Explain the distinction between

legitimate oligopolistic behaviour and

concerted practices
According to the Oxford Dictionary of Economics an oligopoly is a market structure with a
small number of firms in which the choice of one firm affects the profits of the other
firms. These firms are interdependent and cannot act independently of each other. A firm
operating in a market with just a few competitors must take the potential reaction of its
closest rivals into account when making its own decisions. For example, if a petrol retailer
like Texaco wishes to increase its market share by reducing price, it must take into account
the possibility that close rivals, such as Shell and BP, may reduce their price in retaliation.
A cartel is a special case of oligopoly when competing firms in an industry collude to create
explicit, formal agreements to fix prices and production quantities. In theory, a cartel can be
formed in any industry but it is only practical in an oligopoly where there is a small number
of firms. Cartels are usually prohibited by anti-trust law. According to Valentine Korah
cartels are “anti-competitive and contrary to the public interest because, if they are
successful, prices are likely to be higher than they would be under free competition.”
The scope and definition of the concerted practice is to some extent still uncertain. According
to Jones & Sufrin the term “concerted practice is designed to provide a safety net, catching
looser forms of collusion”. Therefore, Article 101 prohibits “all agreements between
undertakings, decisions by associations of undertakings and concerted practices which may
affect trade between Member States and which have as their object or effect the prevention,
restriction or distortion of competition within the internal market”. However, it can be
difficult to distinguish explicit collusion, as a form of concerted practice, from the parallel
behaviour which arises as a result of oligopoly.
The first occasion for testing oligopoly evidence and arguments in the European context
arose in the litigation following the Commission’s decision against the Aniline Dyes Cartel.
The Commission’s case against the Dyestuffs Cartel was based on direct and circumstantial
evidence of collusion. Firstly, meetings has been made in London and Basel to discuss prices,
followed with a series of uniform price increases for dyestuffs in the years 1964, 1965 and
1967 in parallel in different national markets. The Commission also relied on other
supplementary pieces of evidence, including the similarity of the rate timing of price
increases and of instructions sent out by parent companies to their subsidiaries.
Furthermore, the Court emphasized in its judgement that the producers used the system of
advance price announcements as facilitating device that “eliminated in advance any
uncertainty between them as to their future conduct and, in doing so, also eliminated a large
part of risk usually inherent in any independent change of conduct on one or several
markets.” These announcements, rendered the market transparent as regards the percentage
rates of increase. Therefore, due to their actions, the undertakings eliminate normal
competition and does not arise spontaneously under normal market conditions, but results
from intentional cooperation between alleged competitors. The Court concluded on the basis
of the nature of the Dyestuffs market and the conduct of the producers that, in this case, a
concerted practice was proven and thereby that Arctile TFEU 101 have been infringed.
According to Furse, “it is exceptionally difficult to distinguish between situations in which an
undertaking acts intelligently in response to another’s conduct (which is quiet lawful) and
acts with knowledge of another’s conduct (which may be breach of article 101). Perhaps the
clearest and most definitive statement of this approach is provided in the Court of Justice’s
judgement in the CRAM and Rheinzink case in 1984 (concerned with an alleged two-
company cartel in the steel industry).
The Commission had fined one French and one German zinc producer for, among other
things, a joint refusal to supply product to an undertaking called Schiltz which re-exported
the products into Germany sold below the normal price. It was common ground that the two
producers had both ceased to supply Schiltz on 21st and 29th of October 1976. The
Commission had taken the view that the cessation of deliveries could only be explained as the
result of an exchange of information for the purpose of protecting the German market. The
Court did not find the evidence sufficient and quashed the Commission’s decision in this
regard. According to the Court, CRAM had proved that it encountered difficulties in
obtaining payment from Schiltz before it ceased to supply zinc products.
This is an earlier version of the “other plausible explanation” argument which would figure
so prominently in the Court’s Wood Pulp judgement. In this case the Commission’s view,
concentration could be found in the simultaneous and identical quarterly price
announcements made by the wood pulp producers mainly located in Finland, Sweden,
Canada and the United Kingdom. The Court of Justice ruled out the Commission’s
documentary evidence arguing that the Commission had failed to establish a “firm, precise
and consistent body of evidence.” The system of price announcements was a rational
response to the fact that the pulp constituted a long-term market and to the need felt by both
buyers and sellers to limit commercial risk. The coincidence of timing in announcements
could be attributed to market transparency and the parallelism of the prices could be
explained by the oligopolistic tendencies of the market. Article 101 of the Commission’s
decision in relation to collusion was therefore annulled by the Court.
In conclusion, we could see in the above examples that it is hard to distinguish between
legitimate oligopolistic behaviour in the market and concerted practice. The European Court
have made it clear that parallel behaviour in itself does not constitute a concerted practice
within the meaning of Article 101. In oligopolistic markets there is likely to be transparency
in market information and little incentive to compete on price. Changes in market strengths
are likely to arise from either investment in advertising or acquisition of competitors. In the
absence of collusive agreements between the parties, any application of Article 101 will
require proof that they have gone beyond independently acting in parallel to a point where
concertation has been reached.