Short Reads

Walking a thin line: cooperation and collusion

Walking a thin line: cooperation and collusion

Walking a thin line: cooperation and collusion

05.12.2019 NL law

Buying groups are under attack from competition authorities across Europe. Joint buying arrangements are aimed at strengthening participating companies' bargaining power towards their trading partners, usually resulting in lower prices or better quality for consumers. However, these buying arrangements must stay on the right side of the line between legitimate cooperation and anticompetitive collusion. Competition concerns may arise if the participating companies have a significant degree of market power or coordinate their conduct.

 

The European Commission and various national competition authorities are currently investigating several buying groups, as well as a number of potential buying cartels. Companies are well-advised to invite their procurement teams to their competition compliance training and to double-check whether their buying arrangements stay on the right side of the line.

Competition investigations into buying groups

The European Commission recently raided the premises of two French retail groups (Casino and Intermarché) as part of its investigation into whether these groups went beyond the purpose of their purchasing alliance and possibly colluded on consumer pricing and store networks. According to the Commission, the growing number of alliances in the food retail sector, alongside changes in alliance partners, have increased the risk of collusion.

The Commission's competition concerns about buying alliances seem to be shared by more European competition authorities. The Belgian competition authority is currently investigating a purchasing partnership concluded last year between Carrefour and Provera. According to a newspaper, the investigation was opened after suppliers complained about being forced to grant discounts to the purchasing alliance without any consideration. Similarly, the Czech competition authority has imposed a fine of CZK 164 million (approx. EUR 6.4 million) on the Rewe retail chains and Rewe Buying Group for abusing their significant market power by squeezing bonuses out of their suppliers. The German competition authority prevented a planned merger between purchasing cooperations in the furniture sector for fear of the new entity becoming too powerful, to the detriment of consumers and suppliers. The French competition authority is taking a closer look at the competitive impact of various supermarket purchasing alliances on the relevant markets for consumers and suppliers, while the Norwegian competition authority recently conducted a dawn raid in the grocery sector following its inquiry into purchasing conditions for grocery chains.

Buying cartels

Besides intensified scrutiny of joint buying arrangements, the number of investigations into buying cartels also appears to be on the increase. The Commission's investigations into potential anticompetitive conduct related to the purchasing of the chemical products styrene monomer and ethylene are still ongoing.

The Dutch competition authority (the ACM) has conducted dawn raids at various traders to investigate their involvement in a potential purchasing cartel in the agricultural sector. The ACM suspects the traders of coordinating the prices paid to farmers for their agricultural products. The investigation is part of a wider inquiry into potential anti-competitive conduct in the agricultural sector.

The German competition authority imposed fines totalling EUR 100 million on car manufacturers BMW, Daimler and Volkswagen for their alleged involvement in a steel purchasing cartel. According to the German competition authority, the car manufacturers regularly met with steel producers, forging companies and large systems suppliers to agree on uniform scrap and alloy surcharges. These surcharges represent a significant part of the long steel purchase prices. In contrast to more 'traditional' buying cartels, in this case both the purchasers and the suppliers were involved in the purchase price-fixing. However, the German competition authority opted to terminate its investigations against the suppliers "for discretionary reasons".

Fines imposed for participating in a buying cartel can be substantial, as underlined by the General Court's recent rulings in the alleged car battery recycling cartel. The General Court reduced the fine imposed on one of the cartel participants, because the Commission, inter alia, failed to prove that the company had participated in the cartel for its entire duration. However, the Commission's novel fining approach in regard of the buying cartel was upheld. The Commission had departed from its general fining methodology and took account of the value of purchases, instead of sales, to determine the fine level. Since purchases are normally lower than sales in value terms, the Commission applied a 10% increase of the fine amount to ensure a sufficient deterrent effect. According to the General Court, the Commission's explanation was sufficiently substantiated for it to deviate from its general fining methodology [see our June 2019 Newsletter]. It therefore maintained the 10% fine increase.

Given these recent developments, companies are well-advised to double-check whether their buying arrangements stay on the right side of the line between legitimate cooperation and anticompetitive collusion. In addition, they should make sure to invite their procurement teams to their competition compliance training.

 

This article was published in the Competition Newsletter of December 2019. Other articles in this newsletter:

 

Team

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