The Other Face of Tacit Collusion: A Collective Action Theory Perspective on Punishing Facilitating Practices as Abuses under Article 102 TFEU

This is a summary of  “The Other Face of Tacit Collusion: A Collective Action Theory Perspective on Punishing Facilitating Practices as Abuses under Article 102 TFEU”, a paper written by Popa Antoniu-Rareş.

Theories of collective action can have a telling insight into how a successful collective action – like oligopolistic parallel behaviour – can come about. The very fact that entities bound in groups are generally interdependent, and that the distribution of resources is unequal between them can provide the useful tell-tale signs of a successful collective action.

Interestingly, the same theoretical findings can be used regardless of whether one seeks to understand the roots of a civil protest or parallel behaviour adopted by oligopolists. Essentially, a public good in the words of collective action theory is similar to a parallel course of action consciously engaged in by oligopolists in order to reap supracompetitive benefits. It is submitted that this behaviour is ‘public’ in its nature since all of the firms involved can equally enjoy elevated prices on the market.

Also, swarms of companies behave in a similarly intricate way to any other natural counterpart. Individual entities which find themselves bonded by their environment are generally prone to acknowledge their interdependence and use it to enhance their utility by means of collective action, be it either through a beehive or an oligopoly. When it comes to a pure oligopolistic market where no organizational links exist between the companies concerned, undertakings have the rational incentive and the ability to reap supracompetitive benefits through parallel common action dubbed tacit collusion. Against this backdrop, theories on collective action can shed useful light on understanding how oligopolists can successfully undertake such common conduct.

More often than not, however, punishable anti-competitive outcomes can be indistinguishable from rational economic responses dictated by market imperatives. As a result, this  ensuing  ‘oligopoly  problem’  has  stirred  considerable  debate  in  the  competition  law literature, making its punishment problematic in light of Article 102 TFEU.

Nevertheless, a consequence of collective action theory is that for common action to take place, one undertaking has to ease the establishment of the terms of coordination through facilitating practices which can  be  understood  as  “methods  different” market  practices through which undertakings establish a vehicle through which tacit collusion becomes easier.

In itself, this vehicle can be called an “artifice” designed to circumvent any hurdles put in the way by the lack of overt communication. It can tentatively be postulated that such practices could be detected through an analysis of their economic viability given the current market conditions as well as their potentiality of greasing the wheels of an anticompetitive course of conduct. Furthermore, pursuing facilitating practices should not take the form currently prevailing in the United States whereby the latter can be challenged only as an ancillary proof of an underlying anticompetitive agreement to collude. To the contrary, in the context of Article 102 TFEU, facilitating practices should become a conduct which in itself is condemnable as one of the only ways in which tacit collusion can actually occur outside overt contacts or agreements already suspect under Article 101 TFEU

Considering facilitating practices as abuses of dominance is consistent with the prevalent legal doctrine of what an abuse should entail. Without a doubt, the need for such a development to be consistent with existing legal tenets is a necessary expression of the general principle of legal certainty and – its alter ego – protection of the parties’ legitimate expectations. Admittedly, the notion of consistency in itself is multifaceted. In its support, this argument will focus on the need for punishing facilitating practices to be (i) internally consistent, i.e. in accord with the case-law  on  the  matter  of  abuse  in  Article  102  TFEU,  (ii)  systematically  consistent,  i.e. consistent  with  Article  101  TFEU  as  a  pair  tool  in  ex  post  enforcement  and  (iii)  to  be economically consistent, i.e. in accord with prevalent economic theories of harm.

From an internal consistency point of view, the Court held in Continental Can   that “the strengthening of a position of an undertaking may be an abuse and prohibited under Article [102] of the Treaty, regardless of the means and procedure by which it is achieved.” This understanding  of  what  abuse  should  generally  entail  has  been  expanded  and  refined  in subsequent case-law. In Hoffman- La Roche, the Court argued that “the concept of abuse is an objective concept … which, through recourse to methods different from those which condition normal competition … has the effect of hindering the maintenance of the degree of competition … or the growth of [it]”.

Quite clearly, competition on the merits – or “performance competition” as an ordoliberal would call it – is to some extent incompatible with a practice through which entities strengthen their dominant position. Surely, as a dominant undertaking or group of undertakings one walks on a recognizably fine line between a rational business strategy and legally condemnable behaviour.  This matter aside, it has been established that facilitating practices are devices meant to  strengthen  the  undertakings’  internal  coordination.  In  other  words,  facilitating  practices become a strong enabling factor in the context of the first Airtours requirement, namely the need for undertakings to have a common understanding as to the parallel behaviour. Arguably, this allows undertakings to exclude any destabilising uncertainty and, as a consequence, strengthen their dominance. This conclusion remains true even though this practice is not directly designed to strengthen the group’s market position vis-à-vis other competitors, but rather indirectly achieves this by allowing the undertakings concerned to be on the same page. Therefore, given that such practices are such as to strengthen a position of collective dominance, punishing them fits the mould of established legal doctrine developed on Article 102 TFEU. In such a situation, it will be for the EU Courts to put flesh on the bones and consider on a case-by-case basis the extent to which one category of facilitating practices or another are to be punished.

From a systematic consistency point of view, punishing facilitating practices is not alien to competition enforcement in Article 101 TFEU. The Commission guidelines on horizontal cooperation    mention   the   likes   of   R&D   agreements,    production   agreements    or standardization agreements as able to facilitate a collusive outcome between the parties involved.

In  themselves,  these practices  can  have as  an  object  or effect  the passing on  of commercial information between the parties making them more susceptible towards collusion.

Certainly, these types of agreements are similar in their effect to practices which oligopolists can engage into in order to facilitate their own tacit collusion. Surely, unlike in the case of Article 101, undertakings in a tight oligopoly do not need te enter into an agreement or concerted practice to facilitate tacit collusion, making thus a watertight parallel with those guidelines difficult. However, the principle of outlawing the means through which coordination becomes easier is the same in both instances, making the punishing of facilitating practices peculiar to oligopolies systematically consistent.

From an economic consistency point of view, it has been pointed out that RPM practices in themselves have been found to harm interbrand competition.Generally, it is also clear that the effect of facilitating practices in a tight oligopoly is to lead to inefficient outcomes once the oligopolists have found a way through them to reach a stable tacitly collusive conduct.  Both these points show an indication that punishing facilitating practices has the potential to safeguard the efficient allocation of resources which competition law is striving to achieve. As such, this development in enforcement would be consistent with economic aims, subject however to any more detailed economic studies in these respects.

Unlike a more formalistic understanding of human action and behaviour predicated by Olson, entities do have the propensity to engage in public action. When groups of entities are (i) heterogeneous, and (ii) the good which they intend to emulate has high jointness of supply, then action will be successfully undertaken by a smaller critical mass ready to provide the good for the benefit of all. Additionally, the theory predicts that such heterogeneous groups will be most successful in case they centralize the provision of the public good in the hands of such critical mass.

To a great extent, the same theory can be applied equally to collectively dominant groups of undertakings. Surely, undertakings in an oligopoly form a larger market network with various other firms at different levels of the supply chain. The group which is collectively dominant, however, can be distinguished from the rest by virtue of the strong ties which exist between them. As previously shown, this tight group of (usually) the largest undertakings on a certain market are rationally bounded together in their realisation that tackling interdependence is the key to profit. The same key can equally yield, more interestingly, supracompetitive profits which the oligopolists will possibly pursue trough tacit collusion. The pursuit of supracompetitive profits becomes, in our instance, the public good considered by network theories. This is intuitively so since, from higher overall prices on the market, they can all equally benefit. However, the issue now becomes – who would take the burden of organizing behaviour in such a way that this collective good becomes a reality?

Luckily, in line with collective action theory, it can be predicted that the most endowed market player in the collectivity has both the most resources to initiate this public good and the interest to do so. It will be this kind of player – or in the words of the theory the critical mass – who will initiate a successful common pricing action. This is so since, most often than not, oligopolies are indeed (i) heterogeneous, i.e. not every market player has equal market power in relation to the others. Subject to a finding that the parallel conduct in question has (ii) a high jointness of supply – which practices such as RPM or MCC appear to have – then, in line with collective action theory, successful supracompetitive pricing will not have all of the undertakings initiating  this  public  good  simultaneously,  but  rather  (most  likely)  one  of  them.  As  a consequence, the initiator of this common pricing benefit will need to communicate its intention of doing so in one way or another to the others. Since overt communication is a considerably risky option  to  pursue,  the  only  option  left  to  this  common  action  leader  is  to  engage  in facilitating practices meant to ease the manner in which the other members of the group will be able to follow suit. As previously argued, it can do so through a myriad of practices out of which price signalling, MCCs or RPM are just examples.

Pursuant  to  this  finding,  it  would  make  enforcement  sense  to  consider  facilitating practices as an abuse and render more difficult this type of communication since it is in fact the most likely trigger of a collective action in pursuit of a common good in the first place. Such a development would also be in line with the Court’s finding in Irish Sugar that a collectively dominant position can be abused not just by the collectivity in its totality, but by individual firms as well. Essentially, EU enforcement agencies would not focus their attention on punishing the parallel conduct itself, but rather those facilitating practices initiated by the action’s leader to make it possible. After all, the ulterior adaptation of the others – which is ultimately rationally dictated by interdependence – will not be a source of the fine, but only the leader’s behaviour.

It can equally be predicted that oligopolists will initially be on a learning curve as to how behaviour is to be synchronised if they wish to attain a common good such as supracompetitive

pricing. Surely, while in the beginning parallel action may not arise due to a certain lack of common understanding, facilitating practices may help attain this goal in the future. Repeated interaction  between  the  oligopolists  can  be  seen  as  a  build-up  of  responses  to  facilitating practices which will slowly create a roadmap and a series of tacit conventions, or shortcuts of behaviour.  Eventually,  through  trial  and  error,  these  conventions  will  make  coordinated responses to facilitating practices much quicker and easier. Therefore, from an enforcement point of view, it would make practical sense to outlaw facilitating practices as the very means of communication which oligopolists have to ease and eventually improve their response times.

In sum, aggregating the above arguments can alleviate some of the main points of criticism advanced in the literature regarding the difficulty of punishing parallel behaviour. As far as the first line of criticism is concerned, true as it is that oligopolists do need to communicate in one way or another for parallel behaviour to arise, it does not necessarily have to be verbal. Facilitating practices have the potential to be the means – if not the only – through which the leader of the common action enables others to sync in the tune. As far as the second and third lines of criticism are concerned, tacit collusion in itself can indeed be indistinguishable from mere  responses  dictated  by  interdependent  reactions  to  the  others.  However,  as  previously argued, one of the hallmarks of tacit collusion require the critical mass to disseminate the potential common course of action to reap supracompetitive prices through facilitating practices. If these practices are considered abuses of collective dominance and fined, then tacit collusion would probably not occur in the first place. This development in enforcement would leave, however, mere intelligent adaptations unpunished as well as keep enforcement agencies away from the dreaded role of price regulators.

The truth remains however that the current guidelines explicitly focus the enforcement of Article 102 TFEU onto exclusionary abuses in both types of dominance.  The shift towards understanding collusive behaviour as being the consequence of facilitating practices – and punishing the later as abuses of collective dominance – does require a change in the guidelines. Any finding to the contrary would be a marked shift from stated enforcement priorities and would result in legal uncertainty for the interested parties.

It  appears  abundantly  clear  that  oligopolists  have  the  possibility,  by  virtue  of  the  market structure,  to  coordinate  their  behaviour  and  reap  supracompetitive  benefits  through  tacit collusion. Be it tacit or overt, the end consumer still ends by paying the bill of similar ensuing inefficiencies.

In tackling tacit collusion, EU law has closed the door of using Article 101 TFEU while leaving an underexplored crack through the use of Article 102 TFEU. Capturing tacit collusion through this later avenue – as an abuse of a collective dominant position – has been paved with well-articulated criticism. Nevertheless, lessons from collective action theory have shown that a successful common good – like supracompetitive pricing – is usually initiated by more endowed undertakings which act as a leader. The only way in which such undertakings are able to communicate the terms of the common course of action can be said to be – absent overt meetings – through facilitating practices.

Consequently,  changing  the  focus  of  competition  law  enforcement  through  new guidelines geared towards capturing facilitating practices as abuses of collective dominance makes legal as well as practical sense, making it a matter which the Commission would find fruitful to pursue in the future. In this way – and subject to the development of legal precedent as to what facilitating practices are in the context of Article 102 – irreproachable intelligent adaptations will go unpunished, while only that behaviour engaged in by one undertaking which is conducive to tacit collusive outcomes will be captured.  After all, together they stand, yet divided they will fall.

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