Relaxing whilst doing Competition Law is not an Oxymoron

Information Exchange and Cartels – Dangerous Liaisons?

with 6 comments

Are information exchanges really = cartels under EU competition law?

The issue has triggered many discussions on the blog lately. I just thought I’d post my own ruminations on this.

The  Guidelines do not really say that information exchanges are cartels. Let’s take a close look. There are four references to cartels in the guidelines that concern information exchanges. The first one, which is general in scope, can be found at §9  and expressly says the contrary: “Although these guidelines contain certain references to cartels, they are not intended to give any guidance as to what does and does not constitute a cartel as defined by the decisional practice of the Commission and the case-law of the Court of Justice of the European Union”. The three other references, which can be found at §§59 and 74, do not quite say that information exchanges are cartels. It is stated there that exchange of information, in particular on future prices, “with the object of fixing, in particular, prices or quantities” will be “considered and fined as cartels”, which is quite different from saying that they are cartels (and which is in line with the existing case-law on “concerted practices”). Moreover, in so doing, the Guidelines accurately indicate that only a subset of information exchanges may be treated as cartels (am a “glass half-full”, optimistic person) . Those are information exchanges that have the object of fixing prices or quantities. It is thus incumbent on the Commission – or on the complainant, applicant, whatever – to prove that the information exchange has an anticompetitive object, which I understand here as purpose (or intention). Not all information exchanges are thus treated as cartels.

From an economic perspective, what the Guidelines say is not illegitimate. Moving beyond the possibly unfortunate semantics of the Guidelines (why not stick to the good old concept of a “hardcore restriction”), exchanges of information on future prices in the market place are, from an economic standpoint, quite a bad thing. First, such practices are known to facilitate tacit collusion on tight oligopolistic markets. Second, in many cases, exchanges of information on future prices are just the tip of the iceberg: they serve as the adjustment mechanism of an otherwise unproven, but explicit collusion.

Are the Guidelines really tougher on information exchange? On this blog and elsewhere, it has been argued that the reference to cartels could signal a tougher regime for information exchanges. On this, a counterintuitive reflection springs to mind: from a defense counsel perspective, equating information exchange on future prices with cartels may actually mark a relaxation of the legal regime applicable to such hardcore restrictions. Think about it: the culprits now can benefit from leniency and enjoy the penalty discounts afforded under the settlement notice. To me, this does not really sound like an aggravation of the legal regime applicable to exchange of future information (which as I said were treated in the case-law as egregious restrictions of competition).

Where the concerns really are. Don’t get me wrong: I am not a fan of the Guidelines’ infuriated semantics. But I think there are other, more important areas of concern in relation to information exchange. I regret in particular that the Guidelines espouse a checklist (or “laundry list”) approach to information exchanges, which provides little, if no, legal certainty to firms willing to self assess proposed agreements. To assess such agreements, firms must review a long range of factors of seemingly equal importance, and the calibration of pro v. anti-collusive factors is notoriously daunting. Given that the theory of harm ascribed to information exchange is tacit or overt collusion, the Guidelines should have subordinated a finding of incompatibility under Article 101(1)TFEU to proof of the 3 cumulative Airtours condition (there’s a discrete reference to Airtours at fn61). This would have been sensible from both a legal certainty and an economic standpoint. Moreover, this solution would have ensured legal consistency across the various areas of EU competition law.

Written by Nicolas Petit

6 April 2011 at 11:51 am

Posted in Case-Law, Uncategorized

6 Responses

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  1. All fine, but what about the following: “Interesting, but if collective dominance is lawful, practices which create collective dominance ought to be deemed lawful” (from a ppt presentation posted last month). I have to say that I really was puzzled by this passage, and I am even more so now that I see you taking an opposite (in my view, perfectly sensible) view regarding what may ultimately be thought of as a facilitating practice.

    Paolo Siciliani

    6 April 2011 at 3:28 pm

  2. Thanks Paolo. What I say in the ppt is the following: facilitating practices cannot be caught under Article 102 TFEU. There are legal obstacles to this. But they may well be, and are, caught under Article 101 TFEU. Since you’re a daily reader of the blog, you may also have an interest in other of our works :): There’s a full chapter on how Article 101 can be used to fight facilitating practices.

    Nicolas Petit

    6 April 2011 at 5:00 pm

    • Good, not to be pedantic, but you didn’t write that they cannot be caught under art. 102, you wrote they ought to be lawful, which is different.
      That said, I thought that being thougher to sanction info exchanges under art 102 (if only because at least in theory there is no 102(3)) that would have been better in order to avoid type I errors, rather than under an object infringment under 101….I thought you lawyers were keen on this type I thing 🙂
      Regrettably, I don’t speak french, so looking forward to reading the article you said is imminent.

      Paolo Siciliani

      6 April 2011 at 6:22 pm

  3. I’ve alredy stated my views with regards to these issues in detail, but there are a couple of important remarks I feel I should make now:

    – To me, the existence of recital 9 gives a clear indication of the fact that the term cartel may have been used too lightly in the Guidelines. Also, the qualification pursuant to which the “object of fixing prices” is what distinguishes what can be treated as a cartel and what not is (even if arguably correct from a theoretical perspective) quite open to wide interpretations in practice.

    In any case, I insist: the problem does not mainly come from the Guidelines themselves, but rather on the way that NCAs might interpret/ are interpreting it (remember the recent Spanish case I mentioned).

    – The aggravation of the legal regime applicable to excangs of future information is, from my practitioner’s perspective, very clear. If the case law did treat exchanges of info as cartels (which are with reason the worst treated -not just any- subtype of “egregious restrictions of competition”).

    – I read the last paragraph of the post as a good statement of the reasons why info exchanges should be treated as restrictions by their effects!

    – Facilitating practices under 102 TFEU: This is probably the only aspect of Nicolas’ brilliant thesis that I do not fully share. Resorting to the notion of individual abuse of collective dominance (in a way similar to the reasoning underlying, for instance, the US Ethyl case or current Canadian law) is, in my view, perhaps the most effective way to fill the oligopoly gap. I intend to discuss this in greater detail on this blog (and to publicly debate it with Nicolas) as soon as time allows..

    Alfonso Lamadrid

    6 April 2011 at 6:10 pm

  4. Paolo, thanks. What you read in the ppt is under the header “abuse”, which itself is under the header “abuse of colldom”. Under the chapter on agreements, I say that facilitating practices are caught. Will try to move fast on the paper, so you get a better feel of the reasons underlying my position.

    As to my friend Alfonso, I think the strongest point lies in the fact that NCAs might go too fast in reading the text, and treat all info exchange as cartels (rather than a subset of them, those with the object understood as intention). But I am afraid I have to maintain that all info exchange as such are not cartels in the Guidelines. Saying that is just misrepresenting what’s written in the text (in making what is an exception the principle).

    Nicolas Petit

    7 April 2011 at 9:27 am

  5. An additional problem: in order to treat exchange of information as cartels you need only to show that the object of the exchange was to fix prices ok? but, how do you know that the object of the exchange of information was to fix prices? Intention of the parties? Not very useful. what then? All the circumstances. Ok, but then you are at the laundry list. And, remember, once you have an infringement by object you do not need to care about effects (if the exchange of information provoked a price increase of the products affected or not). There is no way to save the Commission Guidelines when you insert them into the crazy general doctrine applied at art. 101 cases


    11 April 2011 at 1:20 pm

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