Konkurencijos tarybos pirmininko R. Stanikūno praneðimas BRIC konferencijoje

BRIC International Competition Conference

Kazan, September 1-2, 2009

Formation of Effective System of Anti-Cartel Activity in the Fast Growing Economies:

National and international experience

Exchange of commercial information between competitors

By Dr. Rimantas Stanikūnas, Chairman of the Competition Council of the Republic of Lithuania

Dear colleagues, Ladies and Gentlemen,

Today I would like to touch one aspect of cartel agreements – treatment of exchange of commercial information between competitors, as I strongly believe in the importance of this topic.

From a competitive perspective commercial information can be of a double nature.

Information concerning the input of production, demand and supply, behaviour of competitors and their strategy is indispensable for successful functioning of undertakings due to a simple reason, i.e. effective competition. Similarly, if the consumers want to choose goods of high quality, they should be sufficiently informed in order to make an optimal decision. Moreover, perfect competition is defined as a substantially big market, in which homogenous goods are produced by undertakings, no barriers to entry to it exist and producers have much enough information about goods.

On the other hand, detailed information regarding prices of competitors, their market shares or sales volumes can be invoked as a means of entering into a cartel agreement, or facilitating its members a possibility to compete and maintain such an anticompetitive agreement, therefore rendering competition ineffective.

Hence, the goal of competition policy is, inter alia, to identify the limits and establish, when the exchange of information between competitors is pro and when – anti-competitive. There is no unanimous solution for this issue. Most of competitive jurisdictions use a rule of reason as guidelines. For example, undertakings that know each others debtors may choose not to sell their production to such undertakings. Competing undertakings may exchange their information also in order to improve technologies what leads to production of safer goods, etc. Exchange of this type is not treated as anti-competitive. However, regular information exchange as regards present and future price formation, price level and market shares usually allows competing undertakings to coordinate the market and behave jointly.

Adam Smith has accurately stated: “People of the same trade seldom meet together even for merriment and diversion, but the conversation ends in a conspiracy against the public or some contrivance to raise prices.” Business and industry associations that unite undertakings engaged in the same branch of industry often become a place, where discussions regarding the development of industry convert into anti-competitive agreements, concerning the price fixing or sharing of the market.

I would like to accentuate and demonstrate by concrete examples three main criteria, with reference to which an anti-competitive effect of information exchange can be established. These are:

1) high concentration of market structures (oligopolistic markets);

2) permanence of exchange of information;

3) confidentiality of information.

In 1993 the European Commission has adopted a decision regarding exchange of information between vendors of agronomical tractors in the United Kingdom. Since 1975 eight producers and importers of tractors had been continually exchanging information between themselves and also with other members of association. The information concerned sales volumes of tractors and market shares. The Commission stressed that exchange of information had been implemented in a very concentrated market – four undertakings held approximately 80 per cent of the market, and seven of them collectively had even 88 per cent thereof. Therefore a conclusion can be drawn that in the oligopolistic markets of highly concentrated structure exchange of information concerning sales volumes and market shares is anti-competitive.

Next important aspect to which attention should be paid when deciding upon the anti-competitiveness of information exchange is its permanence. In this context a relevant case is American Column and Lumber Co v United States (also named as “Hollywood” case) dating back in 1921. Business association, the members of which used to produce one third of lumber, approved a plan which provided for that members of association should daily furnish information regarding sales and prepare monthly reports, etc. Board of association used to summarize all received information and according to it prepared weekly membership reports. Moreover, during frequent meetings the undertakings used not only to discuss market conditions, but also required to limit the quantities of production and maintain price levels. It was established that such behaviour infringed Act on Competition. The court held that permanent exchange of information is not natural behaviour of competitors. It is more likely to occur between undertakings which intend to coordinate their business and are consolidated to act together.

Third criteria that allows conclude exchange of information to be anti-competitive is the confidentiality of information. Most of undertakings keep their sales volumes, rebates and market shares to be confidential information. According to Art. 22 of Law on Competition of the Republic of Lithuania all commercial secrets of undertakings cannot be publicized without their consent.

In this context I would like to point two cases decided by the Competition Council which are relevant to the issue and in which all three above mentioned criteria had been established.

First example concerns the so called paper cartel. The investigation was initiated in 2004 by the Competition Council on ex officio basis, due to some suspicion as regards possible cartel in wholesale paper market. The period since 1999 until May 2004 was examined. During this period in Lithuania’s market – due to particular reasons – there were six undertakings engaged in wholesale paper trade and they held up to 94-97 per cent of the market. Due to such market shares they, basically, did not face any competition from other undertakings. During investigation a substantial amount of facts and circumstances had been established, which proved that undertakings used to periodically exchange information of confidential nature regarding their market shares. Consequently, undertakings could have known about the behaviour of their competitors, monitor it and predict their future strategy in the market.

The Competition Council after having considered all the conclusions of investigation in 2006 had adopted a resolution by which it was declared that the behaviour of undertakings infringed not only the Law on Competition of the Republic of Lithuania, but also the provision of Art. 81 of the EC Treaty. Undertakings had been obliged to terminate the infringement and appropriate fines had been imposed upon them.

Another infringement of similar nature was determined by Competition Council in 2008, in milk sector. Seven undertakings engaged in milk purchase and processing were fined approximately Euros 650 000 (LTL 2 million) for exchanging of information of confidential nature which regarded quantities of raw milk purchased and individual milk products produced and marketed. It was established that through association undertakings had created a system of exchanging of information, which led undertakings and their association to receive monthly information from Department of Statistics concerning quantities of purchased milk, its quality, prices as well as production and sales of milk products of each undertaking individually. Therefore, undertakings that were members of the association and competitors to each other in the relevant markets of raw milk purchase and milk products, could not only know and monitor market shares and their fluctuations of competitors, but also make analysis of relevant markets having into account detailed personalized and particular data. The purpose of this exchanging system was to get a guarantee that competitors will not individually exercise any active competitive actions, i.e. it was intended to maintain relevant market shares stable. During the investigation period (2000-2007) the relevant undertakings held up to 93 per cent of raw milk purchase market and up to 96 per cent of milk products market. The analysis of mentioned market shares revealed that each “portion” of market share of undertakings during the investigation period remained stable or had changed very insignificantly. Moreover, particular raises of milk products prices during investigative period had been established as well, what can be associated to intercommunication of competitors as regards prices.

When the Competition Council assessed the gravity of infringement and role of individual undertakings therein and imposed sanctions upon them, it had regard to some particular circumstances. Firstly, the damage to competition and consumers caused by this prohibited agreement was not so severe as of classical cartels, when undertakings agree to fix prices of goods or share territory of the relevant market. Besides, the Competition Council also had regard to extenuating circumstances which substantially facilitated the proving of infringement of the Law on Competition. Four undertakings had admitted facts revealed by the investigation. Due regard was also paid to the fact that undertakings cooperated during investigation and terminated infringement.

Both resolutions of the Competition Council have been appealed to courts, and the process is therefore not concluded yet.

To summarize with, it can be seen that exchange of information, both between undertakings directly or through their associations, especially regular exchange concerning present and future prices, market shares and sales volumes and, more precisely, in oligopolistic markets, can be treated as cartel agreements if competing undertakings act jointly instead of behaving independently on the market.

Hence, substantial factors that characterize whether the exchange of information is anti-competitive or not are the structure of sector, market share and the nature of information exchanged.