Price-fixing agreement

 

Author Definition

 

Definition

Price-fixing is an anticompetitive agreement between competitors to fix prices. In the United States this type of agreement is classified as “illegal per se.” Agreements that are illegal per se are not subject to a rule of reason. Under the rule of reason an investigation is undertaken to determine whether the procompetitive aspects of the agreement offset its anticompetitive aspects. In the European Union price-fixing is restrictive by object. An agreement is deemed restrictive by object where it is presumed to have a net negative impact on competition making it unnecessary to assess its effects. This presumption can be rebutted if certain requirements for justification are met.

 

Commentary

In the United States, anticompetitive agreements violate Section 1 of the Sherman Act that prohibits “restraints of trade.” In a landmark US court decision, the Standard Oil Co case, the per se rule was established. According to this rule, it is possible to classify certain conducts that are intrinsically anticompetitive given their “nature and character” and forbid them in a summary manner. In a subsequent decision, the US v Socony, price-fixing was classified as a per se agreement. The adoption and development of the per se rule of illegality by the courts facilitates the enforcement of fix-pricing agreements because no further litigation is required. Price-fixing agreements, also known as “naked agreements,” are considered to deserve immediate censure as their consequences are presumed to be harmful. The per se illegality of price-fixing agreements makes irrelevant rule of reason analysis. Under rule of reason analysis, it is possible to assess efficiency claims.

In the European Union, Article 101(1) of the Treaty on the Functioning of the European Union (TFEU) prohibits agreements which significantly restrict competition by object or effect. The EU courts have stated that an agreement is restrictive of competition by object if there are no credible pro-competitive reasons for its implementation. A price-fixing agreement is deemed anticompetitive as its object reveals itself to have a sufficient degree of harm to competition. The European Court of Justice has indicated that whether an agreement has the object of restricting competition must be established by studying its content, purpose, and the economic context in which it is to be applied. The content and purpose of a price-fixing agreement will often be to eliminate the competition between the parties with the aim of increasing prices. The likelihood that a price-fixing agreement brings negative effects on competition makes it unnecessary to prove their actual effects.

There is a difference between the “per se rule of illegality” applied in the United States and the prohibition contained in Article 101(1) TFEU. In the former, agreements that violate section 1 of the Sherman Act are irrefutably deemed anticompetitive and there is no need to balance the anticompetitive aspects of the agreement against its possible procompetitive aspects. In the latter, an agreement that has the object of restricting competition, such as price fixing, can nevertheless be saved by the provision contained in Article 101(3). This provision indicates that the Article 101(1) prohibition can be declared inapplicable to any agreement that satisfies the following four conditions: (i) it achieves objective economic benefits; (ii) it benefits consumers; (iii) it does not contain indispensable restraints; and (iv) it does not eliminate competition in respect of a substantial part of the products in question. Regulation 1/2003 allocates the burden to prove the Article 101(3) justifications to the defendant. Unlike the United States, in the European Union there are no absolute rules of per se illegality, even in cases where anticompetitive effects are assumed, harmful agreements can always be justified.

Although the European Union allows justifications for anticompetitive agreements, it is very unlikely that a price-fixing agreement (a hardcore cartel) will meet the requirements for justification. In general, this type of agreement fails to create objective economic advantages, does not benefit consumers, it is uncertain whether it is indispensable to the attainment of any efficiencies created by the agreement and has the potential to remove competitive forces from the market (a price-fixing agreement can plausibly harm firms’ ability and incentive to compete). It is with difficulty that the parties involved in a price-fixing agreement can overcome the strong presumption of illegality that surrounds this conduct. It is also unclear how parties involved in a hardcore cartel like price-fixing can establish that demonstrated beneficial effects offset anticompetitive effects.

Both the US and the EU rely heavily on presumptions about the impact of price-fixing agreements considered to be naked agreements or hardcore cartels. Yet even if in theory there is a difference between the “per se rule of illegality” applied in the United States and the approach applied in the European Union, in practice the difference is not significant. The European Commission has set out a high standard of proof for the efficiency defence, its enforcement decisions almost exclusively cover conducts that are restrictive by object, and it is unlikely that an Article 101(3) defence can be successful. Article 101(3) efficiency-based justifications are a theoretical rather than a practical option.

 

Bibliography

Alison Jones & William E. Kovacic, Identifying Anticompetitive Agreements in the United States and the European Union: Developing a Coherent Antitrust Analytical Framework, 62 Antitrust BULL. 254 (2017).

Pablo Ibanez Colomo and Alfonso LaMadrid de Pablo, On the Notion of Restriction of Competition: What we Know and what we don’t know we know. In Gerard, Damien, Merola, Massimo and Meyring, Bernd, (eds) The Notion of Restriction of Competition: Revisiting the Foundations of Antitrust Enforcement in Europe (Bruylant 2017).

Anne Witt, The Enforcement of Article 101 TFEU – What has happened to the Effects Analysis?, Common Market Law Review, Volume 55, Issue 2 (2018).

This article is being reviewed by the Editors of the Dictionary.

Authors

Quotation

Ioannis Kokkoris, Claudia Lemus, Price-fixing agreement, Global Dictionary of Competition Law, Concurrences, Art. N° 85416

Visites 5088

Publisher Concurrences

Date 1 January 1900

Number of pages 500

 

Institution Definition

An agreement between sellers to raise or fix prices in order to restrict inter- firm competition and earn higher profits. Price fixing agreements are formed by firms in an attempt to collectively behave as a monopoly. © OECD

Price fixing is an agreement (written, verbal, or inferred from conduct) among competitors that raises, lowers, or stabilizes prices or competitive terms. Generally, the antitrust laws require that each company establish prices and other terms on its own, without agreeing with a competitor. When consumers make choices about what products and services to buy, they expect that the price has been determined freely on the basis of supply and demand, not by an agreement among competitors. When competitors agree to restrict competition, the result is often higher prices. Accordingly, price fixing is a major concern of government antitrust enforcement. © Federal Trade Commission

See also Cartel and Bid-rigging

 
a b c d e f g h i j l m n o p r s t u v