Unilateral Collusion: (Mere) Conscious Parallelism or (Illegal) Concerted Practice? The Case of Competitor-Based Pricing Guarantees

Abstract

Oligopolistic price-setting has been at the core of antitrust enforcement ever since its existence. Consensus about exempting pure conscious parallelism (tacit collusion) from competition law scrutiny had quickly been reached, which means that non-competitive market conduct by several undertakings is only scrutinized if it was established by certain preceding collusive behavior. The necessary constituents of such illicit collusion, however, are subject to an ongoing debate. This holds particularly true for cases of unilateral collusion where non-competitive market conduct was established based on the individual use of a facilitating practice by (sometimes) only one firm. Competitor-based pricing guarantees by which a company promises to match a competitor’s lower price can serve as an illustration. Economic research shows that such guarantees can impede competition: a firm can deter its rivals from undercutting its price because the resulting quantity effect is lower than usual. At first glance, with “concerted practices'' in Art. 101 TFEU, European competition law provides a suitable tool to tackle such behavior. Under traditional doctrine, however, the concept is not applied to collusion following the individual use of facilitating practices. This notion is put into question, and a new approach distinguishing between (lawful) conscious parallelism and (illegal) unilateral collusion is presented.

I. INTRODUCTION

Frequently described as one of the oldest questions in competition law,¹ the distinction between conscious parallelism (tacit collusion or oligopolistic interdependence) and concerted practice (explicit collusion) is far from resolved. It is indeed widely accepted that parallel conduct as such should not be prohibited. Current doctrine in European competition law, therefore, requires undertakings to engage in preceding coordination for subsequent parallel conduct to fall within the scope of Art. 101 TFEU. This is mostly due to the famous remedy problem,² which arises if one aims at restricting (mere) unilateral market behavior. If the goal was to limit companies in adapting themselves intelligently to their competitor’s behavior, for example, by following a price increase, some counterfactual behavior as an alternative to the prohibited action would have to be prescribed. In cases of joint price hikes without a preceding use of additional means of coordination, this would then quickly lead to a regime of public price stipulation with significant interventions into market forces. Consequently, and rightly so, European competition law is not outcome-based but rather process-based.³ Action is taken not against parallel market conduct itself but against parallel conduct that has been facilitated by additional means of coordination. Typical examples include agreements (cartels), (private) information exchange, or (public) announcement of intended future behavior (“signaling”). Regarding the additional means of coordination that make parallel conduct a concerted practice, current doctrine requires reciprocity between undertakings that take part in a collusive scheme.⁴ Each and every one of the compromised undertakings needs to be involved in the concertation. Unilateral collusion, that is, parallel conduct established by means of a single, individually applied facilitating practice, is said to fall outside the scope of a concerted practice within Art. 101 TFEU.⁵

Aside from (perceived) limitations in the wording of Art. 101 TFEU,⁶ justification can sometimes—again—be found in the previously described remedy problem.⁷ Without an enforceable remedy, prohibition of certain unilateral behavior is said to be impossible (or at least impractical) because courts or competition agencies would have to dictate an enterprise’s market policy. This train of thought, however, overlooks a crucial fact. If one can identify (at least) one facilitating practice that is separable from the market conduct it aims to influence, there is a suitable target for legal intervention. The remedy problem is solved as soon as one focusses on supplementary means of coordination, irrespectively of how many undertakings (commonly) apply them. Therefore, from a remedy point of view, it is very well possible to take action against unilateral collusion and (ultimately) classify it as a concerted practice.

The following article investigates whether this classification can be established with regard to other methodological constraints of legal interpretation. It takes as a reference point a current example of unilateral collusion, namely competitor-based pricing⁸ by means of low-price guarantees.⁹ Early theoretical as well as recent empirical economic evidence suggests that guarantees promising to match a competitor’s cheaper price are capable of restricting competition.¹⁰ Such guarantees, however, are often only offered by single undertakings in a given market. Typically, there is no underlying agreement by several undertakings that (at least) one of them starts offering such a guarantee.¹¹

II. CURRENT DOCTRINE: CONCERTED PRACTICES

As a basis for the following investigation, the upcoming section presents current doctrine as well as current boundaries of “concerted practices” under EU competition law. Directly afterwards, the economics of competitor-based pricing will be summarized in order to give a well-documented example of unilateral collusion in real-world settings.

A. Legal Tests

In settled case law, the European Court of Justice (ECJ) describes the character of a concerted practice by means of two key definitions which are frequently labeled the relevant “legal test”.¹² In the 1972 dyestuff case¹³ it held that

“the concept of a 'concerted practice' refers to a form of coordination between undertakings which […] knowingly substitutes practical cooperation between them for the risks of competition”.

In the 1975 sugar case¹⁴ it went on to state that

“although […] (the) requirement of independence does not deprive economic operators of the right to adapt themselves intelligently to the […] conduct of their competitors, it does however strictly preclude any direct or indirect contact between such operators, the object or effect whereof is either to influence the conduct on the market of an actual or potential competitor or to disclose to such a competitor the course of conduct which they themselves have decided to adopt or contemplate adopting on the market”.

It has also been clarified that the concept entails a two-stage criterion. In the 1999 polypropylene cases,¹⁵ the ECJ held

“that, as is clear from the very terms of Article 85(1) of the Treaty, a concerted practice implies, besides undertakings concerting together, conduct on the market pursuant to those collusive practices, and a relationship of cause and effect between the two.”

The causal link between concertation and conduct is subject to a rebuttable presumption,¹⁶ even if the concertation has only taken place once.¹⁷ While the older definitions have never officially been attributed to either of the two stages by the ECJ itself,¹⁸ it follows, as will be elaborated on later, that “practical cooperation” between undertakings describes the parallel market conduct that has resulted from (previous) concertation, whereas this concertation is characterized by “any direct or indirect contact […]” between undertakings. The distinction is relevant regarding the frequently encountered statement that concertation requires practical cooperation and, thus, reciprocal contacts between undertakings.¹⁹

B. Boundaries

As has been foreshadowed in the introduction, current doctrine draws the boundaries of concerted practices when being faced with unilateral (individual, one-sided) measures. Disclosure of information does not necessarily need to come about as an actual exchange that would require information to be sent both ways.²⁰ If only one party has revealed information to others, however, a prior act of invitation to send the information in question or a later act of acceptance by the receiving party (or parties) is required.²¹ Acceptance can be seen in non-opposition if information is shared in a common meeting.²² This is because silence leaves an impression of consensus that ought to be eliminated only by public distancing. This requirement²³—letting competitors explicitly know that one does not share the anticompetitive spirit of a meeting and will not behave in accordance with proposed actions—is a general line of jurisprudence that does not only apply in cases of unilateral information disclosures but rather in any anticompetitive meetings where some parties might have remained silent and argue they had not explicitly agreed to the formation of a cartel. An unsolicited message that is not part of a pre-existing communication channel between competitors, however, does not amount to a concerted practice if the recipient does not react.²⁴ In the same vein, a single public announcement of future conduct (“signaling”) does not constitute a concerted practice, even if it appeared obvious that several undertakings followed the announced market conduct later on.²⁵ If at all, only several public announcements (in reaction to another)²⁶ can lead to a concerted practice.

Building on this, a strict distinction has to be made between purely unilaterally facilitated collusion—as addressed in this article—and unilateral disclosure as it was subject to the previously cited cases. While the recent (2023) Horizontal Guidelines by the EU-Commission stay intentionally vague on the matter and seem to suggest that—depending on the facts and merits of the individual case—even the stand-alone announcement of future conduct might constitute a concerted practice,²⁷ both the former case law and the former administrative practice have only ever scrutinized cases with a plurality of announcements by several parties (given in apparent reaction to each other).²⁸

Unilateral collusion—in its intended meaning in this article—should therefore be understood as collusion that is facilitated by the single, individual, stand-alone use of a facilitating practice. It has to be distinguished from instances of a collective²⁹ (albeit one-sided³⁰) use of facilitating practices that can and have already been addressed by current practice.

It is true that the Eturas³¹ruling represents a borderline case where it might seem that a (purely) unilateral act has been adjudicated as amounting to a concerted practice. The text message and technical constraint implemented by the system administrator, however, was only seen as sufficient concertation in conjunction with the non-opposition of travel agencies gathered on the booking system. The case was therefore solved based on the well-known “public distancing” jurisprudence (see just above). In my opinion, the ruling has not opened the floodgates (yet) for cases that go beyond interactions where (implicit) acceptance of unilateral disclosures can at least somehow be constructed. Instead, the decision was based heavily on context and the collective use of the same booking system by several competitors with an internal message system. It cannot be inferred that the ECJ would come to the same conclusion in cases of pure unilateral action like a stand-alone price-matching guarantee. So far, there have only been cases where courts and agencies managed to squeeze seemingly unilateral actions into a scheme of reciprocity, most notably by identifying some sort of acceptance by the passive-reactive party.

III. COMPETITOR-BASED-PRICING AS AN EXAMPLE

By means of a low-price-guarantee an undertaking can promise to match or to beat a competitor’s cheaper price. Accordingly, such promises are called “price-matching”³² or “price-beating guarantees”³³ (PMG/PBG); another pair of terms is “meeting”³⁴ or “beating competition clause”³⁵ (MCC/BCC).

For the purpose of this article, the analysis is narrowed down to PMGs/MCCs. This is due to the fact that economic research has uncovered ambiguous findings for PBGs/BCCs which are (relatively) harder to reconcile with precise policy recommendations for competition law enforcement. For interested readers, the following footnote contains a selection of economic papers dealing with PBGs/BCCs.³⁶

Intuitively, price-matching practices seem beneficial for consumers and imply competitive pressure. If a company lowers its price, others (bound by PMGs) follow immediately which might lead to a market-wide price decrease. At second glance, however, doubts arise as to, which actual incentives these promises; initially addressing customers, carry for competitors. Undercutting a competitor’s price is typically motivated by increased sales. If this quantity effect outweighs the price effect, lowering the price maximizes earnings. However, under a competitor-based-pricing scheme used by a fellow competitor, it is more difficult to divert customers from this competitor. By exercising the guarantee, customers can claim the discounted price from their present supplier without having to switch to the competitor who initially lowered his or her price. Compared to a scenario without PMGs, the quantity effect of their price decrease is lower than usual. Low price guarantees can thus discourage competitors from lowering their prices in the first place.³⁷ If applied by a price leader, by a generally more expensive undertaking, or by an undertaking with a sufficient degree of market power, the price-matching guarantee can be anticompetitive and stabilize supracompetitive price equilibria (collusion hypothesis). Research in economics has shown this for virtually any oligopoly model imaginable.³⁸

This is not to say that low price guarantee harm competition in every situation.³⁹ Another possible explanation for offering such guarantees comes to mind. They could be used to signal real price advantages.⁴⁰ If a company at the lower range of prices offers a price guarantee, the guarantee might not actually apply. Without a lower advertised price in a given market, no adjustment can be redeemed. Instead, the guarantee can be understood to attract uninformed consumers who do not know actual prices or to serve as insurance for consumers wishing always to buy at the absolute cheapest price. Although a reallocation of consumers in reaction to the guarantee is likely and can change equilibrium prices in the underlying economic models, one can vaguely say that the price matching guarantee by an already cheap competitor has close to no effect on the more expensive competitors. In those cases, PMGs are more or less welfare-neutral on the aggregate level (signaling hypothesis).

Recent empirical evidence shows that both hypotheses can be confirmed in real-world settings. For price matching guarantees by price leaders, there is evidence from German gasoline⁴¹ as well as American retail and e-commerce markets pointing to the suspicion that PMGs might be used to decrease competitive pressure by rival companies and deter them from undercutting the firm. In the first case, the studies are particularly interesting because one can observe both phenomena (collusion and signaling) in one market. The guarantee by a price leader (Shell) had an anticompetitive effect on the prices of other branded gas-station networks, whereas the guarantee of a maverick (HEM/Tamoil) had no effect on competitors’ prices because the gas station network already offers competitive prices at the lower bound. In American retail, particularly for consumer electronics, (former) brick-and-mortar-chains seem to have applied price matching guarantees with regard to Amazon’s aggressive pricing strategy on its online marketplace. For different cases (Target and BestBuy),⁴² it has been documented that, after the introduction of PMGs, Amazon’s prices increased. This is direct evidence of the previously described discouraging effect. The same, in turn, holds true for the promising company. While applying a PMG, their advertising prices are higher than after dropping a PMG policy (NewEgg).⁴³ An in-depth assessment of the papers’ qualities cannot be undertaken in this format. Nonetheless, it has to be mentioned that the reported studies fulfil current econometric standards for causal inference and identification in observed (quasi-experimental) data from natural experiments. Most of them apply difference-in-difference estimators, which happen to be the “gold standard” in lawsuits dealing with damages caused by cartel overcharges.⁴⁴

Last, but not least, and without going into too much detail, experimental evidence from laboratory oligopoly studies has equally pointed to the fact, that—at least—PMGs have the capacity to support supra-competitive price levels.⁴⁵

IV. EXTENDING THE SCOPE OF “CONCERTED PRACTICES”

In order to extend the scope of “concerted practices” to cases of unilateral collusion, two steps have to be undertaken. First of all, a more extensive interpretation has to be derived while conforming to methodological standards and boundaries. Second of all, for this alternative interpretation to be implemented, prevailing case law has to be assessed in order to see whether previous rulings and dicta can be upheld or have to be overcome.

A. Interpretation

The legal interpretation will be undertaken from four different perspectives: the origin of the provision, the (comparative) structure of European competition law, the wording, and the purpose (telos) of the norm, including possible consequences.

1. Origin

It can be taken for granted that the term “concerted practice” originates from US antitrust law and entered European competition law via French provenance.⁴⁶ Although American doctrine has no binding effect on European law and jurisprudence, a look at the American understanding of “concerted action” could nonetheless be indicated under the assumption that the European legislator might have wanted to copy and transpose the concept under its precise meaning. However, in EU law, a norm interpretation based on the legislator’s historic intent is categorically difficult,⁴⁷ not the least because the authors of the ECCS and EEC treaties decided to exclude the public for thirty years from the archives and the materials documenting the legislative procedures.⁴⁸ In addition to that, the archives only contain drafts and proposals by member states, no statements, explanations or debates regarding the norms and their wordings.⁴⁹

There are seven US Supreme Court decisions regarding Section 1 and Section 2 of the Sherman Act, laid down before 1957—when the concept of a “concerted practice” entered into force in European competition law—that contain versions of “concerted action”. In the following section, the legal meaning attached to these words shall be investigated. As a starting point, it has to be recalled that “concerted action” is not part of any of the aforementioned legal provisions. It comes into play when describing “conspiracies” or “attempts to monopolize” in violation of sec. 1 and sec. 2 of the Sherman Act. A “concerted action” has been mentioned for the first time in Eastern States Lumber Association vs. United States⁵⁰ where the Supreme Court held that

“[…], in order to show a combination or conspiracy within the Sherman Act, some agreement must be shown under which the concerted action is taken.” (at 612).

A similar wording can be found twice in Interstate Circuit, Inc. vs. United States:⁵¹

“While the District Court’s finding of an agreement of the distributors among themselves is supported by the evidence, we think that in the circumstances of this case such agreement for the imposition of the restrictions upon subsequent-run exhibitors was not a prerequisite to an unlawful conspiracy. It was enough that, knowing that concerted action was contemplated or invited, the distributors gave their adherence to the scheme and participated in it.” (226).

“Acceptance by competitors, knowing that concerted action is contemplated, of an invitation to participate in a plan the necessary consequence of which, if carried out, is restraint of interstate commerce is sufficient to establish an unlawful conspiracy under the Sherman Act.” (Ibid, Syllabus, LS. 5).

The same has been repeated in United States vs. Paramount Pictures, Inc.:⁵²

“It is not necessary to find an express agreement in order to find a conspiracy. It is enough that a concert of action is contemplated and that the defendants conformed to the arrangement.” (at 142).

Especially the wording in the later “Hollywood” cases shows that “concerted action” was used to describe parallel conduct, which several enterprises invited each other to or contemplated about. The concertation itself took place under “some agreement” (Eastern States Lumber Association) or via invitation (sent by letter) to participate in a collusive scheme (Hollywood cases), which the parties then adhered to. The decisive legal question concerned the necessary depth of contact between parties. In modern terms, the Supreme Court had to deal with a “hub & spoke” agreement. The distributors did not communicate directly with one another about putting restrictions against subsequently run exhibitors (second-class movie theaters) into place. However, Interstate Circuit had disclosed that it entered into the same negotiations with all distributors. The Supreme Court considered sufficient that the parties knew what was contemplated, even if they had no direct contact. “Concerted action”—understood as the market result—was subject to previous contemplation; however, had no inherent doctrine as to how it was established. It merely described uniform behavior.

This becomes even clearer when looking at the later Tobacco and Theater Enterprise cases. In American Tobacco Co. vs. United States,⁵³ the Supreme Court held that

“(w)here the conspiracy is proved, as here, from the evidence of the action taken in concert by the parties to it, it is all the more convincing proof of an intent to exercise the power of exclusion acquired through that conspiracy. (at 809).”

In this case, a conspiracy had been inferred from an (observed) “action taken in concert” that appeared hard to explain without preceding coordination. In Theater Enterprises vs. Paramount Distributing,⁵⁴ the Supreme Court then restricted an almost exclusive reliance on observed parallel behavior in proving a conspiracy and stated the following:

“The crucial question is whether respondents’ conduct toward petitioner stemmed from independent decision or from an agreement, tacit or express. To be sure, business behavior is admissible circumstantial evidence from which the fact finder may infer agreement […] But this Court has never held that proof of parallel business behavior conclusively establishes agreement or, phrased differently, that such behavior itself constitutes a Sherman Act offense. Circumstantial evidence of consciously parallel behavior may have made heavy in-roads into the traditional judicial attitude toward conspiracy; but “conscious parallelism“ has not yet read conspiracy out of the Sherman Act entirely.” (at 540/1).

From then on, it was clear that a conspiracy could not be inferred based from “(conscious) parallelism” alone. Before that verbal switch, a “concerted action”, “concert of action,” or “action taken in concert” described essentially the same. They referred to parallel market conduct which had either been subject to an agreement or conspiracy (documented using additional proof) or which raised suspicion regarding coordination mechanisms that facilitated such uniform behavior.

In conclusion, at the time of transposition into European competition legislation, “concerted action” has neither been a legal term or concept, nor has it entailed a specific understanding of an underlying coordination mechanism. It simply described parallel conduct, which might have been facilitated by prohibited means of coordination like a preceding agreement or conspiracy. It follows that no guidance for the interpretation of “concerted practices” can be found in US antitrust law.

2. Structure

Sometimes, especially in textbooks and casebooks for educational purposes, competition law is presented using a rather strict dichotomy. Unilateral behavior by a single firm is said to fall (only) under the scope of Art. 102 TFEU (given the dominance of that firm), whereas (only) multilateral behavior by several firms falls under the scope of Art. 101 TFEU.⁵⁵ The distinction suffers from obvious shortcomings when looking at cases of collective dominance, which is not only recognized in European case law but also explicitly acknowledged in national competition laws by some member states; see, for example, § 18 (5) of the German Act against Restraints of Competition. Apart from that, it is not convincing either to exclude unilateral collusion from Art. 101 TFEU based on the argument that only one party uses a facilitating device. As long as this instrument influences the market conduct, especially the prices of several competing enterprises, it can result in parallel behavior of several parties. Therefore, it is not true that unilateral conduct is an exclusive matter of Art. 102 TFEU, nor is it accurate to label unilateral collusion as an exclusively one-sided phenomenon. While only one-party initiates coordination, it might nonetheless incentivize several parties to adjust their market behavior. The final result then involves several parties.

3. Wording

As has been pointed out prominently, words with a “co-” prefix signal involvement and interaction of several actors. Because many words that are used to describe illicit anticompetitive behavior such as “concertation”, “coordination”, “contact”, “communication”, “collusion”, “consensus”, “concurrence (of wills)” etc. share this common feature, a clear-cut description of what constitutes a “concerted practice” was declared to be missing up to this day.⁵⁶ Instead, all these words were more or less synonyms or descriptions of one another. For the purpose of this article, two remarks have to be made.

First of all, any (or at least most) of these co-words can be understood in a sender-receiver model of communication where a plurality of actors but no strict reciprocity of action is required. Information might be disclosed or sent by just one person. In order to label the interaction legitimately a “contact”, the information has to be received by at least one other party. This is in line with the non-communicative meaning of “contact” in other scenarios, for example, physics. Two electrodes within an electric circuit being in contact means to be in touch, although electrons flow in just one direction. A physical connection between two items or two human beings does not require reciprocal actions to establish this contact. One party can simply reach out and touch the other.

Secondly, if one takes a look at the literal (albeit nowadays metaphorical) meaning of  “acting in concert”, one can think of an orchestra where several musicians and instruments play in harmony under the direction of one conductor. Although they might have rehearsed their performance before, in the given moment of a performance, their behavior is coordinated or—as one says—orchestrated by one person alone. It is not clear whether all musicians have even spoken once with each other ahead of their concert. Under these circumstances, and in accordance with the initial use of the phrasing in US antitrust enforcement, acting in concert means nothing more than acting jointly or acting together. The wording is neutral as to how the joint action has been established. The interplay between conductor and musicians can serve as the perfect illustration of unilateral collusion where there is one only initiating party, but several adapting parties—the only difference being that, here, the initiator is a third party that is distinct from the group of parties whose behavior is coordinated. This, however, should have no bearing on the inference drawn from this example for (alleged boundaries of) the wording, especially since hub & spoke cartels and the reliance on external cartel facilitators (cf. AC-Treuhand⁵⁷) have long been recognized in (European) competition law.

4. Purpose/Consequences

4.1. Case Comparison

The discouraging effect of price-matching guarantees on competitors is similar to the effect of price-parity clauses in platform markets for hotel reservations. A booking platform might want to lower its commission rate, hoping that hotels, in turn, will pass on this cost reduction to consumers and offer cheaper room rates on this platform. This might increase transactions on the platform and provide competitive advantages over other platforms. Hotels, however, might not transpose this cost reduction into a cheaper room rate offered on this platform if they have to offer the very same price on another platform that enforces a price-parity clause but did not lower its commission rate. This effect is even stronger if the binding platform has a certain degree of market power and is an important sales channel for the hotel. In this context, charging particularly low fees in order to incentivize hotels to offer cheaper rates might not work. Through this mechanism, a price-parity platform can weaken price competition in commission rates between platforms.⁵⁸ If a non-binding platform does not obtain a competitive advantage over a binding platform and cannot divert more bookings onto its own platform, it gets discouraged from lowering the commission rate in the first place. Instead, the binding platform might establish price leadership in commission rates.

Consequently, such pricing practices have been subject to competition-law scrutiny all around Europe.⁵⁹ Because they are part of agreements between undertakings (the platform and the hotel), they can easily be subsumed under Art. 101 TFEU. In fact, not the scope of relevant conduct, but rather the economic effects and distortion of competition (as another element of Art. 101 TFEU) were under question. This perfectly illustrates how current doctrine leads to arbitrary results. Although the economic theory of harm is almost the same, one case can be tackled while the other cannot. This strongly highlights the necessity for a more extensive reading of “concerted practice” under Art. 101 TFEU, not least because it is meant to be an (open) catch-all-provision⁶⁰ for coordination below agreements.

4.2. Interference with Basic Market and Competition Principles

As the umbrella term already indicates, competitor-based pricing directly ties the prices of two competing undertakings.⁶¹ One could also say that—for the number of attentive customers willing to switch or to redeem the guarantee—the promising party delegates its pricing power onto the other company. Just like a monopolist, this party gets to set the prices for both undertakings.⁶² However, if it stops undercutting because of the discouraging effect, the offering party becomes price leader and effectively sets prices for both undertakings. Both outcomes contradict the competition principle of independent⁶³ action.

If one looks more closely at the discouraging effect of price-matching guarantees, one can also see that it contradicts the law of demand as a basic principle of market economies. According to the law of demand, price decreases yield demand increases (and vice versa).⁶⁴ However, under a price-matching guarantee, decreasing one’s price does not necessarily increase residual demand anymore. If customers can claim the same price by redeeming a fellow competitor’s guarantee, they do not have to switch to the undertaking which initially lowered its price. This way, price-matching guarantees subvert basic market principles and the downward pricing pressure of competition.

Last, but not least, speaking in terms of competition-law categories, classifying unilateral collusion as a form of tacit collusion (because not every undertaking whose market conduct is eventually influenced actively contributes to the coordination mechanism) overlooks the fact that collusion in these cases has—by no means—been established tacitly. Even if only one firm publicly adopted and announced a price-matching-guarantee, an expressive and overt collusive device has been used. Letting such situations escape competition-law enforcement contradicts the initial distinction between tacit and explicit collusion.

4.3. Remedy Problem

In addition to that, as has already been pointed out in the introduction to this article, the remedy problem cannot serve as an explanation to limit the scope of competition law enforcement in the area of unilateral collusion. Once one has agreed to the two-stage understanding of a “concerted practice”, the famous remedy problem for conscious parallelism has been solved. Having acknowledged the need for separate means of coordination ahead of the resulting parallel market conduct, there is always a suitable target for legal intervention such that one does not encounter the problem of interfering into the (pricing) freedom of market participants. This is irrespective of how many undertakings are engaged in the coordination mechanism. It follows, naturally, that only undertakings that actually used a facilitating practice (the initiators) should be addressed to refrain from such behavior (pursuant to Art. 7(1) and Art. 23(2) of Regulation [EC] 1/2003). This is because the remedy problem still holds for the passive-reactive enterprises which only (“intelligently”/“rationally”) adapt their market conduct.⁶⁵ Concerns regarding an unfair treatment of these—so to say—compromised undertakings and possible over-deterrence should therefore not be channeled into rejection of a more extensive reading of the substantive provision.⁶⁶ Rather, these concerns should be solved pleading in favor of cautious norm enforcement and remedies.⁶⁷

B. Accordance with Case Law

After having shown that a more extensive interpretation of “concerted practices” is not only economically reasonable but also methodologically feasible, in the remainder of this section, it will be shown that this interpretation can be implemented while largely upholding older case law and principles of current doctrine.

1. Two-Stage/Two-Fold Test

First of all, the proposed interpretation can be adopted in line with the two-stage approach to “concerted practices.” Capturing unilateral collusion does not mean abolishing the requirement of parallel (reciprocal) conduct by several competing undertakings in a market. It merely relaxes the requirements in the coordination stage. According to the proposed interpretation, the coordination criterion can already be fulfilled if one undertaking applies facilitating practices, such as a price-matching guarantee. If, in consequence, several undertakings react to this instrument and adapt their market behavior, for example, by following the price leadership of a competitor, there ultimately still results a concerted practice between several undertakings.

The necessary reaction in market conduct by at least one company other than the initiator of a collusive practice might be subject to the ANIC presumption.⁶⁸ Just like information, once disclosed and perceived, will most likely not be ignored, the same applies to the public announcement of a price-matching guarantee, not only based on this information channel, but also because the guarantee is able to alter demand streams (in case of price decreases by the competitors). Even if competitors did not take notice of the public announcement, they will inevitably notice a change in revenue usually associated with undercutting the competitor. The (potentially) discouraging effect of a price-matching guarantee is therefore independent of verbal notice by the referenced competitors. Yet, it has to be taken into account that the economic effects of PMGs depend on the (market) context. Whether they are collusive or just a signaling device depends on the characteristics of the firm that adapts them (for details, see above). It might, therefore be necessary for enforcers or courts to take a look at the market context in order to determine whether a PMG has the (abstract) capacity to influence the market conduct of other (non-adapting) companies. However, this is neither novel nor due to the proposed extensive interpretation, but a known consequence of the two-stage approach to “concerted practices,” which inevitably leads to an overlap with the later competitive assessments under the prerequisite “prevention, restriction, or distortion of competition.” The extent to which the market result already needs to be assessed as part of the evidence establishing a concerted practice has led to lengthy debates⁶⁹ in European competition law, which the ECJ – in part – resolved with its ANIC presumption (at least for cases of information exchange). Based on insights from economic research, this assumption could be extended to PMGs of price leaders and relatively more expensive undertakings. In any case, a full-fledged effects analysis at the level of “concerted practices” cannot be required, not least because it would contradict the later necessary investigation of a “prevention, restriction, or distortion of competition” brought about by the “concerted practice” in question. Because there, the provision distinguishes between by-object and by-effect violations – by-object violations only requiring prima-facie (and context) assessments of anti-competitive tendencies –, an earlier investigation as part of the overlapping two-stage-criterion (“concerted practice”) cannot conceptually go any further.

It has to be admitted that the wording “concerting together”⁷⁰ or “concerting with each other”⁷¹ in the polypropylene formula (see above) can be understood in the spirit of “reciprocal contacts.” However, the passage was never intended to characterize requirements of the coordination stage itself, but rather to confirm the two-stage understanding of a “concerted practice” and the causal relationship between first and second stage. Although these statements have repeatedly been quoted in later cases,⁷² they have only ever been used to denote that very relation. In contrast, the character of concerted practices is always defined based on the dyestuff-⁷³ (“practical cooperation”) and sugar-formula⁷⁴ (“direct or indirect contact”) alone. This is why, in the upcoming in-depth analysis, greater emphasis is placed on these two notions.

2. Practical Cooperation

Secondly, it has to be repeated that “practical cooperation,” as it is currently part of the legal test determining a “concerted practice”, does not define the means and the process of coordination. Instead, it describes the result of such concertation. Therefore, it does not oppose an interpretation according to which unilaterally used facilitating practices on the coordination level suffice for an accordingly adjusted market behavior by several undertakings to be considered a concerted practice. The coordination itself does not have to take place in the form of a practical cooperation.

2.1. Wording

On the one hand, this can be inferred from the initial wording of the criterion:

“the concept of a ‘concerted practice’ refers to a form of coordination between undertakings which […] knowingly substitutes practical cooperation between them for the risks of competition.”

The ECJ implied a consecutive relationship (“substitutes”) between the coordination among undertakings and the practical cooperation (joint conduct) which replaces the risks of competition (individual, independent behavior). Had the ECJ wanted to define the “forms of coordination” itself, other wordings would have been more precise, such as “form of coordination […]” which consist of “practical cooperation” or present themselves as “practical cooperation.”

The fact that practical cooperation has to be understood as the resulting market conduct can also be seen in a quote from the later sugar case:⁷⁵

“Such practical cooperation amounts to a concerted practice […], if […].”

As a whole, a concerted practice describes a market outcome. Practical cooperation that can amount to a concerted practice—if certain (additional) requirements are fulfilled—is therefore also located on the resulting market level.

In addition to that, the ECJ later on has always cited the two criteria separately, not as versions describing the same subject.

“The Court also stated […] that the criteria of coordination and cooperation necessary for the existence of a concerted practice in no way require the working out of an actual ‘plan’ […].“⁷⁶

Distinguishing “coordination” from “practical cooperation” implies different scopes of application for these requirements. Were they both to describe the same illicit behavior, different wordings would—again—have been more precise, such as: “coordination in the form of practical cooperation.”⁷⁷

2.2. Context

On the other hand, this interpretation is in line with the case context from which the initial phrasing originates. In the dyestuff ruling, several joint price hikes had been observed, because of which preceding coordination had been suspected and partially identified in reciprocal public announcements of future pricing intention.⁷⁸ If one reads a less popular section of the ruling,⁷⁹ the previously mentioned context highlights that (practical) cooperation describes the resulting market conduct.

“In these circumstances and taking into account the nature of the market in the products in question, the conduct of the applicant [price announcements; note by author], in conjunction with other undertakings against which proceedings have been taken, was designed to replace the risks of competition and the hazards of competitors’ spontaneous reactions by cooperation [joint price increases; note by author] constituting a concerted practice prohibited by Article 85(1) of the Treaty.”

2.3. Merging Formulas

Last, but not least, the dyestuff and sugar formulas have been merged⁸⁰ in the polypropylen cases. Thereby, the definition of coordination from the sugar case has hence been complemented with a statement⁸¹ from the dyestuff case, narrowing down the relevant forms of practical cooperation.

“According to that case-law, although that requirement of independence does not deprive economic operators of the right to adapt themselves intelligently to the existing and anticipated conduct of their competitors, it does however strictly preclude any direct or indirect contact between such operators, the object or effect whereof is either to influence the conduct on the market of an actual or potential competitor or to disclose to such a competitor the course of conduct which they themselves have decided to adopt or contemplate adopting on the market, where the object or effect of such contact is to create conditions of competition which do not correspond to the normal conditions of the market in question, regard being had to the nature of the products or services offered, the size and number of the undertakings and the volume of the said market […].”⁸²

This allows for conclusions regarding the relationship of coordination and cooperation and again shows that the underlying coordination of a concerted practice is not defined as a practical cooperation. Rather, coordination on the concertation level results in practical cooperation on the market level.

3. Direct or Indirect Contact

Third and last, the wording of the sugar formula does not prescribe reciprocal behavior. According to the ECJ, the requirement of independence precludes any direct or indirect contact, the object or effect of which is to influence a competitor’s behavior or to announce one’s own intended future conduct. As already stated, contact indeed requires a sender and receiver of information and thus two parties involved. However, the action of just one party, establishing this contact, suffices to fulfil this definition.⁸³ Consequently, individual behavior such as a single price-matching guarantee can be subsumed.

4. Conclusion

In accordance with current case law, purely unilateral conduct—as defined in this article—can trigger a concerted practice. In other words: The concerted practice of several companies can be initiated by a single undertaking as long as it managed to impact the market conduct of others. Because it is sufficient that only one company used a facilitating practice (for example, it advertises a price-matching guarantee), there is no (general) need to demonstrate any sort of acceptance by the other parties on the coordination stage (for example, based on pricing conduct). Pricing conduct is only relevant in the second stage regarding the question OF whether the collusive behavior in the coordination stage had an impact on the market conduct of other entities. That question comes with its own burden of proof and presumptions (most notably: ANIC). In cases of a (unilateral) information disclosure or public announcement, the presumption of consideration and influence on the market conduct might, of course, be limited to cases where there is at least some sort of invitation or ambiguous reaction of the receiving party.

V. SUMMARY

As has been pointed out in the paper, a “concerted practice” can be understood as parallel conduct by several parties that has been facilitated by a collusive device, even if that device has only been applied (unilaterally) by a single enterprise among the group of concerned undertakings. The concept had no inherent doctrine when it was imported from US antitrust law. Neither the wording nor the structure of EU competition law opposes this view. The more extensive reading proposed in this article is not only indicated from an economic point of view but also follows the principle of consistency when comparing similar cases. Last but not least, the remedy problem does not generally apply to unilateral collusion and cannot justify a restrictive view.

VI. OUTLOOK

The suggested, more extensive interpretation has implications reaching far beyond the given example of competitor-based pricing guarantees, of which only some shall be mentioned.

If one takes a look at “hub & spoke”–concertation for example, the Eturas ruling⁸⁴ has been criticized regarding the way it established the necessary contact between travel agencies on a booking system and held them accountable for a message and technical constraint which was implemented by the system administrator. The ECJ assumed that under ordinary circumstances, corporate users take account of these messages. Participation in the collusive arrangement was then seen in non-opposition to the proposal.⁸⁵ While, in my opinion, this interpretation is well in line with previous case law on public distancing after participation in anti-competitive meetings,⁸⁶ the required minimum necessary conduct for an undertaking to be part of a concertation scheme is still under dispute. If one believes that “reciprocal contacts”⁸⁷ between undertakings are necessary, then the ruling can indeed be seen critically. If, on the contrary, one follows the suggested interpretation in this article and agrees that unilateral acts of coordination suffice, it is not necessary to find collusive behavior by all involved market participants. Rather, it is sufficient to show that a unilateral measure by one undertaking had an impact on the market conduct of other undertakings. This is in line with the ECJ’s argument that most of the platforms conformed to the technical rebate constraint and did not override it individually. Consequently, the travel agencies took part in a concerted practice although—as indicated above—they should not be held liable to the same extent as the initiator (system administrator), not least because the remedy problem applies to them.⁸⁸

In the same vein, it becomes easier for competition authorities to deal with cases of “signaling”⁸⁹ by means of public announcements. So far, authorities have largely⁹⁰ refrained from taking on cases in which single (stand-alone) public statements of companies might have facilitated a joint price hike by several enterprises. Instead, they focused on cases of collective public announcements that were published in reaction to another.⁹¹ In the old Horizontal Guidelines from 2011, the EU-Commission stated that the exemption of an individual announcement of future conducts from antitrust scrutiny only holds if it does not contain an “invitation to collude.”⁹² While a clear-cut definition of what in fact constitutes such an invitation is already missing, it also remains unclear how a single individual public invitation to collude can be squeezed into the requirement of “reciprocal contacts”, which many scholars and practitioners read into a “concerted practice.” The more extensive interpretation proposed in this article offers possible new grounds for interventions against such “invitations to collude”,⁹³ if deemed necessary.

Another case of unilateral collusion can be seen in the phenomenon of “sticky leadership pricing” which has been documented both empirically⁹⁴ and investigated legally.⁹⁵  De lege lata, the authors felt constrained by current doctrine and suggested changes to European competition law de lege ferenda:⁹⁶

“Our results imply the necessity of stronger legal instruments that target unilateral conduct that aims at bringing about collusion.”

Following my approach, European competition law might already be equipped with an effective tool.

Footnotes

Author notes