COMPETITION LAW COURSE

Dr Nguyen Anh Tuan,

Tran Hai Thinh & Tran Hoang My
OVERVIEW
1 INTRODUCTION TO COMPETITION LAW
2 CARTELS & LENIENCY
3 ABUSE OF DOMINANCE
4 MERGER CONTROL
5 UNFAIR COMPETITION
6 INSTITUTIONS, SANCTIONS, & REMEDIES
7 WRAP-UP | Q&A
2. Cartels & Leniency
a. Cartels
Cartel Formation
Adam Smith
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.
It is impossible indeed to prevent such meetings,
by any law which either could be executed, or
would be consistent with liberty and justice. But
though the law cannot hinder people of the same
trade from sometimes assembling together, it
ought to do nothing to facilitate such assemblies;
much less to render them necessary.
The Wealth of Nations, Book I, Chapter X.

Is it true that competitors cannot have a “handshake”?

Cartel Formation

Cartel Definition Public Cartels

According to neoclassical economics, a cartel Cartel can be formed under either state
refers to “an association of firms that explicitly sanctions or private arrangement. Public
coordinates its pricing or output activities.” cartels entail cartels that have been
officially established by the government
in specific sectors such as exports, liner
How a Cartel is Formed?
shipping, and oil. Price regulation and
In general, a cartel is formed if: quota distribution are common methods
1. Suppliers supply homogenous products. to enforce public cartels. In most
2. There is explicit consent among participants. jurisdictions, public cartels have
immunity from competition law scrutiny.
3. Participants coordinate cartel output or price.
Cartel Formation: Economic Nature of Cartels
A Cartel Can Make As Much Profit As a Monopolist
The profit-maximisation decision of a cartelist is comparable to that of a monopolist.

Cartels Indulge Inefficient Competitors

Cartel formation permits inefficient firms to remain in existence due to all members-
profit allocation

Formation of Cartel is Low Cost and Time-saving

A cartel can be formed quickly in a single meeting. A cartel does not need any asset
transfers, structural changes or job cuts. It can thus bring about immediate profit for its
members, even if the cartel does not function well or cannot last for long.
Cartel Formation: Facilitative Factors

The Expected
Collective
Cost and
Power to
Benefit of
Raise the
Forming the
Market Price
Cartel
Cartel Formation: Sustainability

Key to Successful Collusion

(i) Cartel members must abide by quota restrictions: A cartel must monitor the
performance of its members to make sure they adhere to the collusive strategies
(ii) The cartel must be able to limit the output of non-cartel rivals: it must prevent
new entrants or the expansion of non-cartel rivals

Key to long-term sustainability

(i) Detection and credible retaliation: possibility of detecting and punishing

deceivers/cheaters
(ii) Government regulation and competition law enforcement
Harmful Effects of Cartel
Productive Efficiency
Cartels are proven inefficient compared to mergers and monopoly.

Allocative Efficiency
Cartels cause great deadweight loss through the inefficiency and misallocation of
resources by agreeing on prices and output, for the detection of cheating members or
exclusion of other competitors ➜ Imposing high social costs

Consumer Welfare

Cartels make consumers pay more and consume less. They thus deprive consumers of the
benefits of lower prices and more choices as well as other benefits of competition, such as
better post-sale service or innovation.
Cartel Defence
The second-best form of competition (A business historian’s
perspective): A cartel is private self-management of an industry.
It initially served as a business self-correcting instrument with two
main functions: to (i) stabilise supply and demand in an industry
and (ii) hinder the monopolisation of big businesses.
➜ Saving vulnerable businesses from the toughness of
competition, not restraining competition.

Small and medium firms and domestic industries: Under

certain conditions, collusion could reduce uncertainty, thereby
benefiting both sellers and buyers. According to cross
sectional-studies of cartels in Europe and Japan, there is a
positive correlation between cartels and economic growth.
Japan was famous for exempting “rationalised” and
“depression” cartels
Cartel Defence

Innovation Promotion. Firms need to cooperate to share the risks and

costs often associated with innovation process (financial constraints,
limitation of human capacity and technical capacity).
The cooperation among competitors
• fosters organisational efficiencies as proved by transaction cost
economics, and
• must appear in the form of restrictive clauses and may in the short-
run prohibit customer price reduction (to assure the possibility of
realising savings in transaction costs in the long-run and to redeem
the limitation of intellectual property law)
➜ Incentivising firms to innovate
Implications for Competition Laws & Policies

It suggests that there should be heightened concern about cartels

since in the absence of competition law businesses would have
more incentive to form cartels to maximise their profits.

Competition laws and policies play a critical role in breaking down

cartels by stimulating those factors that undermine their
sustainability, such as removing barriers to entry or imposing severe
punishment ➜ discouraging the formation of cartels
Implications for Competition Laws & Policies

Competition authorities should undertake a deliberate examination

of both anti-competitive effects and potential pro-competitive
benefits of the cartels at issue.

➜ Cartels should be allowed if the pro-competitive efficiencies

outweigh the anti-competitive effects.

An understanding of antitrust economic models is an indispensable

foundation for policy analysis, but those models were not
prescriptions for competition policy.
Implications for Competition Laws & Policies

Multi-faceted Approach
The goals of competition law and policy are decided more on beliefs and values than
on knowledge. Efficiency is not the only concern of competition policy; other
concerns competition law needs to respond (such as economic growth, distribution
of economic power, freedom and opportunity to compete on merit, etc.) as long as
they do not conflict with consumers’ interest.

Efficiency serves as an intermediate goal to promote consumer interests

and thus corresponds with the promotion of the competition process
Implications for Competition Laws & Policies

Agreements Analysed under the Rule of Reason

The central question is whether the relevant agreement likely harms competition by
increasing the ability or incentive profitably to raise price above or reduce output,
quality, service, or innovation below what likely would prevail in the absence of the
relevant agreement.
FTC, Antitrust Guidelines for Collaborations Among Competitors (2000)
Forms of Cartels
HORIZONTAL
& VERTICAL
Vertical Cartels
Horizontal Cartels OBSERVATION
Agreements among
Agreements among firms operating at
firms in the same  Vertical cartels: prohibited when proven
different stages in the
relevant market supply chain to have an actual or potential
competition-restraining impact
Hardcore Cartels
Non-hardcore Cartels  Hardcore cartels: prohibited per se
 Price Fixing
 Market Division/ Remaining cartels without assessment of market effects
Customer Allocation other than 04  Non-hardcore cartels: permitted when
 Bid Rigging
hardcore ones proven to have a pro-competition impact
 Output Restriction

HARDCORE vs.
NON-HARDCORE
Cartel Enforcement: By the Numbers

Cartel Cases Decided by the European

Commission for the Period 1990 – 2020 Five Highest Cartel Fines Per Case (Since 1969)
35 33
29 30
30 27 Year Case Name Amount in €
25
2016/2017 Trucks 3 807 022 000
20
15 2012 TV and computer monitor tubes 1 409 588 000
10 9
10 2013/2016 Euro interest rates derivatives 1 276 433 000
5
1 2008 Carglass 1 185 500 000
0
2019 Forex 1 068 879 000

European Commission, Cartel Statistics

Cartel Cases Decided

Cartel Enforcement: By the Numbers

Total Investigations Initiated by the DOJ

80
70
70
60
50 46 47
42 44
39 38
40
31 30
30 25
20
10
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Restraint of Trade
Ministry of Industry and Trade, Summary of
Antitrust Division (DOJ), Workload Statistics FY 2009 – 2018
12-Year Enforcement of Competition Law
Price Fixing

What Is It? Food for Thought

An agreement to raise, lower or stabilise prices or Local petrol stations
other terms that affect prices (e.g. credit line, increase prices by the same
discount/rebate rates etc.) of a product or service. amount at the same time.
Did they engage in a cartel?
A retailer monitors
Examples competitors’ ads and offers

 Pupil Insurance Cartel (Vietnam) shoppers special discounts

or sales incentives that
 Car Rental Cartel (Australia)
match their competitors’.
Is this an anti-trust issue?
Price Fixing

Alice Springs Car Rental Cartel (Australia)

A group of car rental companies in Alice Springs, Australia agreed not to
discount car rentals during the off-peak tourist season. Executives held
covert meetings at a restaurant, the golf course and at other social functions.

It was estimated that consumers paid an average of AUD 300 extra per rental
while the agreement was in place. In 1998 the companies and some of the
individuals involved were penalised a total of AUD 1.54 million.
Market Division/Customer Allocation
An agreement between companies to divide territories or
assign customers between themselves.

➜ “I won’t sell in your market if you don’t sell in mine.”

What Is It?
Chemical Cartel (U.S.)
Two chemical companies, FMC Corporation (U.S.-
based) and Asahi Chemical (Japan-based),
contemplated an agreement whereby FMC would not
sell a particular type of chemical to customers in Japan
or East Asia without Asahi Chemical’s consent, and
likewise Asahi Chemical would not sell to customers in
America or Europe without FMC’s approval.
Market Division/Customer Allocation

Food for Thought

A medical clinic operator sought to acquire five of its competitor’s clinics and
required them to close down three more. The purchase agreement also
contained a non-compete clause that (i) prevented the seller from opening a
new clinic in the same local area for five years and (ii) required the seller to
enforce the non-compete clauses with the medical directors of the closed
facilities (according to which the doctors are prohibited from serving as
medical directors for any new clinic in the area for five years).

Are non-compete clauses acceptable?

Bid Rigging (Collusive Tendering)

What Is It?

An agreement between the bidders to decide who will win the bid.

• Common types of bid rigging include bid suppression,

complementary bidding, and bid rotation.
Bid Rigging (Collusive Tendering)

Bid Suppression
Firms agree not to bid, or agree to withdraw a previously submitted bid.

Complementary Bidding
Co-conspirators submit token bids intended to be unsuccessful, e.g. the prices
submitted are anticompetitive or seemingly competitive but with entailing
conditions unacceptable to the bid solicitor.

Bid Rotation
The co-conspirators rotate their bids by number or value of contracts.
Bid Rigging (Collusive Tendering)

Food for Thought

Companies Alfa and Beta intend to enter into a

‘teaming arrangement’ under which Alfa will participate
a tender as the bidder and Beta as its subcontractor.

Are teaming arrangements permissible?

Output Restriction
What Is It? Food for Thought
An agreement between firms to prevent, restrict or Should a crisis cartel, i.e. an
limit the volume or type of particular goods or agreement amongst firms in a
services available ➜ Create scarcity to raise price or particular market to restrict output
prevent prices from falling and/or reduce capacity in response to
a crisis in that industry, be allowed?
Did You Know?
According to Reuters, the OPEC, Russia, and other oil
producers recently agreed to extend record oil production
cuts until the end of July by reducing approximately 10% of
global output. The prolonged deal, following an earlier
agreement in April, would prop up crude oil prices which took
a steep nosedive due to the ongoing coronavirus pandemic.
Group Boycotts
What Is It?
An agreement between companies not to do business with targeted
businesses or individuals.

➜ “My competitors are conspiring against me.”

A retailer persuaded a group of suppliers not to sell to a

competitive retailer.
Vertical Group Boycotts
Horizontal Group Boycotts
Group boycotts can be used to implement price-fixing schemes, where
competitors may contemplate raising prices and agree not to do business with
any companies that refuse to participate in the price fixing scheme.
Group Boycotts

Food for Thought

E-commerce platform Kiti has issues with a shipping carrier who
constantly makes late deliveries. Kiti’s purchasing manager
happens to know that other platforms have stopped doing
business with that carrier.

Can Kiti replace the current supplier?

Other Horizontal Restrictions
What Is It? Observation
Other agreements among competitors that are not Rule-of-reason basis:
inherently harmful to competition/consumers and  Nature of the agreement
therefore assessed on the flexible ‘rule-of-reason’ basis.  Potential anticompetitive effects
vs procompetitive benefits
Examples

 Trade association activities: Illegal if a trade association is used to control or suggest prices or
as a platform to exchange commercially sensitive information and/or to collude.

 Code of ethics: Permitted if reasonable to protect the public.

The FTC once challenged an organisation of store planners that sought to

prevent its members from offering free or discounted design services.
Manufacturer-imposed Requirements

What Is It?
Terms and conditions between manufacturers and dealers/retailers
in terms of, among other matters, price, territory and/or customers
which potentially restrain competition.

• Common requirements include territorial restriction and

pricing restriction.
Manufacturer-imposed Requirements

Territorial Restriction
Vendor Der Wagen agrees to be the exclusive
distributor for carmaker VanFast in several
Southern provinces. Accordingly, Der Wagen will
only sell VanFast’s SUVs in the designated areas
and in return, other vendors will not be permitted
to approach customers in Der Wagen’s market.

Pricing Restriction
An agreement between a manufacturer and a dealer to set maximum
(“ceiling”) prices or minimum (“floor”) prices.
Manufacturer-imposed Requirements

Food for Thought

Phonemaker Orange sometimes receives complaints
from its authorised resellers that other resellers are
undercutting their prices.

How should Orange respond?

Exclusive Dealings/Requirements Contracts

What Is It?
An exclusive dealing contract prevents a distributor from selling the
products of a different manufacturer whilst a requirements contract
prohibits a manufacturer from buying inputs from another supplier.
Exclusive Dealings/Requirements Contracts

Authorised Resellers

Phonemaker Orange requires its authorised resellers to offer customers complementary

services such as discounted warranties and software optimisation in exchange for being
its exclusive resellers and operating the stores under the “Orange” brand.

Market Foreclosure

Brewer Lion requires all of its retailers not to sell beers and other alcoholic beverages
from the newcomer DerBier, effectively prohibiting it from entering the market.
Exclusive Dealings/Requirements Contracts

Food for Thought

An OLED panel manufacturer is denied from selling its monitors

to an electronics store, which cites its arrangements with other
rival flat panel display manufacturers as the reason for refusal.

Is the store’s refusal lawful?

Refusal to Supply

What Is It?

Businesses are generally allowed to choose whom they do business

with provided that their conduct is independent and not part of a
strategy to maintain a dominant or monopolistic position.
Refusal to Supply

When refusal to supply is acceptable: A supplier may refuse to sell

products to a wholesaler on the basis of the latter’s credibility,
reputation, cost of delivery, etc.

When refusal to supply is unlawful: After learning from reseller

Mobile Universe that its rival Blue Electronics sells Orange
smartphones below the phonemaker’s Manufacturer’s Suggested
Retail Price (MSRP), Orange stops selling smartphones to, and
terminates its dealership contract with, Blue Electronics.
Refusal to Supply

Food for Thought

Carmaker VanFast refuses to supply to a dealer because

of the latter’s record of engaging in bribery.

Is VanFast allowed to do so?

b. Leniency Policy
Leniency Policy
What Is It?
• For companies and individuals: A way out of an unlawful cartel without being punished by law

• For competition watchdogs: An effective tool to detect, investigate, and prosecute cartels by
destablising existing cartels and deterring undertakings from forming new cartels

Why Does It Matter?

• Harmful effects of cartels (see previous slides)

• Cartels are normally shrouded in secrecy ➜ challenging for competition watchdogs to detect and
penalise conspiracies

Case study: Gas Insulated Switchgear Cartel

• Allow consumers and other aggrieved parties to initiate follow-on claims (a civil law action initiated
after the competition watchdog concludes that an antitrust infringement has taken place)
A Game Theory Perspective
A Game Theory Perspective
• If Alpha & Omega stay silent, both will
Omega
Stay silent Report continue benefiting from the illegal cartel.
Alpha
• If either firm betrays and reports the
3 5 other, it will be exempted from fines and
Stay silent
3 -5 potential consumer damages whilst the
other will receive fines for both firms.
-5 -2
Report • Temporal element: Only one firm is
5 -2
entitled to immunity ➜ eliminating the
Values based on the expected gains for each firm
wait-and-see approach ➜ creating the
race-to-the-courthouse effect
Reporting the cartels must be the ➜ The benefits of first reporting must
dominant strategy. be more attractive than staying in
the cartel to incentivise firms to
blow the whistle
Case Study
Gas Insulated Switchgear Cartel
On 24 January 2007, the European Commission (EC) fined 11 groups of companies an amount in excess of
€750 million for their roles in a gas insulated switchgear (GIS) cartel, the largest set of fines ever imposed on
a single cartel at the time.
GIS is heavy electrical equipment used to control energy flows in
electricity grids. Clients, such as public utility companies usually
organise tenders, trying to find the best GIS for their needs at the
lowest price.
The cartel consisted principally of market division, customer allocation
and bid rigging. The co-conspirators took elaborate schemes to
conceal their cartel activities. In addition to sham bids, the parties also
used code names and sophisticated means of communication (e-mail
from private accounts with encrypted messages; mobile telephones with encryption) to avoid detection.
The cartel, which lasted more than 16 years, was only discovered when ABB, one of the involved companies,
informed the EC of the existence of the conspiracy under the Commission’s Leniency Policy.
Leniency Policy under Vietnamese Regime
 Having partaken or currently  Incentivising co-conspirators to
partaking in a cartel terminate and abandon cartels
 Coming forward before an
 Increasing the number of
investigation is launched
cartels discovered and
 Providing significantly valuable
evidence & fully cooperating with sanctioned
competition watchdog  Offering a “lifeline” for cartel
 Not being ring-leaders or coercers members

MECHANISM CONDITIONS IMPACT

LENIENCY LEVELS
The 1st Whistle-blower The 2nd Whistle-blower The 3rd Whistle-blower

60% Fine` Reduction 40% Fine Reduction