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Information Exchange in Oligopolistic Markets

Christensson, Ida (2008)
Department of Law
Abstract
Both consumers and firms need information to make good choices - whether it regards buying the best product in relation to price or quality or making strategic business decisions. Some transparency is beneficial for competition, whereas some creates a risk for collusive behaviour among firms. What information exchange is good and what is bad and how do we tell the difference? From a traditional consumer protection point of view, market transparency allows consumers to make informed choices. Demand becomes more sensitive to price, which sharpens competition and brings essentially positive effects. The traditional antitrust view, on the other hand, is that a liberal flow of information between firms has mainly coordinating or collusive... (More)
Both consumers and firms need information to make good choices - whether it regards buying the best product in relation to price or quality or making strategic business decisions. Some transparency is beneficial for competition, whereas some creates a risk for collusive behaviour among firms. What information exchange is good and what is bad and how do we tell the difference? From a traditional consumer protection point of view, market transparency allows consumers to make informed choices. Demand becomes more sensitive to price, which sharpens competition and brings essentially positive effects. The traditional antitrust view, on the other hand, is that a liberal flow of information between firms has mainly coordinating or collusive effects. When competing undertakings have access to information about each other's sales figures or investment plans, the scope for hidden competition such as secret price-cutting may be eliminated. To distinguish between a ''good'' and a ''bad'' information exchange, different types of information and the means by which it is exchanged, are determining. Generally, information relating to future behaviour and especially to future prices or quantities, is very likely to have a negative impact on competition, since it enables firms to coordinate their actions. Historic information has a lower collusive effect. Likewise, aggregated data normally affects competition in positive ways, whereas individualised data more likely facilitates collusion. The positive or negative effects of an information agreement depend not only on the nature of the exchanged information but also on the economic context in which it is exercised. The number of firms and product substitutability are two important factors. Thus, it is easier to restrict or distort competition in an oligopolistic market where firms are interdependent and products are homogeneous. Consequently, even aggregated information may infringe competition law, since the low number of firms allows the identification of individual market actors. This was established by the ECJ in the UK Tractors case, in which an exchange of aggregated information between tractor suppliers in an oligopolistic market was found to infringe EC competition law. The numerous breakdowns, in combination with the few market actors (four actors held together 77 % and eight actors held together 88 %) enabled the identification of the quantities and market shares of individual market actors. This, the ECJ stated was a violation of Article 81(1) EC. UK Tractors was the first case, in which an information agreement was found to infringe competition law by object and not by its anti-competitive effects. In relation to UK Tractors, I argue that the exchange of future price information in any market should be subject to a per se prohibition in European Competition Law. Moreover, in oligopolies, any exchange of price information, not older than one year, should be prohibited since the potentially beneficial effects of such exchanges are negligible whereas they create an imminent risk of collusion. However, undertakings will still have the possibility of recourse to an individual exemption in accordance with Article 81(3) EC. (Less)
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author
Christensson, Ida
supervisor
organization
year
type
H3 - Professional qualifications (4 Years - )
subject
keywords
Konkurrensrätt, EG-rätt
language
English
id
1556747
date added to LUP
2010-03-08 15:55:20
date last changed
2010-03-08 15:55:20
@misc{1556747,
  abstract     = {Both consumers and firms need information to make good choices - whether it regards buying the best product in relation to price or quality or making strategic business decisions. Some transparency is beneficial for competition, whereas some creates a risk for collusive behaviour among firms. What information exchange is good and what is bad and how do we tell the difference? From a traditional consumer protection point of view, market transparency allows consumers to make informed choices. Demand becomes more sensitive to price, which sharpens competition and brings essentially positive effects. The traditional antitrust view, on the other hand, is that a liberal flow of information between firms has mainly coordinating or collusive effects. When competing undertakings have access to information about each other's sales figures or investment plans, the scope for hidden competition such as secret price-cutting may be eliminated. To distinguish between a ''good'' and a ''bad'' information exchange, different types of information and the means by which it is exchanged, are determining. Generally, information relating to future behaviour and especially to future prices or quantities, is very likely to have a negative impact on competition, since it enables firms to coordinate their actions. Historic information has a lower collusive effect. Likewise, aggregated data normally affects competition in positive ways, whereas individualised data more likely facilitates collusion. The positive or negative effects of an information agreement depend not only on the nature of the exchanged information but also on the economic context in which it is exercised. The number of firms and product substitutability are two important factors. Thus, it is easier to restrict or distort competition in an oligopolistic market where firms are interdependent and products are homogeneous. Consequently, even aggregated information may infringe competition law, since the low number of firms allows the identification of individual market actors. This was established by the ECJ in the UK Tractors case, in which an exchange of aggregated information between tractor suppliers in an oligopolistic market was found to infringe EC competition law. The numerous breakdowns, in combination with the few market actors (four actors held together 77 % and eight actors held together 88 %) enabled the identification of the quantities and market shares of individual market actors. This, the ECJ stated was a violation of Article 81(1) EC. UK Tractors was the first case, in which an information agreement was found to infringe competition law by object and not by its anti-competitive effects. In relation to UK Tractors, I argue that the exchange of future price information in any market should be subject to a per se prohibition in European Competition Law. Moreover, in oligopolies, any exchange of price information, not older than one year, should be prohibited since the potentially beneficial effects of such exchanges are negligible whereas they create an imminent risk of collusion. However, undertakings will still have the possibility of recourse to an individual exemption in accordance with Article 81(3) EC.},
  author       = {Christensson, Ida},
  keyword      = {Konkurrensrätt,EG-rätt},
  language     = {eng},
  note         = {Student Paper},
  title        = {Information Exchange in Oligopolistic Markets},
  year         = {2008},
}