Evaluation of the distinction between legitimate oligopolistic behaviour and cartels/concerted practices prohibited under Article 101 TFEU

Table of Contents

1. Preface
1.1. Definition of “oligopolistic behaviour” within the meaning of the analysis
1.2. Outline of Art. 101 TFEU

2. The application of Art. 101 TFEU in the context of oligopolistic behaviour
2.1. Explicit coordination (cartels in the strict sense)
2.1.1. Price fixing, output restrictions, market sharing and collusive tendering
2.1.2. Non-price trading conditions
2.1.3. Information sharing
2.1.3.1. Information exchanges directly between competitors
2.1.3.2. Exchange of sensitive informations indirectly through ! 8 trade associations or reporting agencies
2.1.3.3. Exchange of statistical data through trade associations or reporting agencies
2.1.3.4. Public advance price announcements
2.2. Tacit coordination
2.3. The role of Article 101 (3) TFEU

3. Synopsis

Economic and Legal Aspects of Competition Policy

Essay

“ Evaluate the distinction between legitimate oligopolistic behaviour and cartels/concerted practices prohibited under Article 101 TFEU. ”

1. Preface

If one wants to analyse the distinction between legitimate oligopolistic behaviour and practices prohibited under Article 101 TFEU it is necessary to clear some of the terminology first. Therefore the following chapters shall provide (i) a handy definition of “oligopolistic behaviour” for the purpose of this analysis and (ii) a structural insight into the functionality of Article 101 TFEU to the extent required for this analysis.

1.1. Definition of “oligopolistic behaviour” within the meaning of the analysis

First and foremost it has to be stated that the question implies that there could be a legitimate oligopolistic behaviour. For that reason the term “oligopolistic behaviour” cannot be understood in a way implying a negative connotation. Much more defining this is a preliminary question to the questions concerned with applying Article 101 TFEU. Anyhow there is no need to look for an abstract definition. In fact, a functional understanding in the context of Article 101 TFEU will lead to a suitable starting point. Hence within the meaning of the analysis the term can appropriately be understood - with regards to the wording of Article 101 (1) TFEU - as practices within the situation of an oligopoly. So far so good. But of course this leads to the necessity of describing such a situation. Since the final analysis is about the application of Article 101 TFEU there is no need of describing an oligopoly from an overall economic point of view. That means that it would be much more than just expandable to give a definition of oligopoly in terms of output level and efficiency of the market. These thinkings might kick in at a later stage of analysis where a practice has to be judged as preventing, restricting or distorting competition. Understanding the relevance of the oligopoly term as a preliminary question to the evaluation, “oligopoly” - for the purpose of this analysis - has to be defined from an ex-ante view of possible actions and should not take them into account. Thus a definition shall arise from describing an oligopolistic market in terms of its structure. It is not as short and sweet as one commentator indicates - that “oligopoly means few sellers”¹. But admittedly this catches the most characteristic feature at first sight and in fact this hits on the reality of many oligopolies. Hence the Oxford Dictionary of Economics comes up with the following definition: “A market supplied by a small number of firms in which the choice of one firm affects the profits of the other firms. […]”². Nevertheless this definition reveals a quite important additional aspect. I.e. the interdependence of the firms which is the true hallmark of an oligopolistic market³ since a situation of perfect competition is characterised by the insignificance of each seller in relation to the market as a whole and the determination of productʼs price⁴. For that reason it would not be the right way to speak in absolute numbers and therefore be more accurate to define an oligopoly as a market consisting of relatively few sellers⁵. At first sight this might look a bit squishy. But since understanding the term is just a starting point to get into the analysis of Article 101 TFEU and is especially not an element of the provision itself, this short (but broad) definition provides an adequate idea of the circumstances which have to be taken into account. Furthermore this understanding prevents of approaching Article 101 TFEU from a to narrow and restrictive perspective. Therefore in the context of the following analysis “oligopolistic behaviour” shall be understood as “practices within a market of a relatively small number of sellers”.

Although the following is a kind of a sneak preview to the next chapter, it is essential to understand the term “behaviour” or “practice” in the view of one of the fundamental structural elements of Art. 101 TFEU: This provision requires either an agreement between undertakings, a decision by a an association of undertakings or a concerted practice - in short: at least a minimum of interaction⁶. Thus, no unilateral conduct can be sufficient to fall foul of Article 101 TFEU⁷. Consequently, one has to bear in mind that whilst talking about “oligopolistic behaviour” or “practices within a market of a relatively small number of sellers” these terms cannot be understood as individual behaviour but have to incorporate some kind of a positive reaction of another player on the market.

1.2. Outline of Art. 101 TFEU

Article 101 (1) TFEU constitutes a general prohibition against all intended and also just in fact anti-competitive interactions between market players which may affect trade between Member States. The second paragraph stipulates the legal implications of such forbidden conduct and the third comes up with prerequisites for granting an exception to the restrictions laid down Article 101 (1) TFEU. Because of that structure the analysis will focus mainly on Article 101 (1) TFEU; but since Article 101 (3) TFEU can turn a behaviour basically prohibited by Article 101 (1) TFEU into a legitimate behaviour in the final analysis, there will be a part examining the role of Art. 101 (3) TFEU in the oligopolistic context at a later stage. For now attention shall be drawn to the system of Article 101 (1) TFEU. It requires:

(1) an agreement between undertakings, a decision by an association of undertakings or a concerted practice which
(2) has as its object or effect the prevention, restriction or distortion of competition within the internal market and which
(3) may affect trade between Member States.

Regarding the first condition it has to be stated that decisions by associations of undertakings are very unlikely to happen in an oligopolistic context (probably because the mere fact of associating would be suspicious from the competition law perspective). So there is no need to get into detail with this. There has also been some litigation about the exact definition of the notion of “undertakings” as single economic entities which can be skipped at this point owing to the context of the analysis. More important is in fact the question whether there has to be drawn a clear cut distinction between the terms “agreement” and “concerted practice”. But since it was held that it is legitimate to characterise a single infringement as “an agreement and a concerted practice”⁸ and also as an “agreement or concerted practice”⁹ the short answer is no. Much more the terms collectively draw a critical dividing line between lawful independent and illegitimate collusive practices.¹⁰ Because of that the exact terminology is often replaced by the term “coordination”. Concerning the second element, it should be stressed that whereas the words “object or effect” are read disjunctively¹¹ (implying that if an agreement or concerted practice has an anti-competitive object there is no need to take account of the concrete effects¹² ) the jurisprudence of the European Courts did not draw a distinction between prevention, restriction and distortion of competition. For that reason the latter can be synopsised as influencing competition in a negative way. Further it has to be stated that the requirement of affecting trade between member states can be broken down to having a cross-border effect within the European Union. Lastly it has to be stated that the ECJ developed a further criterion of appreciability (so called de minimis rule) which excludes bagatelle distortions of competition¹³ as well as concerted practices having only a minimum of cross-boarder effects¹⁴ from the scope of Article 101 TFEU. For the purpose of getting a basic perception of the functioning of Article 101 (1) TFEU there is no need to get into further details at this stage - as far as the assessment of certain practices requires it, we will hark back to these issues in the course of the analysis. Before finally getting into analysis one last aspect has to be stressed: A closer look at Article 101 (1) TFEU reveals that its elements have different objects. On one hand the question as to whether a certain conduct constitutes an agreement or concerted practice which has as its object or effect the restriction of competition is plainly made to judge a behaviour. On the other hand the issues of a sufficient cross-boarder context and appreciability of the restriction of competition are considered with the (possible) effects and surrounding circumstances and are therefore more like elements of jurisdiction which are required to enable the Commission to go up against such basically condemned behaviour in the particular case. For that reason the latter are inadequate to evaluate the distinction between legitimate and forbidden behaviour in general. Hence the analysis is going to focus on assessing concerted practices. Nevertheless, if a general statement in terms of appreciability and affecting trade between Member States can be made it shall be made.

2. The application of Art. 101 TFEU in the context of oligopolistic behaviour

As carved out above, the distinctive feature in terms of the structure of an oligopolistic market is the interdependence of the firms. To make clear why it is of great importance to have a closer look on the application of Article 101 TFEU in the oligopolistic context one has to take a step back from the legal perspective switching to a more economic view which focusses to a greater extent on marketʼs output level and efficiency. From that point of view the most essential aspect of oligopoly is the oligopolistsʼ consciousness of their interdependence¹⁵ because by exploiting this phenomenon via coordination, oligopolists could abandon vigorous competition for customers¹⁶ and replace it by trying to maximise joint profits¹⁷

[...]

¹ Gal 2001 Stan. J. L. Bus. & Fin. Vol. 7, 3.

² “oligopoly”, Oxford Dictionary of Economics; limited to the part of market situation.

³ Rothschild 1947 Econ. J. 299, 303.

⁴ Jones / Sufrin, p. 7.

⁵ Hildebrand, p. 29.

⁶ Aicher/Schuhmacher/Stockenhuber/Schroeder in Grabitz/Hilf Art. 81 para 87.

⁷ Jones / Sufrin, p. 7.

⁸ GC of 24 October 1991, Case T-1/89, Rhône-Poulenc v Commission 1991 ECR II-867, para 127.

⁹ GC of 6 April 1995, Case T-141/89, Tréfileurope Sales SARL v Commission 1995 ECR II-791, supra.

¹⁰ Jones / Sufrin, p. 149.

¹¹ Jones / Sufrin, p. 182.

¹² In terms of agreements: ECJ of 13 July 1966, Joined cases 56 and 58/64 Consten and Grundig v Commission 1966 ECR-I 299, para 342; in the context of a concerted practice: ECJ of 8 July 1999, Case C-199/92, Hüls v Commission (Polypropylene) 1999 ECR I-4287, paras 173-179.

¹³ ECJ of 30 June 1966, Case 56/65, STM v Maschinenbau Ulm 1966 ECR 235; ECJ of 18 February 1971, Case 40/70, Sirena v Eda, ECR 1971 69; ECJ of 6 May 1971, Case 1/71, Cadillon v Höss 1971 351; ECJ of 25 November 1971, Case 22/71, Béguelin 1971 949.

¹⁴ ECJ of 9 July 1969, Case 5/69, Völk v Vervaecke 1969 ECR 295; ECJ of 25 November 1971, Case 22/71, Béguelin 1971 949.

¹⁵ Rothschild 1947 Econ. J. 299, 303.

¹⁶ Posner 1969 Stan. L. Rev. 1562, 1564.

¹⁷ Fraas / Greer 1977 J. Indus. Econ. 21, 29.