to consider the impact of the restraint both levels
of the market affected In particular, note
Impact on inter- and intra-brand competition
Length of restraint
Impact on structural and strategic barriers to entry
Promotion of market sharing and price sharing
Vertical AgreementsProving vertical agreements
Evidence of express vertical agreementCircumstantial evidence?
Manufacturer announces in advance the circumstances under which it will refuse to sell, and then refuse to deal with those who do not comply
Distributing lists showing uniform prices to be charged Termination following complaints Other unilateral conduct/policies? Tacit acquiescence?
Vertical Agreements• US approach• Contract, combination, or conspiracy• Evidence that tends to exclude the possibility that
the parties were acting independently• Reasonable tendency to prove that the parties had a
conscious commitment to a common scheme designed to achieve an unlawful objective
Vertical Agreements• EU approach• Agreement or concerted practice• Concurrence of wills• Tacit acquiescence can be inferred• Where one party requires the cooperation of the other
party to implement its unilateral policy and the other party complies with that requirement by implementing that unilateral policy in practice
• Level of coercion exerted by a party to impose its unilateral policy on the other parties, together with the number of parties who implement that unilateral policy in practice
Case Study: 2010 South African Bread CartelEntry barriersDemand substitutesElasticityVertical relationships
Case Study: 2007 Dutch Beer CartelEntry barriersDemand substitutesElasticityVertical relationships
Other IssuesInternational cartels and cooperation between
NCAs Information sharing and leniency