[By Yashvardhan Singh]
The author is a second year student of National Law University, Odisha and can be reached at singhyashvardhan9532@gmail.com.
Introduction
Exchange of information between competitors has been a cause of concern for competition regulators in various jurisdictions. The flow of ‘commercially sensitive information’ such as pricing strategies, future prices of products etc. which may lead to ‘elimination of uncertainty from the market’ has been held to be anti-competitive regulators in multiple jurisdictions like India and the European Union (“the EU”).
This article attempts to analyze the approach of competition regulators in India and international jurisdictions, with respect to anti-competitive exchange of information. Further, it aims to study the recent observations of the competition authorities and contemplates methods which the Indian competition regulator can adopt to create an effective competition policy in the domain of exchange of information.
Understanding Exchange of Information
Information exchange is a feature that pervades any competitive market. Competitors exchange commercially viable information on various platforms such as associations, consortiums and while entering into agreements.
On one hand, the effect of such exchange has been found to be advantageous for the market as it solves problems like information asymmetries, provides a stable framework for competitors to develop practices and also leads to accrual of benefits to consumers as the market functions in an informed manner.
On the other hand, such an exchange of information may facilitate collusive practices as the market players are better equipped with the strategies of their fellow competitors. For instance, the exchange of commercially sensitive information like data pertaining to sales and production, future market strategies, profit ratio etc., can aid the competitors to control the practices in market.
The exchange of such information allows the competitors to reach a ‘focal point’ for coordination. Firms might use the available platforms to remove strategic uncertainty from the market and can use the exchanged information as ‘signals’ to facilitate anti-competitive practices. For example, a firm can make regular public announcements of its future prices on its website or in the trade press just a few weeks before implementing such prices. Such public exchange of information can facilitate other market players to observe these prices and align their pricing strategies accordingly. This form of activity had raised concerns in the EU in the past specifically in the liner shipping industry.
Therefore, it is pertinent that the competition policy of any jurisdiction in this complex area should be carefully balanced keeping in mind the pro-competitive and the anti-competitive effects of information exchange.
The Indian Approach
Section 3(3) of the Competition Act, 2002 (“the Act”) deals with the exchange of information between enterprises, persons or association of enterprises. This Section restricts itself to competitors engaged in similar or identical trade of goods or provisions of services.
The Act itself nowhere defines what constitutes ‘exchange of information’. The cornerstone against which the anti-competitive exchange of information between firms is analyzed is that of ‘appreciable adverse effect on competition’ (“AAEC”).[i] AAEC refers to those economic factors which are indicative of a negative effect on the market.
The approach of the Competition Commission of India (“the Commission”) regarding exchange of information can be traced through its decisional practice. The most recent case in this regard is In re: Alleged Cartelization in Flashlights Market in India (“Flashlight case”). In this case, the Commission analyzed information exchange between four manufactures of battery-operated flashlights through a common platform, namely, the Association of Indian Dry Cell Manufacturers and other electronic mediums. The competitors exchanged commercially sensitive information like data relating to their production and sales, information related to increase in prices, wholesale prices, margins, discount schemes etc. The Commission concluded that though the evidence reflected exchange of commercially sensitive information among the four players, there was hardly any evidence to show that the data thus exchanged resulted in an effective determination of prices among the competitors.
Hence, the Commission held that exchange of commercially sensitive information can be regarded as a plus factor to indicate anti-competitive behavior of the firms. However, it also held that mere exchange of information cannot be regarded as a conclusive evidence to deduce concerted action unless the competitors have acted on the exchanged information.
This case was a significant departure from the earlier stance of the Commission on concerted practice and information exchange. In Builders Association of India v. Cement Manufacturers Association and Ors. the Commission held that ‘mere exchange’ of commercially sensitive information can be treated as an anti-competitive practice under Section 3 of the Act.
Further, the National Company Law Appellate Tribunal in Ambuja Cements Limited & Ors v. CCI observed that exchange of strategic information can be regarded as a concerted practice aimed at reducing uncertainty from the market. This matter is currently sub judice before the Supreme Court of India.
A clear distinction is observed between the above cases on exchange of price information. Firstly, the Flashlight case diluted the stance of the Commission towards cartel regime in India; and secondly, a notable feature of the current trend is that the Commission delineated the existence of a cartel and its actual effect on the market i.e. whether the cartel acted upon the exchanged information.
The European Approach
Article 101 of the Treaty on the Functioning of the European Union (“TFEU”) governs information exchanges between the competitors in the EU and also assess concerted practices.[ii]
In the EU, concertation is understood as a form of coordination which though, has not reached the stage of an agreement, but, still is inherently anti-competitive in nature. The laws in the EU have developed in a manner where three components have been identified to conclusively establish concerted practices. They are: concertation; subsequent conduct of the competitors; and a cause and effect relationship between the two.
‘Concertation’ is understood as a form of coordination between the competitors in which without even reaching the stage of an agreement, all the players substitute the practical cooperation among them for the risks of competition. This coordination then culminates into active conduct of parties in the market where, as a result of this understanding they align their practices uniformly hence, developing a cause and effect relationship.
The case of T-Mobile Netherlands is one of the pivotal cases in this regard. It laid down that each economic operator i.e. the enterprise or undertaking should ‘independently’ determine the policy which it seeks to implement in the market. If competitors exchange information, they compromise this principle and knowingly undertake the risks of disrupting competition.
The European competition regulator assesses the cases pertaining to exchange of information according to the Guidelines on the applicability of Article 101 of the TFEU to horizontal cooperation agreements (“Horizontal Guidelines”). The approach in the EU is to consider a host of factors before concluding whether the information exchange was detrimental in nature. These include the time period to which the data pertains, frequency of information exchange, the nature of the market etc.[iii]
An important observation here will be regarding the exchange of information in an oligopolistic market where it becomes necessary to factor in the structure of the market in order to conclude whether the information exchanged was due to the acts of the competitors or was an outcome of the structure of the market. Further, whether the information exchanged was genuinely public in nature is also a factor considered by the EU competition regulator.[iv]
The regulator takes a hard stance towards exchange of information and the concerted action that follows. In the Eturas case, the dispatch of a message to travel agents through an e-commerce facility was held to be an anti-competitive practice. Moreover, the European Court of Justice has, in the case of AC Treuhand confirmed the liability of a cartel facilitator and held that AC Treuhand acted as a platform for competitors to exchange commercially sensitive information.
The Way Forward
With the recent jurisprudential trend in the Indian competition regime where the Commission has relaxed its approach towards information exchange, it becomes necessary to look towards established jurisdictions like the EU.
It is imperative for the Commission to frame a set of guidelines for firms to follow in respect of information exchange. Moreover, competition advocacy[v] should make competitors understand that sharing certain commercially sensitive information can attract scrutiny under provisions of the Act.
As the nature of the markets all across the globe are becoming more convoluted, the competition watchdogs need to prepare themselves for even complex problems in the competition regime. With market structures changing and new technology coming in, exchange of information has become a general phenomenon between parties. Oligopoly and Oligopsony are market structures where the exchange of information can be a natural cause of the market structure or can be a form of tacit collusion. Such intricate problems require potent and strong competition policy in place. Hence, the Indian competition regime should actively study different market structures, identify the nature of information that can remove ‘strategic uncertainty’ from the market and work towards enforcing a stringent stance on such anti-competitive activities.
End notes
[i] The Competition Act 2002, §. 19(3).
[ii] Article 101(1) of the Treaty on the Functioning of the European Union.
[iii] Horizontal Guidelines, ¶¶ 86-93.
[iv] Horizontal Guidelines, ¶ 94.
[v] The Competition Act 2002, §. 49.