Legal nature of price signalling in the European competition law

Author:Hamed Alavi
Position:MBA, LLM , PhD Candidate. Lecturer, Tallinn School of Law. Tallinn University of Technology, Estonia
Pages:54-63
SUMMARY

Within last few years, price signalling as a form of information exchange used for anticompetitive actions has gained importance in the EU Competition Law. However, there are no many cases on this area and legal nature of the price signalling as method use for forming a concerted practice remains unclear. This paper tries to review existing European regulation and case law to find answer to the question of what is the legal nature of price signalling as an anti-competitive act? And, how is it treated under European Competition Law? In order to achieve its objectives, paper is divided into four main parts. After the introduction, second part will scrutinized the notion of information exchange and its possible anti-competitive nature under the European Law. Third part will review relevant European case law to price signalling and its role in infringing competition law. Finally, fourth part will provide conclusive remarks.

 
CONTENT
54 HAMED ALAVI
INTERNATIONAL LAW
LEGAL NATURE OF PRICE SIGNALLING IN THE EUROPEAN
COMPETITION LAW
Hamed ALAVI MBA, LLM , PhD Candidate
Lecturer, Tallinn School of Law
Tallinn University of Technology, Estonia
Abstract
Within last few years, price signalling as a form of information exchange used for anti-
competitive actions has gained importance in the EU Competition Law. However, there are no many
cases on this area and legal nature of the price signalling as method use for forming a concerted
practice remains unclear. This paper tries to review existing European regulation and case law to
find answer to the question of what is the legal nature of price signalling as an anti-competitive act?
And, how is it treated under European Competition Law?
In order to achieve its objectives, paper is divided into four main parts. After the introduction,
second part will scrutinized the notion of information exchange and its possible anti-competitive
nature under the European Law. Third part will review relevant European case law to price
signalling and its role in infringing competition law. Finally, fourth part will provide conclusive
remarks.
Keywords: Public Law, European Competition Law, Collusion, Information Exchange, Price
Signalling.
1. Introduction
As a fundamental mechanism in apparatus of market economy, competition
has a crucial role in economic growth and wealth creation. It motivates
undertakings to follow consumer demands by providing them with preferred
products. It also encourages businesses to be more innovative and stay away from
monopolistic practices. The effectiveness of competition is therefore, ensured by
application of sound competition policies. However, situation may rise under
which suppliers decide to infringe competition policies and control the market by
E-mail: Hamed.alavi@ttu.ee.
Law Review vol. VI, issue 2, Jul
y
-December 2016, p. 54-63
Legal nature of price signalling in the european competition law 55
formation of cartels and other forms of collusive action for the purpose of
increasing their profit in detriment of customer’s welfare. Such situations are
historically familiar in the context of market economy and national competition
laws are in force to prevent their occurrence.
From the economic perspective, collusion will take place when prices offered
by some undertakings in a particular market are higher than a certain benchmark
market. 1 Collusion is also determined as situation under which undertakings set
prices as if they are in monopolistic position2 . However, from legal perspective
collusion is defied differently. From the legal perspective, there is difference
between the rule of reason and collusive act per se., In qualifying and act as
collusive , courts will require evidences showing cooperation of involved
undertakings either in the format of agreement or a concerted practice which
follow the purpose of restricting or preventing competition. Therefore, it is
possible to mention, while economic view to collusion is mostly focused on the
outcome, legal view is taking the observable behaviour into account.3
Economic recognition of anti-comparative practices has an age long history in
human societies. However, emergence of competition law is not going back to very
long ago. Data from the European Commission provides that during 1990s, less
than 30 countries in the world were applying completion law. 4This number rose to
more than 100 counties by 2009 which is a good indicator of increasing national
and international importance of customer welfare and global inclination towards
fighting against corruption.5 In the European Union, legal basis for prohibition of
collusion is enshrined within article 101 (1) of the Treaty of the Functioning of the
European Union:
“The following shall be prohibited as incompatible with the common market: 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 common market, in
particular the direct or indirect fixing of purchase or selling prices or any other trading
conditions, the limitation and control of production, markets, technical development, or
investment and the allocation of markets or sources of supply are prohibited”6
Therefore, under European Law, undertakings show illegal collusive
behaviour when they meet three following conditions: a legal component, an
economic component and a jurisdictional component.7 While economic component
will be satisfied by existence of evidence proving prevention, restriction or
1 Massimo Motta, ”Competition policy: Theory and Practice”, 2004 p. 138.
2 Ibid.
3 Massimo Motta, “Cartels in the European Union: Economics, Law, Practic e”, 2007 p. 2.
4 Forwarded by Philip Lowe , Competition Law and Practice: A Review of Major Jurisdictions
(Cameron, May , 2009).
5 Ibid.
6 Article 101(1) Treaty of the function of the European Union.
7 Iversen, Bent et al. “Regulating competition in the EU”, 2008 p. 29.
56 HAMED ALAVI
distortion of the competition, Legal component will be satisfied where some forms
of cooperation (agreement or concerted practice) have taken place among involved
undertakings.8 Last but not the least; jurisdictional component refers to the fact that
agreement should affect trade between the Member States. Further, article 101(3)
defines situation in which an agreement or a concerted practice might be exempted
from being considered anti-competitive despite of falling under article 101(1).
Exemptions include: agreements beneficial to customers, agreements of minor
importance and block exemptions.
As it is already mentioned, legal component of collusion under the EU
competition law will be satisfied in presence of an agreement or a concerted
practice. However, it should be kept in mind that above mentioned notions are not
the same. Concerted practice is in need of implementation or practice of anti-
competitive act by undertakings in the market to be illegal ;but any form of anti-
competitive agreement including informal , failed agreement or even the ones
which have not been acted upon will infringe article 101.9 Therefore, in order to be
able to take a coercive measure, it is necessary for competition authorities to prove
existence of coordination in commercial activities or intention for it among
suspected undertakings. Information exchange is one of the most well-known
methods used by enterprises in formation of a concerted practice .it can be
achieved via direct and indirect contacts or parallel conduct. Within last few years,
price signalling as a form of information exchange used for anti-competitive
actions has gained importance in the EU Competition Law. However, there are no
many cases on this particular area to clarify the legal nature of price signalling as
an anti-completive act. In this paper, author tries to review existing European case
law to find answer to the question of what is the legal nature of price signalling in
the framework of EU Competition Law.
In order to achieve its objectives, paper is divided into four main parts. After
the introduction, second part will scrutinized the notion of information exchange
and its possible anti-competitive nature under the European Law. Third part will
review relevant European case law to price signalling and its role in infringing
competition law. Finally, fourth part will provide conclusive remarks.
2. Information Exchange and Concerted Practice the EU Competition Law
European law is concerned with negative effect of information exchange
among undertakings to be anti-competitive where it is a result of an “agreement”,
8 Article 101(1) does not define the term undertaking and instead it has been developed through
a number of cases before the ECJ. In Höfner and Elser v. Macotron, the ECJ established that “the concept
of an undertaking, encompasses every entity engaged in an eco nomic activity, regardless of the legal status of the
entity or the way in which it is financed.” See Case C-41/90, Höfner and Elser v. Macotron GmbH, para 21.
9 A. Jones and B. Sufrin, ”EC Competition law: Text, Cases, and Materials”, 2008, p. 174.
Legal nature of price signalling in the european competition law 57
“a decision by association of undertakings” or a “concerted practice” whereby,
price signalling is invariably referenced to be a form of concerted practice. 10
A concerted practice is known as type of coordination among undertakings
where in absence of an explicit agreement, they show practical cooperation to
reduce risks of competition with each other. In a free and competitive market, each
undertaking may determine its business policy and price offers to customers
individually. However, under concerted practice such individual approaches
towards setting a go to market strategy does not exist and competing parties form
a collaboration to further increase their profit , protect their interests in the expense
of violating customers interests. European Competition law considers a situation
as concerted practice where particular preconditions are met including :
Undertakings must be involved in some sort of cooperation or concertation; they
show elements of collusive practice in their market behaviour; There is high
possibility to find cause and effect relation between concerted practice and market
conduct of undertakings.
Meanwhile, many companies use communication methods to share attributes
of their business including existing and future pricing policy with public.
European Competition authorities constantly show more sensitivity to such
practice as a form of concerted practice towards violation of European
Competition Law. They believe that price signalling is a way used to form a
collusion, harmonise prices among competitors and obtain close to monopoly
prices in internal market .Within the framework of the European Competition
Law, any information exchange among competitors which results in price
signalling is covered under European Commission’s Guidelines on Applicability of
Article 101 of the TFEU.11 In terms of information exchange, guidelines provide:
“[A concerted practice arises out of] any direct or indirect contact between
competitors, the object or effect of which is to influence conduct on the market of
an actual or potential competitor, or to disclose to such competitor the course of
conduct which they themselves have decided to adopt or contemplate adopting on
the market, thereby facilitating a collusive outcome on the market. Hence,
information exchange can constitute a concerted practice if it reduces strategic
uncertainty in the market thereby facilitating collusion, that is to say, if the data
exchanged is strategic. Consequently, sharing of strategic data between
competitors amounts to concertation, because it reduces the independence of
competitors’ conduct on the market and diminishes their incentives to compete.”12
10 Hall. M ,Recent Developments in Price Signalling in the EU, ABA Section of Antitrust Law
Spring Meeting (April 2015),P 3.
11 Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European
Union to horizontal co-operation agreements, OJ C 11/1 (14 January 2011), available at http://eur-
lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52011XC0114(04)&from=EN.
12 OJ C 11/1 (14 January 2011) paragraph 61.
58 HAMED ALAVI
Guidelines also clarify key distinctive issues regarding cases that conduct of
information exchange among undertakings would be illegal. It is provided that:
“A situation where only one undertaking discloses strategic information to its
competitor(s) who accept(s) it [or requests it] can … constitute a concerted
practice”13. This means a practice can be illegal information exchange where there
is no reciprocity and even all acts happen out of business environment.
Additionally, an information exchange may be result of attending a meeting and
public announcements even in absence of invitation to collude:
“Where a company makes a unilateral announcement that is also genuinely
public, for example through a newspaper, this generally does not constitute a
concerted practice…However, depending on the facts underlying the case at hand,
the possibility of finding a concerted practice cannot be excluded, for 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.”14
The above mentioned position has direct link to phenomenon known as price
signalling. As it was mentioned earlier, many companies regularly communicated
their intended prices together with other relevant business information to the
public. Here comes the risk whether the unilateral public announcement of future
prices by one undertaking would be followed by the same act of other competing
firms in the same market. The notion follows logic under which statement made by
one company may increase the possibility for imposition of same price change by
competitors and result in formation of a concerted practice. As a result, in order
not be found guilty, all suspected parties should prove that they are not been
involved in any anti-competition practice. However, it should be kept in mind that
existing case law on relevant decisions of European Court of Justice do not support
the position of European Commission taken in the guidelines.
In seminal case of Wood Pulp15, the European Commission (EC) accused forty
producers of wood pulp and three trade associations formed by them with
collusion act towards harmonising prices. In absence of evidence proving express
agreement, EC rested its claim on two issues. First, the Commission traced direct
and indirect information exchange among competitor undertakings which resulted
in artificial transparency of market via: establishment of a system for price
announcements done in quality basis, conducting price exchanges by
13 Ibid, Paragraph 62.
14 Ibid Paragraph 63.
15 Wood Pulp, 27 O.J. (L 85) 1 (1984) [1982–85 Transfer Binder] Common Mkt. Rep. (CCH) 10,654
(1985).
Legal nature of price signalling in the european competition law 59
telecommunication devices or during meetings, and finally price exchange with
American producers which were considered by commission as a separate
infringement.16
Second, the EC found parallel pricing resulted from above mentioned
information exchange as anti-competitive. However, the European Court of Justice
changed the judgement on appeal:
“…parallel conduct cannot be regarded as furnishing proof of concertation
unless concertation constitutes the only plausible explanation for such conduct. It
is necessary to bear in mind that, although [Article 101(1) TFEU] prohibits any
form of collusion which distorts competition, it does not deprive economic
operators of the right to adapt themselves intelligently to the existing and
anticipated conduct of their competitors … Accordingly, it is necessary in this case
to ascertain whether the parallel conduct alleged by the Commission cannot,
taking account of the nature of the products, the size and the number of the
undertakings and the volume of the market in question, be explained otherwise
than by concertation”17
As a result, in proving the existence of concerted agreement, the EC should
rely on documents evidencing the contacts among involved undertakings. In this
regard, the EC must prove that in public announcements of undertakings,
competitors were in fact intended audience and they responded in similar way.
After providing sufficient evidence about an existing concerted practice , next
step would be defining whether or not signalling act in question is an infringement
to European Competition Law. In this regard, guidelines provide:
“Information exchanges between competitors of individualised data regarding
intended future prices or quantities should … 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…”.18
Recent EC’s Guidance on restrictions of competition by object reiterated the
same position.19 In cases which do not fall under above mentioned categories, effects
of exchanging information on competition must be assessed on the facts of each
particular case. In conclusion, an act of information exchange will have restrictive
effect on competition in the framework of article 101(1) of TFEU where it impacts
16 Ibid, 118.
17 A. Ahlström Osakeyhtiö and others v Commission of the European Communities, Joined cases C-
89/85, C-104/85, C-114/85, C-116/85, C-117/85, C-125/85, C-126/85, C-127/85, C-128/85, C-129/85,
available at http://curia.europa.eu/juris/showPdf.jsf?text=&docid=93717&pageIndex=0&doclang=
EN&mode=lst&dir=&occ=first&part=1&cid=489879.
18 OJ C 11/1 (14 January 2011).
19 Guidance on restrictions of competition "by object" for the purpose of defining which
agreements may benefit from the De Minimis Notice, SWD(2014) 198 final, available at
http://ec.europa.eu/competition/antitrust/legislation/de_minimis_notice_annex.pdf.
60 HAMED ALAVI
any of pro-competition parameters negatively. Parameters include: price, product
quality, output, innovation or product variety20. Economic effects on relevant market
and characteristics of exchanged information are considered by EC to determine
whether or not an exchange of information has anti-competitive effects. 21
3. Relevant European Case Law
Unfortunately, price signalling is still a grey area in European Competition
Law. As a result of scarcity in number of available case law, it is still not clear
where and under which condition it can be considered punishable act and
subjected to fines. However, boundaries of competition law in the EU are
expanding constantly and there are legal cases available (although in very small
number) which show attitude of competition authorities at the Union level and
also Member States towards price communication among commercial
undertakings.
3.1. Italy
The Italian Competition Authority (ICA) has some experience with cases of price
signalling. In Compagnie Aeree - Fuel Charge22, ICA authorities while investigating
website of an airline discovered two press releases which first one was introducing a
fuel surcharge and the latter was giving out the amount of surcharge. As competitors
in the same market introduced identical surcharges subsequently, ICA considered
the price signalling committed by the airline as a concerted practice in violation of
competition law. Next case was Prezzi dei Carburanti in Rete23, with involvement of oil
companies; ICA considered exchange of price information among involved
undertakings via press releases and fuel price list in industry magazines as violation
of competition law. Instead of going to court, case was settled by commitment of oil
companies to stop communicating price lists to media. In Listino Prezzi della
Pasta24,investigating of information exchange done by pasta producing companies
convinced ICA that competitors violate competition law by being involved in a
concerted practice of price signalling via press conference , press releases , television
interviews and newspaper.
3.2. The Netherland
Investigations of the Netherlands Authority for Customers and Markets (the
ACM) into activities of three mobile telephone operators KPN, Vodafone and
20 Hall , M (2015 ) , P6.
21 Ibid.
22 Decision n. 11038 dated 1 August 2002, Case I446 - Compagnie Aeree - Fuel Charge.
23 Decision n. 17754 dated 20 December 2007, I681 - Prezzi dei Carburanti in Rete.
24 Decision n. 19562 dated 25 February 2009, Case I694 - Listino Prezzi della Pasta.
Legal nature of price signalling in the european competition law 61
T-Mobile settled with commitment of involved undertakings.25 In the course of
investigations, it became clear that public statements of operators changing
commercial terms of respective companies contain anti-competitive risks.
Statements were covering range of speeches, presentations, media reports, panel
discussions at conferences and interviews with media. ACM referenced to
statements of a telecom company representative in a conference where he clearly
discussed intention of his company to introduce separate connection fees. Tracing
notes made by other operators based on statements of above mentioned
representative resulted in conclusion of ACP that taking notes from public
statements of competitors about their intention to change future terms of trade
might result in a collusion act and imposition of harm to customers.
In January 2014, three telecom operators committed to ACM not to make
statements relevant to their trade policy changes in public before finalizing such
changes internally. They also committed to upgrade their compliance policies and
provide special employee training workshops on the subject matter.26
3.3. The European Container Shipping Case
Apart from the Wood Pulp27case, EU container shipping case is another
measure taken by the EC against price signalling conduct of shipping companies at
the Union level .In November 2013, the EC issued a press release and considered
investigations on activities of 15 liner shipping companies in different Member
States started in 2011 as reflect of concerns about existence of concerted practice
where undertakings signalled their future prices to each other.28 In conclusion,
main concerns of EC were summarized under four main categories: First, frequent
public announcement regarding price increase intentions on the website of
particular trade press. Second, constantly announcing price changes. Third, all
companies followed the same format of announcement including amount of
increase in price and date for implementation of new prices. Fourth, undertakings
were making announcements successively some weeks before implementation
date announced in the same press release.29
The case settled in July 2016 with decision of the EC to impose certain legally
binding commitments on undertakings including:
Refraining to publish and communicate price changes on sole format of
amount or percentage of change.
25 ACM decision of January 7, 2014, case number 13.0612.53. See also the press release at
https://www.acm.nl/en/publications/publication/14326/Commitment-decision-regarding-mobile-
operators/.
26 Ibid.
27 Wood Pulp, 27 O.J. (L 85) 1 (1984) [1982–85 Transfer Binder] Common Mkt. Rep. (CCH) 10,654
(1985).
28 Case AT.39850 Container Shipping.
29 Ibid.
62 HAMED ALAVI
Including total price elements in future price announcement
Prices announced in future would be the celling price; however,
undertakings are free to offer lower prices.
In accordance with market practice for booking large volumes, new prices
will not enter into force more than 31 day after their announcement. 30
In Container Shipping Case, the EC did not conclude that infringement to the
EU Competition law has taken place. However, involved undertakings will face
with fine equal to 10% of their annual global turnover in case of breaking their
commitments.
4. Conclusion
In its endeavour to answer questions around legal nature of price signalling in
European Competition Law ,this paper explained concept of concerted practice and
condition under which information exchange among competitors can result in
infringement of article 101(1) of TFEU. Further, relevant case law were studied to
shed more light on the subject matter. However, it is clear that price signalling is still
a grey area in European Competition Law. It is necessary to remember that relevant
legal issues to prices are not only covered by competition law. There are other area of
law which also play role in this game like corporate law and financial law which
make companies to go for public announcement of their financial matters. Public
companies are good example which should constantly disclose their financial plans
to public. Therefore, defining a clear position for price signalling in the EU is in need
of fact based analysis and willingness of parties and authorities to settle cases with
commitment decision. However, commitment decisions suffer from lack of a general
applicable legal framework which can be used to all cases as each decision is
extremely dependant on facts of a particular case.
References
Ahlström Osakeyhtiö and others v Commission of the European Communities, Joined
casesC-89/85, C-104/85, C-114/85, C-116/85, C-117/85, C-125/85, C-126/85, C-
127/85, C-128/85,C-129/85, available athttp://curia.europa.eu/juris/showPdf.jsf?
text=&docid=93717&pageIndex=0&doclang=ENmode=lst&dir=&occ=first&part=1
&cid=489879.
Case AT.39850 Container Shipping
Case C-41/90, Höfner and Elser v. Macotron GmbH, para 21
Decision n. 11038 dated 1 August 2002, Case I446 - Compagnie Aeree - Fuel
Charge
Decision n. 17754 dated 20 December 2007, I681 - Prezzi dei Carburanti in Rete.
30 Ibid.
Legal nature of price signalling in the european competition law 63
Decision n. 19562 dated 25 February 2009, Case I694 - Listino Prezzi della
Pasta.
Guidance on restrictions of competition "by object" for the purpose of defining
which agreements may benefit from the De Minimis Notice, SWD(2014) 198 final,
available at http://ec.europa.eu/competition/antitrust/legislation/de_minimis_
notice_annex.pdf.
Guidelines on the applicability of Article 101 of the Treaty on the Functioning
of the European Union to horizontal co-operation agreements, OJ C 11/1 (14
January 2011),available at http://eurlex.europa.eu/legalcontent/EN/TXT/PDF/
?uri=CELEX:52011XC0114(04)&from=N.
Hall. M ,Recent Developments in Price Signalling in the EU, ABA Section of
Antitrust Law Spring Meeting (April 2015),P 3
Iversen, Bent et al. “Regulating competition in the EU”, 2008 p. 29
Massimo Motta, “Cartels in the European Union: Economics, Law, Practice”, 2007
p. 2
Massimo Motta, ”Competition policy: Theory and Practice”, 2004 p. 138
Philip Lowe, Competition Law and Practice: A Review of Major Jurisdictions
(Cameron, May, 2009)
Wood Pulp, 27 O.J. (L 85) 1 (1984) [1982–85 Transfer Binder] Common Mkt. Rep.
(CCH) 10,654 (1985).