Agreements and Practices
EU, UK and Irish legislation prohibit agreements, concerted practices and decisions by businesses or businesses association which have as their the object or effect the prevention, restriction or distortion of competition. The prohibition covers formal and informal agreements, arrangements and tacit understandings between businesses not to compete or to limit competition.
EU law applies to the restriction or distortion of competition between States. The domestic Competition Act applies to the restriction or distortion of competition in the State or in any part of the State. Therefore local businesses in a particular area town may breach competition law, where they fix prices or collude terms on terms and conditions of supply. What matters is not the geographical area but whether this is a restriction in the particular market. The geographical scope of the market will depend on the nature of the goods and services supplied.
The following types of an agreement, arrangements and practices are specified in both Irish and EU legislation without limiting the general prohibition
- those which directly or indirectly, fix prices or trading conditions;
- those which limit or control production, markets, development or investment;
- those which share markets or supplies;
- those which apply dissimilar conditions to equivalent transactions (e.g. price discrimination);
- those which make contracts subject to the other conditions that have no connection with such contracts.
The legislation covers a broad range of anti-competitive arrangements, from the most blatant to the most subtle. The classic anti-competitive practice is price-fixing. Parties who might otherwise compete with each other substitute competition for agreements or practices to their mutual benefit. The efficiency which free competition should, in principle, produce is lost to the detriment of buyers.
Price Fixing and Collusion
Price fixing and similar arrangements may occur between businesses at the same level in the supply chain (the horizontal level) e.g. retailers. It may be imposed or agreed upon between businesses at different levels in the supply chain ( vertical level). This might occur in the case of so-called resale price maintenance by which the supplier, wholesaler or manufacturer tries to maintain the price in the market by requiring wholesalers or retailers down the chain, to maintain the same or similar prices.
The prohibition extends in scope from agreements between cartels and industry-wide arrangements to local agreements and arrangements between smaller-scale businesses with more limited market power. The prohibition may more readily apply to dominant market players, but it is not limited to them.
The prohibition covers market sharing, agreements to divide up territories and agreements not to compete. It covers predatory pricing and price discrimination. It covers attempts to divide the market and offer different prices to different purchasers without objective and justifiable grounds for price discrimination.
The prohibition applies to the rules of a trade association and professional bodies which contain restrictive practices. Informal arrangements, including recommendations, e.g. or recommended prices and fees scales of the professional body, are prohibited. for example, the High Court declared that certain rules of the Register of Electrical Contractors of Ireland violated the prohibition.
Restricting Supply and Price Discrimination
Co-ordinated restrictions on supply and the division of markets are capable of undermining competition. The imposition of differing conditions falls within the prohibition where the differential price or condition does not have an objectively justifiable basis. For example, where a purchaser of equipment is obliged to buy all his supplies and consumable parts of the equipment from a particular supplier without good objective justification, this is likely to fall within the prohibition.
Price discrimination involves treating different parts of the market differently. The imposition of differential pricing without an objective justification may constitute an unlawful practice. Differential pricing may be predatory in nature, aimed at driving a competitor out of the market. This might consist of temporarily driving down prices in order to force a competitor into insolvency. This may also fall within the above prohibition or be an abuse of a dominant position.
Concerted and collusive practices and arrangements do not require proof of an agreement or arrangement between the participants. However, evidence may show patterns and practices from which it might be inferred that parties have co-ordinated their prices or other conditions of sale.
There may be a thin line between how legitimate competition and illegitimate price fixing appear to third parties. If, for example, all or several firms in the industry vary their prices at the same time, it may be possible to infer a concerted practice. It may, on the other hand, be the case that the market is very sensitive that each must react to the other\’s actions. There must be some element of communication and concerted action.
The object or effect of the agreement decision or concerted practice must be the restriction or distortion of competition. It does not matter that the parties are not consciously aware that they are suppressing competition. If this is the effect of their actions or arrangements, then the prohibition will apply.
Justified Restrictions Valid
The are many types of agreement which fall within the prohibition but which bring advantages and benefits to consumers, which outweighs the detriment caused. Agreements or arrangements which are within the terms of the prohibition are potentially validated if the below-mentioned conditions apply. They must
- contribute to improving the production or distribution of goods or services or
- promote technical or economic progress
- while allowing a fair share of the resultant benefit to consumers and
- not impose irrelevant, unnecessary terms and
- not afford the opportunity of eliminating competition in respect of a substantial part of the goods or services
The national authorities and the EU Commission Competition Directorate have the power to specify the terms and conditions for certain types of agreements which, if they are complied with, will generally be valid under the above exception to the prohibition.
The declaration is not an absolute guarantee that the courts will not find that, in a particular case, there has been a breach of competition law. However, coming within the terms of the exemption would carry significant weight and credence.
A number of Block licences or category licences/declarations have been issued by the Commission and the Competition Authority. They vary from some very general exemptions to sector-specific exemptions. The terms of the exemption or licence will set out types of conditions and stipulations which are permitted (“white clauses”) and / certain types of clauses which are not permitted (“black clauses”).
The Vertical Agreements Declaration applies to agreements between participants at different levels in the market, i.e. wholesalers and retailers, where their market share does not exceed 30%. The agreement may not contain, for example, contain black clauses such as resale price maintenance restrictions and restrictions on the kinds of customers who may buy.
A distribution agreement is an example of an agreement which may restrict competition in a way that is objectively justifiable in that it brings benefits which would not be achievable in a free for all arrangement. It may permit sufficient critical mass in a way which ultimately benefits consumers.
The Vertical Agreements Declaration has exceptions to certain otherwise impermissible conditions which facilitate selective distribution. However, there are strict time limits and conditions applicable, which seek to achieve a balance.