OECD Competition Committee and Working Parties An Overview

The OECD, its Competition

Committee and Working Parties

An Overview

Antonio Capobianco

Competition Division, OECD

[email protected]

Trento - 13 December 2010

The OECD – A snapshot

OECD – Organization for Economic Co-operation and Development

Established in 1961 and located in Paris

Membership: 34 countries

More than 200 Committees and Working Groups

Approximately 40.000 national delegates every year

Secretariat staff: approximately 2.500

Budget (2010): EUR 328 million

Publications: 250 new titles per year

Official languages: English and French

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OECD Member countries

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Australia France Korea Slovenia

Austria Germany Luxembourg Spain

Belgium Greece Mexico Sweden

Canada Hungary Netherlands Switzerland

Chile Iceland New Zealand Turkey

Czech Republic Ireland Norway United Kingdom

Denmark Israel Poland United States

Estonia Italy Portugal

Finland Japan Slovak Republic European Union

Accession candidate country

Russian Federation

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Regular observers to the Competition Committee

Ad hoc observers to the Competition Committee

Brazil Indonesia Romania South Africa

Bulgaria Lithuania Russian Federation Chinese Taipei

Egypt

China India Pakistan

OECD Competition Committee

5

OECD Member Countries

Accession Candidate Country (regular observer)

Regular Observers to the Competition Committee

Ad Hoc Observers to the Competition Committee

The dynamics of the OECD

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Areas of responsibility

Competition Committee

• Recommendations & best practices

• Peer reviews & accession reviews

• Policy roundtables

• Horizontal work

Working Party No. 2

[regulation & competition]

• Electricity

• Standard setting

• Emission trading

• Auditing and liberal professions

Working Party No. 3

[co-operation & enforcement]

• Bid rigging

• International cartels

• Standard of merger review

• Procedural fairness

Latin

American

Competition

Forum

Global

Forum on

Competition

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OECD Secretariat

Secretary General

Directorates

Divisions

Units

Angel Gurría

Directorate for Financial

and Enterprise Affairs

Directorate for

Education

Statistics

Directorate

Competition Division

(17 people)

Anti-Corruption

Division

Investment

Division

Outreach

Unit

…

…

CC / WPs

Unit

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CC / WPs‟ workflow and relationship

with outreach activities

Secretariat

background work

Country

contributions

Policy discussions

Roundtables

Recommendations

Best Practices

Publications

Outreach &

capacity building

Country

Reviews

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More information & documents

www.oecd.org/competition 10

Exchange of Information

among Competitors

Antitrust Challenges

Antonio Capobianco

Competition Division, OECD

[email protected]

Trento - 13 December 2010

A. Smith – The Wealth of Nations (1776)

“People of the same trade

seldom meet together, even

for merriment and diversion,

but the conversation ends in

a conspiracy against the

public, or in some

contrivance to raise prices”

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Information exchange and the TFEU

• Article 101 of the TFEU does not refer expressly to “information

exchanges”

• The draft European Commission‟s Guidelines on the applicability of

Article 101 of the TFEU to horizontal cooperation agreements

incorporate a section on information exchange in response to the

request raised in the stakeholders‟ consultation process, by the

business community and NCAs.

• There is a need for general guidance at European level further than

the previous ones that were either outdated or sector specific:

– the 1968 Commission‟s Notice on co-operation agreements

– 1977 policy statement

– the 2008 Guidelines on the application of Art. 81 EC to maritime transport

services

– the BER 267/2010 – Insurance sector

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Information exchange and transparency

• In competitive markets, transparency is beneficial for the

competition and generally is to be encouraged.

• The EC Draft notes that the:

“ Information exchange can only be addressed under

Article 101 if it establishes or is part of an agreement,

a concerted practice or a decision of an association

of undertakings. ”

• Information exchange on its own is not anticompetitive,

on the contrary it can have pro competitive effects both

between competitors and for the buyers/consumers.

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Pro-competitive effects of info exchanges

• In-depth knowledge of the market and its key features facilitates the development of efficient and effective commercial strategies by market players;

• New entrants or fringe players benefit from increased transparency to enter the market more effectively and to compete more fiercely;

• Increased knowledge of market conditions may also benefits consumers:

– Consumers can choose between competing products with a better understanding of the product characteristics;

– Consumers can better compare terms and conditions of the various offerings and freely choose the most suitable one for their needs;

– Enhanced transparency benefits consumers by lowering their search costs.

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Anti-competitive effects of info exchanges

• Increased transparency is one of the facilitating factors required for

tacit collusion to be sustainable on the market when it comes to:

– Reaching terms of coordination;

– Monitoring compliance with such terms; and

– Effectively punishing deviations from such terms.

• Artificial removal of the uncertainty about competitors‟ actions can in

itself eliminate the normal competitive rivalry;

• In highly concentrated markets, increased transparency enables

companies to better predict or anticipate the conduct of their

competitors.

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Economic literature

• Albaek, Svend, Peter Mollgaard and Per B. Overgaard, Government-Assisted Oligopoly

Coordination? A Concrete Case, Journal of Industrial Economics, Vol. XLV, No. 4

(December 1997), pp. 429-443

• Kühn K. and Vives, Information Exchanges Among Firms and their Impact on

Competition, in Office of the Official Publications of the European Community, 1995,

Luxembourg

• Kühn K., Fighting Collusion - Regulation of Communication Between Firms, in Economic

Policy, April 2001

• Nilson A., Transparency and Competition, mimeo, Stockholm School of Economics, 1999

• Overgaard, Molgaard, Exchange, Market Transparency and Dynamic Oligopoly, Working

Paper, 2007.

• Schultz C., Transparency and Tacit Collusion in a Differentiated Market, mimeo,

Stockholm School of Economics, 2002

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Contributions from the economic literature

• Credible communication about future conduct facilitates collusion

• Private communications (i.e., communications between competitors only) increase the likelihood of collusion, as opposed to public communications (i.e., communications observable by consumers), which generate efficiencies

• Exchanges of information on price and quantity are qualitatively of much greater importance given that the exchange can reveal competitors‟ actions directly

• Disaggregated information helps firms in sustaining collusion

• Communication of information in homogeneous product markets is more likely to increase the risks of tacit collusion

• Exchanges of information in markets with important asymmetries of information about customer characteristics may strongly improve market performance by reducing the existing asymmetry

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1968 Commission‟s Notice

on co-operation agreements

• Only exchange of information which may have a

bearing on competition is relevant under Article 81 EC

• A restraint of competition may occur in particular on an

oligopolistic market for homogeneous products

• Joint market researches and comparative industry

studies or compilations of industry statistics are not

objectionable.

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1977 policy statement

• The structure of the market is likely to affect the probability

that information exchange might generate incentives to

tacit coordination

• The nature and the scope of the information exchanged

has a bearing on the likelihood that the information can

indeed be used to coordinate market strategies

• The Commission also takes into account whether the

exchange of information is of a private nature or has a

wider public impact on the customers as well

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2008 Guidelines on the application of

Art. 81 EC to maritime transport services

• An exchange of information, in its own right, might constitute an

infringement of Article 81 EC by reason of its effect.

• The level of concentration and the structure of supply and demand

are key

• The exchange of commercially sensitive data (price, capacity or

costs) is more likely to be caught by Article 81(1) EC:

– The exchange of information already in the public domain does not in principle

constitute an infringement

– The exchange of individual information between competitors is more likely to be

caught by Article 81(1) EC than the exchange of aggregated information

– Data can be historic, recent or future. Exchange of historic information is

generally not regarded as falling within Article 81(1) of the Treaty

– The more frequently the data is exchanged, the more swiftly competitors can

react 21

BER 267/2010 – Insurance sector

• It is allowed to establish and distribute joint calculations, tables

and studied to assess insurance risks.

• Calculations or tables must break down the available statistics

into as much detail and differentiation as is actuarially necessary

(and no more than that).

• The exemption applies only on the condition that the calculations,

tables or study results

– do not identify the insurance undertakings concerned or any insured party;

– when compiled and distributed, include a statement that they are non-

binding;

– are made available on reasonable and non-discriminatory terms, to any

insurance undertaking which requests a copy of them.

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2010 Draft Horizontal Guidelines

• Theories of harm: Exchange of information can have restrictive effects on

competition if it leads to co-ordination of competitive behaviour, or to market

foreclosure

• Restrictions „by object‟: Exchanges of information on individualised future

conduct on prices or quantities, or information on current conduct if they

reveal future intentions, infringe Art. 101(1) “by object”

• Restrictions „by effect‟: In other cases all depends on: characteristics of the

market (concentration, transparency, stability and complexity), the market

coverage and the type of information exchanged (commercial sensitivity,

public availability)

• Efficiencies: Information exchange can be justified if they lead to

intensification of competition or significant efficiency gains (benchmarking,

better consumer information) and that it is indispensable and passed on to

consumers

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UK Tractor Exchange (ECJ 1995)

• In 1988, three trade associations notified the EU Commission of the

UK Agricultural Tractor Registration exchange, an information

exchange agreement that had been in force since 1975.

• The exchange disseminated aggregate industry data with detailed

information on retail sales and market shares of eight importers and

manufacturers of tractors in the UK.

• The market was fairly concentrated with a four‐firm concentration

ratio of 77%.

• The European Commission found that the information exchange

violated Article 101 (then 85) since it allowed all firms to monitor

each other‟s sales and since it constituted a barrier to entry into the

British market in the eyes of the Commission.

• Both European Courts upheld the Commission‟s decision on

appeal.

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Wood Pulp (ECJ 1993)

• The Commission inferred a concerted practice based on unilateral

price signaling by „wood pulp‟ manufacturers and for exchanging

sensitive price information.

• However the ECJ reversed most findings, including that the public

price announcements to the market could not constitute on its own a

concerted practice.

• The system of price announcements could be regarded as a rational

response to the fact that both buyers and sellers needed the

information in advance in order to limit their commercial risks.

Announcements introduced on demand and pressure from

consumers.

Asnef-Equifax (ECJ 2006)

• Spanish association of financial institutions, online register

containing sensitive information on existing and potential borrowers

(past credit history, failures to pay, outstanding credit balances etc.-

to better inform lenders as to risks connected with granting loans

leading to greater and more efficient availability of credit).

• As the credit register was designed to limit risk of credit institutions

in granting loans, the Court concluded that the exchange of

information does not thus have by its very nature the object of

restricting or distorting competition

• Transparency to consumers addressed under 101.3

• Uncertainty removed or reduced. Decision must be fact specific

• Exchange needs to be open to all interested operators (non-

discrimination, entry)

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T-Mobile (ECJ 2009)

• “Its irrelevant in that connection whether only one

undertaking unilaterally informs its competitors of its

intended market behaviour of whether all participating

undertakings inform each other of the respective

deliberations and intentions. Simply when one

undertaking alone breaks cover and reveals to in its

competitors confidential information concerning its future

commercial policy, that reduces for all participants

uncertainty as to the future operation of the market and

introduces the risk of diminution of competition and of

collusive behaviour between them.”

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Types of info exchanges

• Ancillary to other horizontal agreements (e.g. production,

standardization, R&D) – should be assessed in combination with the respective horizontal co-

operation agreement

• Ancillary to a explicit collusion (sharing markets, price

fixing)- monitoring device – should be assessed as part of the explicit collusion (hard core cartel or

not), Cartonboard (1994), Cement (1994), Steel Beams (1994)

• Pure information exchanges – not underpinning any other unlawful conduct

– can constitute an infringement alone (1968 Co-operation Notice)

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Various forms of exchange

• Direct exchange between competitors

• Vertical exchange between manufacturer and

distributors

• Exchange through industry associations

• Dissemination of data by independent third-

party consultants

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(1) Direct exchanges

• Direct exchanges are the most obvious ways of

transferring data between competitors

• Any agreement between competitors to that effect falls

within the scope of application of Article 101 and requires

careful scrutiny

• Absent acceptable justifications, direct exchanges of

information can hardly disguise the anticompetitive object

of such agreements.

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(2) Vertical exchanges – “hub and spoke”

• Vertical exchanges of information between manufacturers

and retailers are normally not objectionable if the

information transferred concerns only the retail sales of the

manufacturer in question.

• Vertical exchange of information may amount to an

infringement of Article 101 if:

– They allow for the identification of sales of other competitors; and

– such information allows interference with the retail activity of the

dealers or of the parallel importers.

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(3) Exchanges through trade associations

• The trade associations‟ institutional tasks (including collecting and disseminating information on the relevant industry sector) are normally legal and render market activities more efficient.

• To avoid antitrust exposure, trade associations should put in place extra safeguards against anticompetitive spill-overs from their institutional tasks, including the following:

– the collected information should be made available also to non-members;

– participation in the statistical programs should be voluntary and open to non-members;

– trade associations should not become the forum for further discussions about the data disseminated and its bearing on commercial strategies;

– management of the trade association should be independent from the members of the association.

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(4) Dissemination by independent third-party

• There is no infringement of Article 101 if:

– The information is independently collected by the consulting company from the market and not directly from the suppliers (i.e., one of the conditions for the applications of Article 101 - the existence of an agreement between competitors - is not met)

– The information used for these market studies is usually publicly available; if the market is in itself transparent, the exchange of information does not add any risk of collusion to that market

– Use of independent specialized consultants allows cost savings which increases business efficiency.

• There may be an infringement of Article 101 if market studies prepared by the independent consultants are jointly commissioned by the market players.

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Critical factors: types of information

exchanged

• The subject matter

• The level of detail

• The age of the information

• The frequency of the exchange

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(1) The subject matter

• Not all information has the same importance for

competition purposes:

– Confidential information (i.e., information on the very nature of

the business, such as prices, quantities, commercial strategies,

and the like) generally cannot be disclosed to competitors.

– The Commission has also considered as an infringement of

Article 101 EC the exchange of information such as product

deliveries, capacity utilization output and sales figures and

market shares.

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(2) The level of detail

• The higher the level of detail of the information exchanged, the higher the possibility for competitors to predict each others‟ future conduct and to adjust accordingly.

• The Commission would normally not object to the dissemination of aggregated data, which does not allow for identification of the information related to individual companies.

• Minimum level of aggregation varies on a case-by-case basis: – CEPI/Cartonboard -- at least 3 competitors

– EWIS -- at least 4 competitors

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(3) The age of the information

• Exchange of data on future strategies is normally not allowed.

• Exchange of historical information (even if regarding individual firms) is generally allowed. Minimum age of the information varies on a case-by-case basis:

– UK Tractor: after 12 months information can be considered „historical‟

• As for recent information (i.e., less than 12 months old), the Commission (see UK Tractor) would normally not allow any form of dissemination of individual data, but would allow an aggregated exchange if:

– The data is supplied by at least three dealers belonging to different industrial or financial groups;

– If there are fewer than three dealers, data may be exchanged only if the figure being exchanged concerns more than 10 units.

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(4) The frequency of the exchange

• Frequent data exchanges allow companies to better

(and more timely) adapt their commercial policy to

their competitors‟ strategy

• The frequency of the exchange should be considered

in relation to the characteristics of the market and to

the specific facts of the case

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Critical factors: market characteristic

• The concentrated nature of the market

• The nature of the product in question

• Other structural factors

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(1) The concentrated nature of the market

• The more concentrated a market is, the easier it is for competitors to find and enforce sustainable terms coordination. Examples: – UK Tractor (infringement decision): CR4 80%

– EUDIM (comfort letter): 3,000 market players

• Can an exchange of information in a non-oligopolistic market be restrictive? – Commission and EC Courts: Where the degree of concentration is

low, market transparency can increase competition insofar as consumers benefit from more knowledgeable choices;

– Italian Competition Authority: An infringement may be found if competition is scarce on the market and consumers do not benefit of the increased transparency (see RC Auto).

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(2) The nature of the product in question

• It is easier for companies to coordinate on price for a single, homogeneous product than for many differentiated products (see 1968 Notice and 1977 policy statement of the Commission).

• In differentiated product markets, access to detailed sensitive information about competitors may not be useful to predict future behavior of competitors and therefore may not lead to an increase of coordination between them.

• Example: EUDIM case => 1 million products - tacit coordination is unlikely.

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(3) Other structural factors

• There are markets where, regardless of the degree of

transparency, collusion is not sustainable.

• Incentive to collude may be absent if:

– the cost structures of the involved companies, their market

shares, their capacity levels, and/or their degree of vertical

integration are asymmetric, which reduces the overall

incentive to reach a degree of coordination;

– innovation is a very important competing factor in the market

and may allow one firm to gain major advantages over

others;

– supply and demand conditions are too volatile and unstable

to make coordination likely;

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(continue)

– there are companies which are not part of the exchange of

information that could jeopardize the outcome of any expected

coordination;

– entry barriers are low, and potential entry has a disciplinary

effect on the alleged coordination;

– customers have sufficient countervailing buyer power to make

coordination unstable;

– retaliation is not likely to be successful, making incentives to

deviate from any collusive arrangement very high.

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Some questions for further

discussion at EU level

• The “by object“ box: should there be one at all? Is it too broad?

• Should there be safe harbours in the “by effects” box?

– Structural / market share based safe harbour?

– Safe harbour for truly historical information?

– Safe harbour for truly aggregated data?

– Safe harbour for truly public information?

• Should there be more specific guidance for information exchanges

through third parties (hub & spoke, trade associations, industry

consultants)?

• How to distinguish between unilateral declarations to the public and

potentially anti-competitive information exchange?

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Key questions for companies

• What is the context? Are you between competitors at a

sector‟s event or is it a bilateral encounter?

• Part of an agreement? Just a business practice?

• What is the nature of the information discussed? Past,

present or future? Aggregate, individualized?

• What is the structure of your market? How

concentrated?

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Recap on dos and don‟ts

• YOU CAN exchange the following information:

Past and/or present information

Aggregate information through trade associations

Not relating to strategic information

In the public domain

• YOU CANNOT exchange the following information:

Future private information

Individualised data (recent)

Strategic information

Which remove uncertainties/risk about the market

• Market structure is important: the more concentrated the more likely

the exchange will lead to a change in the competition level

• Market coverage should be sufficient to create a competition risk

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Uma Thurman - Pulp Fiction (1994)

“That was a little bit more

information than I needed to

know”

47

Exchange of Information

among Competitors

Antitrust Challenges

Antonio Capobianco

Competition Division, OECD

[email protected]

Trento - 13 December 2010