Other Interaction with Competitors

Firstly, let’s look at what a competitor means

• An actual competitor is a person or company, which is already selling products or providing services that can replace your company’s, by both function and price.
• A potential competitor is classified as someone that can provide a substitute for your goods or services, with reasonable ease, and within a reasonable time period.
• The term ‘competitor’ includes both actual and potential competitors.

Let’s have a look at Other Interaction with Competitors in more detail

So what’s so bad about co-ordination between competitors?

Vigorous competition leads to:

• lower prices;
• more consumer choice;
• greater efficiencies.

When parties that are supposed to compete vigorously land up in “cozy” relationships, competition and competitive dynamics are often compromised.

Unilateral conduct is replaced by co-ordinated conduct.

Outcomes are similar to a monopoly outcomes:

• Higher prices
• Lower volumes and
• Less innovation.

In addition to cartel activity which we know is absolutely prohibited between competitors, other agreements, arrangements and understandings between competitors are unlawful if –

• the agreement or decision substantially lessens or prevents competition; unless
• technological, efficiency or pro-competitive gains outweigh the negative effect.

This is so whether the agreement, arrangement or understanding:

• is formal or informal;
• is lawful or unlawful;
• is written or oral;
• arises directly between competitors or potential competitors OR indirectly whether through a trade industry or otherwise.

Thus a balancing assessment must be conducted by competition lawyers and/or economists to see whether:

• the anti-competitive effect outweighs the gain (be it a technology, efficiency or pro-competitive gain); or
• the gain outweighs the anti-competitive effect.

A typical example of this sort of conduct is the sharing of information regarding the industry generally with a trade association and the association, in turn, reporting back industry statistics to the competitors.

• Information sharing may be beneficial
• But information sharing can also be harmful and lead to co-ordinated conduct between competitors.
• Whether information sharing is lawful or not depends on:
  • The type or quality of information – The rule of thumb is that the more current and more party and time specific the information is, the more dangerous it becomes as this information can be used in a meaningful way to damage competition.
  • Whether the information exchange is direct or via a third party – It is always preferable for information to be gathered by an independent third party and returned to market participants in a combined, non-competitor specific form.
  • Whether there is a concentrated or widely dispersed market – Those markets characterised by few competitors are more likely to experience co-ordination arising out of the sharing of information.
  • Whether the shared information impairs competition or enhances efficiency – The primary impact of the information sharing must be assessed. The extent of the effect on competitive conditions on the one hand and efficiencies in the market on the other must be compared and considered.
  • The existing transparency within the market before the sharing of information – Whether the information acquired by competitors through the exchange of information changes their knowledge about one anothers’ operations is important to assessing the effect of the sharing of information.

Examples:

Members of a mining industry association co-ordinate to lobby government to amend safety laws that apply to the mining industry. To do so, they share information regarding accident rates and types. They discuss and agree optimal shift hours, training programmes, safety equipment, safety protocols and similar matters. This type of co-ordination is permissible and constructive. The technological and efficiency gains would outweigh any anti-competitive effects arising.

Contrast with the following:

Members of the farming industry share information through an industry association regarding turnover by region and pack size. This may well be impermissible if the information is recent and sufficiently detailed to enable competitors to identify individual competitor data.