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Information Exchange between Undertakings

Leupold, Bettina (2006)
Department of Law
Abstract
Communication between competing undertakings comes in different guises: It is an indispensable and inherent feature of every cartel, it is at the heart of the activities of every trade organisation, and today many firms are involved in some type or another of benchmarking, which is also based on an exchange of information between the participating companies. This thesis deals primarily with information exchanges as an independent infringement of competition law, unconnected to more far-reaching cartel agreements. It takes European competition rules as a starting point, but includes case examples from a variety of European jurisdictions for further illustration and comparison. In order to fully grasp the anti-competitive potential of pure... (More)
Communication between competing undertakings comes in different guises: It is an indispensable and inherent feature of every cartel, it is at the heart of the activities of every trade organisation, and today many firms are involved in some type or another of benchmarking, which is also based on an exchange of information between the participating companies. This thesis deals primarily with information exchanges as an independent infringement of competition law, unconnected to more far-reaching cartel agreements. It takes European competition rules as a starting point, but includes case examples from a variety of European jurisdictions for further illustration and comparison. In order to fully grasp the anti-competitive potential of pure information exchanges, it is required to get acquainted with the economic environment in which they occur. The theory of oligopolistic interdependence constitutes an important tool in this respect: It explains how competition can be impaired in markets with only few sellers and raises the question of how competition authorities can fight the undesired results of tacit collusion in such markets. Game theory provides the insight that tacit collusion is easier to sustain if communication between the competitors is intense and transparency is increased. Information exchanges are one very effective way of reducing uncertainty and discouraging competitive action: If deviations from the collusive path are detected immediately and with high likelihood and if retaliatory measures are swift and targeted, hidden competition is virtually eliminated. Information exchanges should therefore be considered as facilitating practices and prohibited as such if the market structure is conducive to tacit collusion. The fact that market transparency, one of the characteristics of perfect competition, is enhanced, cannot overturn these findings: If the information exchange occurs in a highly concentrated oligopolistic market and exclusively between the sellers or producers, the negative effects clearly prevail. The European Commission has dealt with a few cases that concern pure information exchanges and with a larger number where information exchanges formed an important part of a wider cartel. The leading case remains the UK Tractor Registration Exchange from 1992 whose main findings were upheld by the Community courts. Two principal aspects have to be taken into account in the assessment of information exchanges: First, the market structure must present characteristics that favour tacit collusion, and second, the features of the information exchange itself must be examined as to their suitability for monitoring competitive measures. Concerning market structure, the Community courts have confirmed that information exchanges are particularly harmful in a highly concentrated oligopolistic market. Other relevant factors that have repeatedly been mentioned are high barriers to entry, product homogeneity, structural links between the companies and stagnant or declining demand. In economic science, a large number of additional criteria have been identified which make a market prone to tacit collusion, and some of them have already appeared in national competition law cases. It is also interesting to note that parallels can be drawn to the law of mergers: There, the aim is precisely to prevent such markets from coming into being in the first place. It remains to be seen whether a fully harmonised approach will be taken. As regards the features of the information exchange, the Commission and the Courts focus, inter alia, on the type of information, the state of aggregation, the age of the data and the frequency of the exchange. The more sensitive, detailed and recent the data and the more frequent the exchange, the more likely it is that the practice will fall foul of the competition rules. Interesting problems arise when the data are publicly available in some way or another and merely collected from the market. As a summary, one could say that once the Commission finds the market to be a highly concentrated, oligopolistic one, it will carefully scrutinise the features of the information exchange and is unlikely to be very receptive to efficiency claims. The next section of the work is dedicated to some defences and justifications that the incriminated undertakings have put forward, for example, the absence of an agreement between them or the fact that coordinated market behaviour had not been proved. The argumentation used by the competition authorities and courts to reject such claims is very instructive insofar as it gives sharper contours to the case law and helps undertakings estimate their chances of success. The recent Plasterboard decision, which contains a somewhat puzzling statement on how the Commission treats information exchanges under competition law is analysed and put into context. Finally, as a conclusion, a short survey of the antitrust implications of information exchanges in the course of due diligence proceedings preceding a merger is presented - a type of case which is familiar to the United States Federal Trade Commission, but which has not made an appearance on the European stage yet. (Less)
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author
Leupold, Bettina
supervisor
organization
year
type
H1 - Master's Degree (One Year)
subject
keywords
European Affairs
language
English
id
1555046
date added to LUP
2010-03-08 15:22:53
date last changed
2010-03-08 15:22:53
@misc{1555046,
  abstract     = {Communication between competing undertakings comes in different guises: It is an indispensable and inherent feature of every cartel, it is at the heart of the activities of every trade organisation, and today many firms are involved in some type or another of benchmarking, which is also based on an exchange of information between the participating companies. This thesis deals primarily with information exchanges as an independent infringement of competition law, unconnected to more far-reaching cartel agreements. It takes European competition rules as a starting point, but includes case examples from a variety of European jurisdictions for further illustration and comparison. In order to fully grasp the anti-competitive potential of pure information exchanges, it is required to get acquainted with the economic environment in which they occur. The theory of oligopolistic interdependence constitutes an important tool in this respect: It explains how competition can be impaired in markets with only few sellers and raises the question of how competition authorities can fight the undesired results of tacit collusion in such markets. Game theory provides the insight that tacit collusion is easier to sustain if communication between the competitors is intense and transparency is increased. Information exchanges are one very effective way of reducing uncertainty and discouraging competitive action: If deviations from the collusive path are detected immediately and with high likelihood and if retaliatory measures are swift and targeted, hidden competition is virtually eliminated. Information exchanges should therefore be considered as facilitating practices and prohibited as such if the market structure is conducive to tacit collusion. The fact that market transparency, one of the characteristics of perfect competition, is enhanced, cannot overturn these findings: If the information exchange occurs in a highly concentrated oligopolistic market and exclusively between the sellers or producers, the negative effects clearly prevail. The European Commission has dealt with a few cases that concern pure information exchanges and with a larger number where information exchanges formed an important part of a wider cartel. The leading case remains the UK Tractor Registration Exchange from 1992 whose main findings were upheld by the Community courts. Two principal aspects have to be taken into account in the assessment of information exchanges: First, the market structure must present characteristics that favour tacit collusion, and second, the features of the information exchange itself must be examined as to their suitability for monitoring competitive measures. Concerning market structure, the Community courts have confirmed that information exchanges are particularly harmful in a highly concentrated oligopolistic market. Other relevant factors that have repeatedly been mentioned are high barriers to entry, product homogeneity, structural links between the companies and stagnant or declining demand. In economic science, a large number of additional criteria have been identified which make a market prone to tacit collusion, and some of them have already appeared in national competition law cases. It is also interesting to note that parallels can be drawn to the law of mergers: There, the aim is precisely to prevent such markets from coming into being in the first place. It remains to be seen whether a fully harmonised approach will be taken. As regards the features of the information exchange, the Commission and the Courts focus, inter alia, on the type of information, the state of aggregation, the age of the data and the frequency of the exchange. The more sensitive, detailed and recent the data and the more frequent the exchange, the more likely it is that the practice will fall foul of the competition rules. Interesting problems arise when the data are publicly available in some way or another and merely collected from the market. As a summary, one could say that once the Commission finds the market to be a highly concentrated, oligopolistic one, it will carefully scrutinise the features of the information exchange and is unlikely to be very receptive to efficiency claims. The next section of the work is dedicated to some defences and justifications that the incriminated undertakings have put forward, for example, the absence of an agreement between them or the fact that coordinated market behaviour had not been proved. The argumentation used by the competition authorities and courts to reject such claims is very instructive insofar as it gives sharper contours to the case law and helps undertakings estimate their chances of success. The recent Plasterboard decision, which contains a somewhat puzzling statement on how the Commission treats information exchanges under competition law is analysed and put into context. Finally, as a conclusion, a short survey of the antitrust implications of information exchanges in the course of due diligence proceedings preceding a merger is presented - a type of case which is familiar to the United States Federal Trade Commission, but which has not made an appearance on the European stage yet.},
  author       = {Leupold, Bettina},
  keyword      = {European Affairs},
  language     = {eng},
  note         = {Student Paper},
  title        = {Information Exchange between Undertakings},
  year         = {2006},
}