On 12 October 2017, the Dutch Trade and Industry Appeals Tribunal (CBb) ruled on appeal on the practice of "cover pricing" in a tender context. The practice was found to constitute a restriction of competition by object.
In this case, sensitive bidding information was sent from one bidder to the other, in order to enable the latter firm to submit an offer that would be considered as serious by the organizing entity, but that at the same time would be less attractive than the bid of the former firm. This approach is often referred to as cover pricing. By submitting a serious but non-winning bid rather than no bid at all, a firm hopes to increase the probability that it will be invited for any future tenders organized by the same entity.
The parties argued on appeal that cover pricing did not actually influence the competitive process as, in essence, the counterfactual world would not have entailed another competitive bid either. However, according to the CBb, cover pricing reduces the strategic risk for both the interested as well as the non-interested bidder (i.e. the bidder submitting the cover price) and results in an distorted image of the market for the procurer. Especially when the number of bidders is small, cover pricing might also cause an increase in prices, as the firm enabling another bidder to submit a cover price knows that not latter does not truly compete for the project. The CBb therefore found that cover pricing should be qualified as a conduct that by its object distorts competition.
At the same time, the CBb decided that cover pricing is a less serious infringement than bid rigging. Therefore, the CBb decided to reduce fines in this case.
This article was published in the Competition Law Newsletter of November 2017. Other articles in this newsletter:
- General Court annuls UPC/Ziggo merger decision
- General Court rules that luxury watchmakers can limit supply of parts to approved repairers
- General Court upholds fine for 'gun jumping' EU merger control procedure
- European Commission orders the recovery of State aid of around EUR 250 million from Amazon
- Nike can restrict sales via online platforms within its selective distribution system
- KLM and Amsterdam Schiphol airport offer commitments to reduce competition concerns