Types of Cartel Practices

Johan Ysewyn / Ewoud Sakkers

8 October 2021
Contents

• Cartels : is there a legal definition?

• The legal position in relation to cartels

• Typology of classic cartel arrangements

• The “new” infringements

2
Cartels : Is there a legal definition?

• “Define an elephant”
• OECD – 1998 Recommendation concerning effective action against
Hard Core Cartels :
“an anticompetitive agreement, concerted practice or arrangement by
competitors to fix prices, make rigged bids (collusive tenders), establish
output restrictions or quotas, or share or divide markets by allocating
customers, suppliers, territories or lines of commerce”

3
Cartels : Is there a legal definition?

• DG COMP website :
“A cartel is a group of similar, independent companies which join
together to fix prices, to limit production or to share markets or
customers between them.
Instead of competing with each other, cartel members rely on each
others' agreed course of action, which reduces their incentives to
provide new or better products and services at competitive prices.
As a consequence, their clients (consumers or other businesses) end
up paying more for less quality.”

4
Cartels – the legal position

• Agreement between undertakings : written, oral, informal and

gentlemen’s agreements – “It is sufficient for the undertakings to
have expressed their joint intention to behave in a certain way” (Van
Landewyck [1980] ECR 3123) – evidentiary question

• Decisions by associations of undertakings, e.g. resolutions/

recommendations of trade associations
• Concerted practice : in the absence of an agreement or actual plan
of coordination – direct or indirect contact where object is to
influence the contact between competitors, e.g. information
exchange

5
Cartels – the legal position

• Hard-core restrictions : object is to restrict competition

• No need to prove effects (GC : European Night Services – no need
to take account of the economic context)
• No defence : cartel participant had intended to – or did in fact – cheat
on the cartel
• No defence : national legislation or knowledge/support of government
(Irish Beef) – can be an attenuating circumstance in the calculation of
the fine

6
Cartels – the legal position

• Can a cartel be exemptable under 101 (3) TFEU?

> Crisiscartels : Old cases (Synthetic Fibres (1984) and Stichting Baksteen
(1994)) – very stringent conditions
> Now : Very unlikely – Commission guidelines on the application of Article 81
(3) which expressly states that “hardcore restrictions generally fail the two first
conditions of 101 (3) – no economic benefits and no benefits for consumers
Kroes (October 2009) : “If I may quickly mention the issue of so-called crisis-
cartels. Encouraging cartelists would be guaranteeing disaster. No-one wins
– today’s softness is tomorrow’s nightmare.”

7
Cartels – the legal position

• COVID-19?
– No stop to cartel enforcement
– Avoiding that companies take advantage of current crisis to cartelise
– ECN Joint Statement: no active intervention against temporary and
necessary measures aimed at tackling shortage of supply
– Temporary Framework Communication for cooperation projects
addressing shortage of supply
– Ad hoc comfort letters
– Temporary derogations in Agri sectors for milk, flowers, potatoes and
wine for certain measures
– Extended deadline for fine payment – unless the undertaking benefitted
from the pandemic

8
Cartels: common features

• Ultimate aim/effect is to influence price

• New investigation : limit innovation (Clean Emission Technology)
• Contact – Essential feature – direct or indirect - or is it?
• Competitors – do they have to be?
• Most of the time, various features:
> Price fixing
> Customer sharing
> Market quota
> Output restrictions
> Information exchange 9
Price fixing

• Level of price
• Timing or sequencing of price movements (price “campaigns”)
• Often agree to apply a common price
• But :
> Minimum/floor prices
> Target prices – convergence of pricing
> Recommended prices – different from verticals (see the GC in Dutch
Cranes)
> An element of the price – see Air Cargo (fuel surcharge and security
surcharge)
10
Controlling production or investment

• Output restrictions – production or sales quotas

• Investment restrictions (Dutch flour cartel)
• Collusion on downtime of plants

11
Market and customer allocation

• De facto granting of monopoly

• Market share allocation
• Territorial allocation – the “home market” rule – often globally
• Customer allocation – respecting each other’s customers

12
Bid rigging

• In the specific context of tendering procedures

• Exchanging information
• Agreeing on a winner – and a mechanism to ensure the outcome is
per the agreement

13
Collective boycott

• Seeking to prevent new competitors to enter into the market

• Seeking to retaliate against undertakings refusing to comply with the
cartel

14
Facilitating a cartel

Most recently : lawyer in Germany :

Germany’s competition authority has fined newspaper publisher
DuMont Mediengruppe €16 million for agreeing to divide markets with
rival publication Bonner General-Anzeiger Group – while also
sanctioning a lawyer who helped facilitate the conspiracy. (4
September 2018)

15
Facilitating a cartel – The Court

AC Treuhand (ECJ Judgment, C-194/14)

• Heat stabilisers
• Fine of 174.000
AG Wahl
• Scope of Article 101 TFEU : cartel members must be a
competitive constraint for each other
• Treuhand = consultant – no competitive constraint
• No accomplice liability – no “aiding and abetting” - need for
legislative change?

16
Facilitating a cartel

CJEU
• Nothing in Article 101 TFEU indicates that cartel members must
be active on the market affected by the cartel
• Treuhand intended to contribute to common objectives and was
aware of the infringement without distancing itself
• Preserve the effectiveness of Article 101 TFEU

17
Facilitating a cartel

Interesting variation : Netherlands : Difotrust

• IT company
• Dawnraid on a company in an undisclosed sector
• “Difotrust performs digital forensic research to find internal
documents that might incriminate the company”
• Dawnraid on Difotrust / disclose the names of the companies in the
same sector for which Difotrust performs the same services
• Dutch Court of Appeal in The Hague : confirmed
• Interestingly : intervention of external lawyers would have covered
the activities of Difotrust with privilege
18
Monitoring and sanctioning

• Reporting and monitoring schemes

• Sanctions for breach of cartel agreement
• Compensation schemes
• Expulsion from trade associations
• Physical threats

19
A first conceptual problem – the thin line between
cooperation and cartel

Purchasing cartel – Car battery recycling

– Joint purchasing “can lead to lower prices or better

quality products or services” (para. 194 Horiz.
Guidelines)

20
Purchasing cartel – Car battery recycling
“Unlike in most cartels where companies conspire to increase their sales
prices, the four recycling companies colluded to reduce the purchase price paid
to scrap dealers and collectors for used car batteries. By coordinating to lower
the prices they paid for scrap batteries, the four companies disrupted the
normal functioning of the market and prevented competition on price. This
behaviour was intended to lower the value of used batteries sold for scrap, to
the detriment of used battery sellers. The companies affected by the cartel
were mainly small and medium-sized battery collectors and scrap dealers.”

– Coded language of contacts, referring to weather

conditions to signal different price levels

21
So what made this a cartel?

– Majority of the purchasing market participates

– Secrecy
– They didn’t actually do joint purchasing – they just
agreed on the purchasing price – is there actually an
economic difference – it all revolves around transfers of
money

See Ethylene Purchasing Cartel (14/7/2020)

See Styrene Monomer Purchasing (on-going)

22
MLex Summary 5/10/2021: Two major collectors of used
cooking oil in the Netherlands have been fined almost 4
million euros by the national competition agency. Rotie and
Nieuwcom had entered cartel agreements between 2012
and 2018 with a view to minimizing the purchase price of
used oil, the ACM said today. The companies had also
shared suppliers and exchanged sensitive data, which was
particularly harmful to small hospitality businesses, the
authority said. Used cooking oil is an important raw
material in the manufacture of biodiesel.

23
The “new” infringements

• Exchange of commercially sensitive information

• Hub and spoke cartels
• Signalling
• Tacit collusion
• Algorithms

24
Exchanging commercially sensitive information

• Often ancillary to cartel behaviour

• However, now also a ‘cartel offence’ in its own right : Palaces
Parisiens (F), T-Mobile (NL), Dairy, Tobacco, Private Schools (UK),
Drugstore products, Luxury cosmetics (D), etc.

25
Horizontal Guidelines

“Any information exchange with the objective of restricting competition

on the market will be considered as a restriction of competition by
object. In assessing whether an information exchange constitutes a
restriction of competition by object, the Commission will pay particular
attention to the legal and economic context in which the information
exchange takes place.
Exchanging information on companies’ individualised intentions
concerning future conduct regarding prices or quantities is particularly
likely to lead to a collusive outcome. Informing each other about such
intentions may allow competitors to arrive at a common higher price
level without incurring the risk of losing market share or triggering a
price war during the period of adjustment to new prices. Moreover, it is
less likely that information exchanges concerning future intentions are
made for pro-competitive reasons than exchanges of actual data.” 26
Horizontal Guidelines

“Information exchanges between competitors of individualised data

regarding intended future prices or quantities should therefore be
considered a restriction of competition by object. In addition, private
exchanges between competitors of their individualised intentions
regarding future prices or quantities would normally be considered and
fined as cartels because they generally have the object of fixing prices
or quantities. Information exchanges that constitute cartels not only
infringe Article 101(1), but, in addition, are very unlikely to fulfil the
conditions of Article 101(3).”

27
Exchanging commercially sensitive information

• UK Tractor Registration Exchange – ECJ (C-7/95, 28 May 1998)

• Exchange of
> Individualised non-price sales data
> Exchanged frequently
> In a concentrated market
> ECJ : “on a truly competitive market transparency between traders in
in principle likely to lead to the intensification of competition”.
HOWEVER, “exchanges of precise information at short intervals…on
a highly concentrated oligopolistic market…likely to impair
considerably the competition which exists between traders.”
> Looks like an effect theory
28
Exchanging commercially sensitive information

• T-Mobile – ECJ (C-8/08, 4 June 2009)

> ECJ : “an exchange of information which is capable of removing
uncertainties between participants as regards the timing, extent and
details of the modification to be adopted by the undertakings
concerned must be regarded as pursuing an anti-competitive object.”
> “An exchange of information between competitors is tainted with an
anti-competitive object if the exchange is capable of removing
uncertainties concerning the intended conduct of the participating
undertakings.”
> Effect is out of the window

29
Exchanging commercially sensitive information

> Example : Bananas Cartel (object case)

> Three parties involved: Chiquita (whistleblower), Dole and Delmonte
> Wednesdays: bilateral discussions with very general discussions
(e.g. on demand and supply conditions)
> Every Thursday morning: reference price published by companies
(basis for actual prices) – then communicated bilaterally
> No actual or future prices
> Frequency seemed to be an important factor

30
When is information exchange a cartel?

Depends on :
• Type of information
> Strategic data : prices, investment plans, research projects, etc.
> Historic data vs future data
> Individual vs aggregated data
• Market structure (concentrated vs competitive markets) – not really
relevant anymore in the cartel context

31
 Exchanging commercially sensitive information in trading
markets - T-105/17 HSBC (Euribor – 24 September 2019)
• 2016 prohibition decision (Crédit Agricole, HSBC and JPMorgan Chase) – fined €
485 million in total. HSBC contested the finding of a cartel infringement
• GC: information exchange is acceptable in the context of a “potential transaction”.
• Distinction between:
– competitors gleaning information independently or discussing future pricing with
customers and third parties (acceptable); and
– competitors discussing price-setting factors and the evolution of prices with each
other before setting their quotation prices (inacceptable).
• GC: information exchange between competitors is problematic if it relates to: “a factor
that is relevant for pricing”, not “publicly available”, “contains precise information”
– Exchange of EIRD mid-point prices is therefore an object infringement.
– However, the exchange of trading positions (long/short) is not
32
• Cross-appeal has been introduced in front of the ECJ (C-883/19 P; C-806/19 P)
Hub and spoke cartels

• Lots of cases at the national level :

• UK : Replica Kits, Dairy
• Austria : Spar
• France, Germany, Belgium : consumer products
• Germany : Beer
• Cartels in which the direct competitors are not in contact
• A third party acts as a hub for the communication between the
competitors

33
Hub and spoke cartels – example 1

Supplier

Pricing Pricing
Instructions Information Instructions

Retailer A Retailer B
No contact
34
Hub and spoke cartels – example 2

Supplier A Supplier C

Retailer B

35
Hub and spoke cartels

 This happens all the time… Companies obtain information from

their retailers/distributors/customers on the pricing behaviour of
their competitors

 Big issue: What does the authority need to prove?

 Key elements on the basis of the current case-law :

> Knowledge: Who knows what will happen to information?
> Instigation: Who instigates the information flow?
> Expectation: Is there an expectation that, on the basis of the information, the
other party will react?
> Use of the information: What is the information used for?
> Reciprocity of information exchange?
> Common goal? 36
Signalling

The Commission may find a cartel exists when a unilateral

announcement is followed by similar announcements by
competitors which suggest an attempt to coordinate :
> “[F]or example in a situation where such an announcement was
followed by public announcements by other competitors, not
least because strategic responses of competitors to each other’s
public announcements (which, to take one instance, might
involve readjustments of their own earlier announcements to
announcements made by competitors) could prove to be a
strategy for reaching a common understanding about the terms
of coordination.” (Horizontal guidelines)

37
 Signalling
 Spain’s National Competition Authority fined Joan Gaspart, chief executive
officer of the Husa hotel chain and chairman of the tourism board of the Spanish
trade associations’ confederation, € 50,000
 Speech at the 2011 Madrid International Tourism Trade Fair :
> Need to increase hotel prices in Spain for 2011
> 6-7% seemed reasonable
> Drawing comparisons with the fares set by hotels in London, Paris and
Rome
 Widely published in the press and broadcast on radio and television
 Gaspart was conscious of the possible consequences of his words. He was not
afraid of publicly acknowledging that competition authorities could go “after him”
for his statements
 The trade association he represented at the fair was fined € 150,000 for
collectively recommending prices because the confederation had not made any
attempts to expressly condemn Gaspart’s opinions, instead endorsing his words 38

 Annulled on appeal
Signalling – Other cases
 21 November 2013: Netherlands : Commitments in mobile telecom sector to
avoid signalling of price increases or purchase conditions
 14 January 2014: UK : Competition Commission imposed remedies in the
cement sector to avoid signalling through cross-sales
 Ireland :

Irish authority warns car insurers over ‘price signalling’ in public statements (Irish Independent)
Ireland’s competition authority has warned that public statements predicting rises in car insurance
premiums could lead to “unspoken coordination” between rivals, the Irish Independent reported.
The Competition and Consumer Protection Commission (CCPC) reportedly sent a letter to Insurance
Ireland, a trade association, after chief executive Kevin Thompson told a media briefing that prices
would increase by 25% in the next year.
A CCPC spokesperson quoted by the article said such remarks could be seen as industry players
signalling prices to competitors, and that evidence of practices that remove uncertainties would give
rise to competition law concerns.

> 22 November 2013: EU : investigation in Container liner shipping for

39
signalling future price increases through press releases and press articles
Signalling – container liner shipping

• 7 July 2016: Commission accepts commitments by 14 container

liner companies

• Practice concerned
– General Rate Increase (GRI) system in which price increases
were announced three to five weeks before implementation
through press releases and press articles

40
Signalling – container liner shipping
Party Announcement date Implementation date The Announced amount of the
increase (in USD)
OOCL 26-09-2012 01-11-2012 525

UASC 26-09-2012 01-11-2012 505

CSCL 27-09-2012 01-11-2012 525

ZIM 27-09-2012 01-11-2012 500

Coscon 28-09-2012 01-11-2012 550

Hapag 28-09-2012 01-11-2012 500

MSC 29-09-2012 01-11-2012 500

NYK 01-10-2012 01-11-2012 550

Evergreen 02-10-2012 01-11-2012 525

HMM 02-10-2012 01-11-2012 500

Maersk 02-10-2012 01-11-2012 500

CMA CGM 10-10-2012 01-11-2012 500

Hanjin 12-10-2012 01-11-2012 500

41
MOL 25-10-2012 01-11-2012 500
Signalling – container liner shipping
• EC concerns:
– Finding of a concerted practice “cannot be excluded”
where one company’s actions are followed by public
announcements by competitors – infringement by
object

– GRI’s were potential strategic responses to each

other’s public announcements

– No value for customers (non-binding nature, non-

informative on actual new price)
42
Signalling – container liner shipping
• Companies expressly reject EC’s allegation, but accept
commitments:
– Announcements change to actual prices (including
at least the five main elements of the total price)
instead of increases

– Price announcements will be binding as maximum

prices

– No announcements more than 31 days before entry

into force of new prices
43
 Tacit collusion?

• No contact
• Market structure is conducive to aligning commercial behaviour
• In principle, no cartel : “parallel behaviour may not by itself be
identified with a concerted practice” (ECJ, Dyestuffs)
• Greece : BP/Shell cartel case

44
Artificial Intelligence and Collusion

The competition risks of artificial intelligence

• Tacit collusion becomes more stable and durable

– Automatic and immediate detection and possible retaliation
reduces incentive to engage in meaningful price competition

• Collusion in dynamic markets becomes easier

– Algorithms automate price reactions to changes in market
conditions

• Increased chance of competitors picking up price signalling

• But: nothing wrong with intelligently adapting to competitors’ prices

(Dyestuffs, Woodpulp) – why different when using algorithms?
45
Artificial Intelligence and Collusion

The cartel risks of artificial intelligence

• Monitoring role of algorithms

– Improve coordination and detection of diverging outcomes

• Hub & spoke potential

– Pricing algorithm as a hub, companies using the algorithm as
the spokes
• Signalling potential
– Pricing algorithms can send and detect actions within real time

• Self-learning algorithms
– Collusive outcome without explicit programming of the
algorithm to that end – no human interference 46
Artificial Intelligence and Collusion

Precedents
• Online poster sales: price fixing on Amazon Marketplace (2015)
– Trod Ltd and GB eye Ltd, merchants of licensed sport and
entertainment merchandise
– Use of automated repricing software to keep prices at the same
level
– GB eye Ltd was immunity applicant
– Investigations by US DoJ and UK CMA

47
Artificial Intelligence and Collusion

Is an enforcement change needed?

– Authorities have showed their willingness to stretch the concept of

collusion: information exchange, signalling, hub & spoke

– No reason why those concepts could not be applied to

infringements using algorithms
 From smoke-filled rooms and trade associations to artificial
intelligence
 Algorithms are implementation mechanisms rather than a new
infringement concept

48