Peering into the crystal ball

Information exchanges and self- assessment in the EC

Bernd Meyring

GCLC, 6 October 2008

2

Overview

– Introduction

– Benefit or harm?

– Precedents

– Exposure

– (Self-) assessment

– Conclusions and outlook

Introduction

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Information exchanges are on the agenda…

– Public enforcement has a focus on information exchanges (Commission and NCAs)

– Maybe more pending cases than decisions so far

– Maritime transport guidelines (1 July 2008)

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…but often take place within a grey area.

– Different scenarios require a different analysis– Information exchanges within a cartel– “Pure” information exchanges

– Black and white– Enforcement of anticompetitive agreements– There appears to be little white

– No clear analytical framework for “pure” information exchanges – Per se rules– Safety zones and black lists– Economic assessment case-by-case

Benefit or harm?

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Theories of harm

– Information exchanges within hardcore cartels– basis for agreements– monitoring deviation– implement punishment

– Pure information exchanges: a catalyst for collusion?– hidden competition (protected as such?)– entry barriers (effect?)– coordinated effects (tacit collusion)

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Potential pro-competitive effects

– Unilateral strategies– product design– targeted marketing– allocation of resources (capacity planning)– innovation

– Matching supply and uncertain demand– Lower entry barriers– Better bargaining position for better informed

customers– Market transparency is one of several conditions

for perfect competition

Precedents

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Per se vs. case-by-case approach

Article 81: practices “which have as their object or effect the prevention, restriction or distortion of competition” .

– Neither per se approach nor rule of reason– Checklist approach (“indicators”)

USA (since Maple Flooring, 1925): ‘rule of reason’ (effects) and safety zones, business review letters

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Relevant factors: overview

– Market structure

– Nature of information exchanged

– Frequency of exchanges

– Nature of products

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Relevant factors: market structure

– Level of concentration

– Elasticity of demand

– Entry barriers

– Buyer power

– Sustainability of collusion

The old “checklist” approach to oligopoly analysis?

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Relevant factors: nature of information

– Public data vs. business secrets

– Aggregated vs. individualised

– Historical vs. current

– Prices vs. other information

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Relevant factors: frequency

– What is the issue?– “artificial” market transparency– the fact that competitors speak

– No general rule that more frequent exchanges are more harmful, but– if there is harm, it will increase if the

exchange is more frequent– spillover risks

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Relevant factors: product characteristics

– All other factors being equal, the fact that a case is about commodity products facilitates collusion

– No general ban on information exchanges regarding commodities (liner shipping)

– Plays a role when assessing potential consequences of deviation

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Involvement of third parties

– Direct information exchanges

– Trade associations

– Independent consultants

– Publicly available statistics

Impact on spill over risk, entry barriers, availability to customers. Condition for safety zones in the US.

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Object vs. effect: cases

1986 Fatty Acids Object and effect

1992 UK Tractors Effect

1996 Eudim Effect

1997 Wirtschaftsvereinigung Stahl Effect

2000 RC Auto (Italy) Effect

2004 IAMA (Italy) Object

2005 Palais Parisiens (France) Effect

2006 Asnef/Equifax (Spain) Object

2006 Fedicine (Spain) Object

2006 UK Private Schools Object

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Object vs. effect: the tests

– Analysis of effects requires careful economic assessment case-by case– actual or potential effects– high risk of getting it wrong (ex ante but

also ex post)

– Information exchanges are increasingly analysed as “object” cases. – no typical objects cases (price fixing,

market sharing, etc.)– no need for sophisticated models?– need to establish (subjective) object?

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Object vs. effect: assumptions?

– Object in practice often assumed– is there a plausible innocent object?– the answer is: often yes

– True object and effect cases– True effect cases are cases in which anticompetitive

effects can be established (Paris Hotels). – True object cases are cases in which an anticompetitive

object can be established (information exchanges that monitor hardcore cartels).

– There is no room for assumptions: – Equivalent to assuming that companies committed

resources to something that did not work– Nor reconcilable with an effects based approach– Would amount to reversing the burden of proof: all

information exchanges for which no anticompetitive effects can be established are illegal unless it can be established that they have a pro competitive object

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Prevention, restriction, distortion

Art. 81: “[…] which have as their object or effect the prevention, restriction or distortion of competition […]”.

– no prevention

– no restriction

– distortion?

Exposure

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Sanctions (pure information exchanges)

Year Case Object/effect Sanction Comments

1986 Fatty acids Object and effect

€50k ‘Symbolic’ fines only

1992 UK tractors Effect €0 Obligation to exchange data at higher level of aggregation only

2005 Palaces Parisiens

Effect €55k-248k

Joint promotions go beyond a pure information exchange

2006 Private schools

Object £10k £10k fine (per school) + £3m to trust (total)

(Self-) assessment

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General guidelines

– Commission Notice on Cooperation Between Enterprises 1968

– Commission’s 7th Report on Competition 1977

– Commission’s 29th Report on Competition 1999

– Guidelines on the application of Article 81EC to maritime transport services (2008)

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1968 notice on cooperation

– Information exchanges that aim at collecting information needed for the unilateral determination of market conduct do not restrict competition

– Coordination may restrict competition and there is a risk of coordination in particular where information exchanges lead to recommendations regarding market behaviour

– In particular information exchanges in oligopolistic markets with commodity products may restrict competition

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7th report on competition policy

“In times of economic difficulty firms are increasingly tempted to evade tougher competition with which they are confronted. Information agreements are particularly important here.”

Test:

– Nature of information exchanged (aggregated statistics vs. individual data)

– Market structure

– Effect on (and availability to) buyers (“debars buyers from exploiting whatever ‘concealed competition’ subsists between sellers in oligopolistic markets”)

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29th Report on Competition 1999

IE between tractor & agricultural machinery manufacturers

– Individual data must be > 12 months old

– Aggregate market data < 12 months may be exchanged between 3 or more dealers in different industrial/financial groups.

– Aggregate market data < 12 months between < 3 dealers may be exchanged if it concerns at least 10 tractor units.

– “Clear guidelines for any similar exchanges of information in other economic sectors as highly concentrated as the market for tractors and agricultural machinery”

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Guidelines on maritime transport (2008)

“Where there is a truly competitive market, transparency between traders is likely to lead to intensification of competition between suppliers”

“On a highly concentrated oligopolistic market, on which competition is already greatly reduced, exchanges of precise information on individual sales at short intervals between the main competitors to the exclusion of other suppliers and of customers, are likely impair substantially the competition that exists between suppliers”

“The actual or potential effects of an information exchange must be analysed on a case-by-case basis”

“An exchange of information […] that restricts competition may nonetheless create efficiencies…”

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Self-assessmentAdvice based on case-law Effects based advice

Only historical data (>12 months) 1 - Does it facilitate collusion?

– sufficiently transparent for coordination and monitoring deviations;

–effective retaliation mechanism

– no effective countervailing competitive pressures

Only aggregated data

Only anonymous data

No business secrets

Only independently compiled 2 - Are there spill over risks?

Source: PLC Checklist on information exchanges 2007 (content from Simmons and Simmons)

3 – Are there pro-competitive benefits and do they outweigh the negative impact?

Conclusions and outlook

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Open questions

– Object or effect?

– Is an oligopoly (still) required?

– Does it make a difference if companies pay external bodies?

– General vs. asymmetric transparency

– Can the efficiency defence work in practice?

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Policy considerations

– Are enforcement resources well used on pure information exchange cases?

– What exactly is wrong with information exchanges (tacit collusion, hidden competition, spill over risk, indication for another infringement)?

– What is the appropriate legal framework (role of precedents, legislation, guidelines)?

Dr Bernd MeyringPartner, Competition/AntitrustLinklaters LLP, Brussels/Düsseldorf

Tel.: +32 2501 9245 / +49 211 22977 301bernd.meyring@linklaters.comwww.linklaters.com