In recent times the anti-competitive regime is adjusting itself in consonance with the dramatically changing global market. Lately, a golem of Price Signalling has appeared in the anti-trust system. It is a public announcement of price followed by ordinary conduct. Moreover, it is a “modern form of price-fixing” by which companies can achieve results similar to conspiracies while avoiding traditional agreements.[i]
The concept has challenged the underlying dynamics of competition rules and has started debates globally because of its pro- and anti-competitive features both. Moreover, in the world of algorithms, the price signalling may be a road for tacit collusion without even an explicit communication. The paper determines the occurrence of this new-not-new convoluted concept, which requires the concern of competition agencies worldwide, if not already.
1 Price signalling in the United States
1.1 Section 1 of the Sherman Antitrust Act 1890: Price Signalling and Tacit Agreement
The primary issue in the US jurisdiction is whether price signalling amounts to an agreement be it tacit or inferred under Section 1 of Sherman Act. A tacit agreement depends on the interdependence of enterprises where the individuals’ self-interest is achieved if all parties decided in the same manner.[ii] This is also called ‘pure price signalling’ whereby price announcement can be seen as initiating an invitation to be accepted. But the invitation-acceptance plus interdependence criterion is not sufficient to show an agreement of conspiracy.
In the General Electric-Westinghouse case,[iii] alleged adopted a price book with a similar format, formula, and multiplier system as of its competitor and has publicly announced the list to customers. It was ascertained that alleged goes far beyond “mere passive following” of competitors lead because the public announcement, in this case, seemed like a deliberate strategy to take the exception of “information released as a general trade practice.”[iv] But the information released by alleged was not considered as a ‘general trade practice’ and held to be forming an agreement to stabilize prices in violation of the Sherman Act.
The department relied on several elements in addition to interdependence to show an agreement, such as “nature of the conduct of the parties,” not to be inconsistent with the provision of the act, and the “intent of the parties.”[v] However, parties can take the defence that their actions were made without any knowledge that others will comply.[vi] In such circumstances, to determine whether there is an anti-competitive agreement or not, the intent of the parties to exchange assurance and commitments and the price stabilization effect is to be put in a higher pedestal.
1.2 Section 5 of the Sherman Act: Unilateral Disclosures
As discussed above, information exchange falls under Section 1 of the Sherman Act. However, unilateral information disclosures, with no evidence of reciprocity can amount to an invitation to collude under Section 5 of Free Trade Commission Act 1914 (FTC Act), which prohibits “unfair and deceptive acts or practices in or affecting commerce”[vii]or Section 2 of the Sherman Act, which prohibits efforts to “monopolize, or attempts to monopolize.”[viii]
There are various cases such as U-Haul International,[ix] Valassis Communication,[x] Stone Container,[xi] Precision Moulding,[xii] where information disclosure has appeared to be an invitation to collude, and the FTC held the act of parties as creating a significant risk of anticompetitive harm and are violative of Section 5 of FTC Act. All these cases had outside court settlement[xiii] except the case of United States v. American Airlines, Inc.,[xiv] which is not of unilateral information disclosure, herein the president of a company proposed to a competitor to raise prices in sequence. But the competitor demurred and didn’t increase the price. On appeal, it was held that essentials of attempted monopolization under Section 2 had been met, and hence it is an anti-competitive act.
2 Price Signalling in the European Union
Price Signalling, if resulted in ‘concerted practice,’ can come under the European anti-competitive rule. The European Commission Horizontal Guidelines of 2011 (Guidelines) further elaborate ‘concerted practice’ as an information exchange, which reduces the uncertainty about the future commercial policy that the competitor otherwise would have confronted.[xv] This raises two critical issues; firstly, whether information disclosure amounts to ‘exchange.’ Secondly, types of information that reduces strategic uncertainty.
Furthermore, the guidelines gave three scenarios which amount to ‘exchange’-
- On the request of other parties, a party is disclosing its future intentions;
- Attending a meeting, where a company discloses its strategic information;
- Meeting between competitors where they discuss commercially sensitive information.
There is another scenario not discussed above i.e., ‘unilateral public announcement of future intentions,’ whether it amounts to ‘exchange of information’ or not.
Conventionally, a unilateral announcement that is genuinely public doesn’t amount to concerted practice under Art 101 of Treaty on the Functioning of the European Union, which “prohibits cartel and other agreements that could disrupt free competition.” Nevertheless, guidelines mentioned two exceptions to this; First, when public announcement involves ‘invitation to collude,’ as happened in the Valassis Communications case[xvi] of the US; Second, where public announcement by one company followed by public announcement by competitors.[xvii] The second scenario was first assessed in the Wood Pulp Case,[xviii] where the European Court of Justice (ECJ) held that announcing future prices to the public didn’t infringe competition rules. Furthermore, it stated that commission failed to rule out other pro-competitive explanations to the parallel price behaviour.
This position has changed recently with the regulators looking at three landmark cases of three different sectors. The cases from UK Competition Commission (“CC”), the Netherlands Authority for Consumers & Markets (“ACM”), and the European Commission (“EC”).[xix]
The UK case from the CC (now Competition & Markets Authority (“CMA”)) was a “market investigation” into the cement sector,[xx] the suppliers, in this case, informed the consumer about the increase in production price shortly through various letters. Since these prices were ‘aspirational’ and not reflecting actual price increase, the commission held such conducts to be restricting competition and prohibited suppliers to send generic price announcements to customers.
The Dutch case from the ACM was a settlement case[xxi] dealing with the mobile phone sector. The concern was companies’ un-finalized pre-announcement of prices and commercial plans, which can be seen by their competitors. This could create antitrust harms since they “reduce strategic uncertainty,” and it can lead to coordination among parties. As a result, to avoid the risk of illegal coordination, these companies were refrained from making statements about “non-finalized” decisions.
The EC’s case is of the container liner shipping sector,[xxii] whereby concern is raised regarding the public announcements of the price at very similar timings and dates, and also about “the length of time between the companies’ price announcements and their actual implementation.” On the basis that this time-gap will allow competitors to adopt as per the announced intentions.EC held these actions, not as an agreement but a “concerted practice” violative of antitrust rules.
Competition risk from price signalling is often seen as theoretical. However, these precedents show that it is not and that compliance programs need to treat it seriously.
3 Price Signalling in India
In India, price signalling still remains a rare occurrence. For now, like the US and UK, the price disclosure will be anti-competitive if it leads to coordinated behaviour and causes price-fixing, collusion or any tacit agreement between the enterprises. The Competition Act, 2002 (hereinafter referred to as “the Act”) under section 3(3),[xxiv] prohibits any horizontal agreement. Moreover, the provision determines the exchange of information between the persons, enterprises, associations of enterprises or persons and prohibits those acts which can cause appreciable adverse effect on competition (AAEC) in the Indian Market. The Act does not explicitly list out what constitutes an information exchange. The stance of the Competition Commission of India (CCI) concerning the anti-competitive information exchange can be found in its decisional practice.
The Cement case[xxv] presented the concept of price signalling in India. In this case, various cement manufacturers, together with the Cement Manufacturers Association (“CMA”), formed a cartel to limit and control the production of cement in India by maintaining the cement price at a high levels. Due to which various smaller cement companies followed the price trends of the larger companies. The CCI found that cement manufacturers indulged in price signalling practices leading to price coordination across cement manufacturers. CCI imposed fines on these large cement manufacturers. It argued that the mere exchange of ‘commercially sensitive information’ between competing firms would be sufficient evidence to establish an anti-competitive agreement under section 3 of the Act.
The NCLAT observed in the appeal[xxvi] by the cement companies that the exchange of information could constitute a coordinated activity if it minimized competitive strategic uncertainty and thus encouraged collusion. The case is presently before the Indian Supreme Court sub judice.
Subsequently, CCI represented a significant departure from its previous position in the Flashlights case.[xxvii] CCI submitted that mere exchange of information (price announcements) would not be sufficient evidence to conclude that there was coordinated behaviour and, as a result, collusion between parties. And that it would have to be in conjunction with other evidence to establish contravention of the provisions of the Act. It would, therefore, not constitute adequate evidence of anti-competitive conduct unless the information shared was acted upon by the enterprises, resulting in actions in violation of section 3(3) of the Act.
However, if there is no direct evidence, the CCI may rely on circumstantial evidence for establishing the existence of a cartel because evidentiary standard applicable for evaluating alleged infringements under section 3(3) is one of the preponderance of probabilities.[xxviii] If the price signalling has pro-competitive effect as determined under section 19(3)(d)(f), it would not be caught in contravention with section 3(3) of the Act.
Despite the developing jurisprudence, the cases mentioned above specify the persisting ambiguity in the concept of price signalling. There are not many precedents over the concept of price signalling, and the available one is vastly incoherent. The whole situation gets trickier when the modern market technologies join hands with the already evasive concepts. It not only becomes a trouble for the lawmakers and market regulators but also backfires to the firms and enterprises, which involves the activity of price signalling.
4 The Transformative market: Algorithm and Price Signalling
The confluence of rapidly changing market and advancing technology makes the anti-trust regime vulnerable to the existing issues of price signalling. For instance, Company A suspects that its competitor B is using its data related to trade association for reverse engineering A’s prices, costs, margins, volumes, or other sensitive information. Now, A started sharing more data than expected in a view that B will use this data to bring the prices in line with A, by which A risks itself to get charged with signalling. This risk exists even if B never ends up following Factory A’s prices.
In a market that is dynamic in almost every aspect, tacit collusion is hard to achieve. Due to which companies attempt to reveal their information by signalling, which may be for collusion. As Justice Posner stated-
“If a firm raises price in the expectation that its competitors will do likewise, and they do, the firm’s behaviour can be conceptualized as the offer of a unilateral contract that the offerees accept by raising their prices.”[xxix]
Price signalling under competition law is a complicated concept where a bright line between the potential pro and anti-competitive effects of such conduct is not easy to determine. The way to establish the impact of signalling is to observe whether the anti-competitive act outweighed the efficiency-enhancing effects. Even though greater transparency in the market is efficiency-enhancing, but it can also lead to collusion.[xxx] In the Anti-trust laws, collusion can only be ascertained by an ‘agreement’ between the competitors. And agreement is interpreted in broad terms to ensure the broadest possible reach of the competition rules. The definition of agreement provides slight guidance whether a communication falls under the ambit of competition rules. For instance, price signalling can be seen as an invitation to reach a common policy of the competitors, but it is disputed under the laws of many jurisdictions, whether it amounts to an agreement. If there is a definite lack of communication and coordination, the provisions of agreement cannot be directly applied. Because parallel conduct like simultaneous price increase can also result from independent and rational behaviour.
The issue gets blurrier when algorithms considered for reaching and enforcing the common policy. Due to which, the question arises of revisiting the concept of an agreement to incorporate other ‘co-ordinations’ that are achieved with the aid of algorithms.[xxxi]
The signalling algorithms, for example, could result in very rapid iterative price changes that eventually converge to a common value, resembling an actual process of negotiation between businesses to implement a collusive agreement. Could it be concluded, therefore, that the rapid price adjustment in response to competitors until convergence is equivalent to an agreement?
Concern as to whether the need to deal with algorithmic collusion will entail a new definition of what an antitrust agreement is. It is not a new issue for antitrust scholars, but in recent times the question has arisen again in a “renewed debate on whether classic oligopoly behaviour can be prosecuted as an unlawful agreement.”[xxxii]
5 Criteria Considered in Assessing the Legality of Price Signalling – Lessons to Be Drawn
Even though no list specifies the anti-competitive price signalling, however, it can be drawn out from the discussion above. Price signalling may be considered anti-competitive if:
- A similar announcement by competitor enterprises will raise suspicion.
- Communicating more information than is strictly necessary, particularly regarding future pricing or strategic plans.
- An announcement that expresses an inclination to increase prices with a specific amount or naming specific competitors.
- The private revelation of information does not provide potential benefits. Thus companies use public communications too, such as press releases, in ways that furthered the companies’ objectives.
- The possibility of anticompetitive effects is more likely to result from unilateral disclosure of information in concentrated industries because tacit or express collusion is more likely. Nonetheless, disclosure of the information is less likely to result in collusion in an unconcentrated market with healthy competition.
- Period of signalling should be commercially-justified and customer-driven with a significant gap between announcement and implementation
- Announcements made contingent on what competitors will do or how the industry or sector, in general, will react, may lead to an anti-competitive act.
- Announcement of aspirational price increases or changes to prices or terms that are not yet final.
- If price increases are expressed in a non-transparent way to customers, and on which customers cannot rely.
6 Conclusion
The formation of CLRC is an opportunity for India to form a more progressive anti-trust regime that can assimilate with the new challenges of the market like Price Signalling and other information disclosures. The idea has already gained worldwide attention after the EU’s Container Shipping case and occurred as a significant disaster for a healthy competitive market. The recent debate over the issue has established that the shift from sorting economy to signalling economy has welcomed the advancing technologies, which have ultimately reduced the cost of signalling. Long gone are the days when ‘information symmetry’ in the market was only a fictional threat. Now the market is getting smarter, and it has found the key for accessing information from massive data repositories. Thus, the competition agencies have to keep signalling as a significant point of concern because it is going to get unbound in the coming time. The reason, as already realised, is the growing implications of big data and the technologies fed by it.
[i] Lionel Kestenbaum, What is “price signalling” and does it violate the law?, 49 ABA 911, (1980).
[ii] Interstate Circuit, Inc. v. United States, 306 U.S. 208 (1939).
[iii] United States v. Westinghouse Electric Corp., 648, F.2d 642, (1981).
[iv] United States v. General Electric Co., 272 U.S. 476 (1926).
[v] Supra note 1.
[vi] Supra note 1.
[vii] FTC v. Sperry & Hutchison Co., 405 U.S. 233, 239 (1972).
[viii] The Sherman Antitrust Act, 15 U.S.C. §§1-7 (1890).
[ix] U-Haul International and AMERCO, FTC File No. 0810157 (2010).
[x] Valassis Communications, FTC File No. 0510008 (2006).
[xi] In re Stone Container Corp., 125 F.T.C. 853 (1998).
[xii] In re Precision Moulding Co., 122 F.T.C. 104 (1996).
[xiii] Howard Rosenblatt and Tomas Nilss, Analyst Calls and Price Signaling under EU Law, The Antitrust Source (June, 2002), https://www.lw.com/thoughtLeadership/analyst-calls-price-signaling-eu-law.
[xiv] United States v. American Airlines, Inc., 743 F.2d 1114, (1984).
[xv] Supra note 9.
[xvi] Supra note 10.
[xvii] James Webber, Beware of Public Announcements! Recent European Competition Developments on Price Signalling, Shearman & Sterling LLP (March 24, 2014), https://www.shearman.com/~/media/Files/NewsInsights/Publications/2014/03/Price-Signalling-Briefing-Antitrust-032414.pdf.
[xviii] [89/85, 114/85, 116-117/85, 125-129/85] [1988] 4 Comm. Mkt. L. R. 901 (1988).
[xix] Matthew Hall, To Whom Are You Announcing? EU Authorities Focus on Price Signaling, Mondaq (June 2, 2014), http://www.mondaq.com/uk/x/317810/Trade+Regulation+Practices/To+Whom+Are+You+Announcing+EU+Authorities+Focus+On+Price+Signaling.
[xx] Id.
[xxi] Id.
[xxii] Id.
[xxiii] Nisha Kaur Uberoi, Gautam Chawla and Harshita Parmar, Information Exchange, Trilegal (June 13, 2019), https://globalcompetitionreview.com/jurisdiction/1005810/india.
[xxiv] The Competition Act, 2002, No.12, Acts of Parliament, 2002 (India).
[xxv] Builders Association of India Vs Cement Manufacturers’ Association and Ors., (2012) CompLR 629 (CCI).
[xxvi] Ambuja Cements Limited &Ors v CCI, (2017)TA(AT)(Compt)(India).
[xxvii] In re: Alleged Cartelisation in Flashlights Market in India [Suo Moto Case No. 1 of 2017].
[xxviii] Containers Ltd and Ors v Union of India & Anr, (2018) S.C.C 1718 (India).
[xxix] In Re High Fructose Corn Syrup Antitrust Litigation. Appeal of A & W Bottling, Inc., et al, 295 F.3d 651 (2002).
[xxx] OECD workshop addresses algorithms and collusion issues, Norton Rose Fulbright (July, 2017), https://www.nortonrosefulbright.com/en/knowledge/publications/6aabf0b8/oecd-workshop-addresses-algorithms-and-collusion-issues.
[xxxi] Id.
[xxxii] Id.
