Deminor Wiki - Anticompetitive Practices

Types of Anticompetitive Practices

Price Fixing

Price fixing involves an agreement between competitors to set prices at a certain level rather than letting the market determine them. This practice can include setting minimum or maximum prices, price floors, or price ceilings. Price fixing is per se illegal under antitrust laws because it undermines free market competition and leads to artificially high prices for consumers.

Market Allocation

Market allocation, or market division, occurs when competitors agree to divide markets among themselves. This can involve geographic areas, customer groups, or specific products or services. By agreeing not to compete in each other's designated markets, businesses can maintain higher prices and reduce consumer choice.

Bid Rigging

Bid rigging is a form of collusion where competitors agree on who will win a contract or bid. This can involve rotating winning bids, submitting artificially high bids to ensure a predetermined winner, or agreeing not to bid at all. Bid rigging undermines the competitive bidding process, leading to higher costs for purchasers, including government entities and consumers.

Exclusive Dealing

Exclusive dealing agreements require a buyer or seller to only purchase from or sell to a specific company, excluding competitors.

While common in business, such arrangements may violate antitrust law if they significantly restrict market access for rivals or foreclose a substantial share of the market.

Tying and Bundling

Tying occurs when a seller requires a buyer to purchase a secondary product or service as a condition of buying a primary product. Bundling involves selling multiple products or services together, often at a discounted price. These practices can constitute anticompetitive practices if they restrict consumer choice or foreclose market access for competitors.

Predatory Pricing

Predatory pricing involves setting prices below cost to eliminate competitors from the market. Once the competition is driven out, the predatory firm can raise prices to recoup losses. This practice can harm consumers by reducing competition and leading to higher prices in the long term. Although harmful in theory, it is rarely proven because courts require evidence of both below‑cost pricing and likely recoupment.

Monopolisation

Monopolisation occurs when a firm acquires or maintains significant market power through exclusionary or anticompetitive conduct rather than through superior products or business acumen. This can include practices like exclusive contracts, tying, predatory pricing, and other tactics that harm competition.

Refusal to Deal

Refusal to deal involves a company refusing to supply products or services to a competitor or customer. Although companies usually have the right to choose who they do business with, this practice can be anticompetitive if it is used to exclude rivals or maintain market dominance.

Legal Framework and Enforcement

United States

In the U.S., anticompetitive practices are governed by several key federal laws:

• Sherman Antitrust Act (1890):

1. Section 1: Prohibits contracts, combinations, or conspiracies in restraint of trade.
2. Section 2: Prohibits monopolisation, attempts to monopolise, and conspiracies to monopolise.

• Clayton Antitrust Act (1914): Addresses specific practices such as price discrimination, exclusive dealing agreements, tying arrangements, and mergers and acquisitions that may substantially lessen competition.
• Federal Trade Commission Act (1914): Establishes the Federal Trade Commission (FTC) to prevent unfair methods of competition and deceptive practices.

European Union

In the EU, anticompetitive practices are primarily regulated under the Treaty on the Functioning of the European Union (TFEU):

• Article 101 TFEU: Prohibits agreements between businesses that prevent, restrict, or distort competition within the internal market. This includes cartels, price fixing, and market allocation. Minor agreements with negligible market impact may fall under the de minimis exemption or qualify for a block exemption if they enhance efficiency and consumer welfare.
• Article 102 TFEU: Prohibits the abuse of a dominant market position, including practices such as predatory pricing (by dominant firms), exclusive dealing, and refusal to supply. Violations of Art. 102 TFEU are increasingly gaining practical relevance, especially with regard to the behaviour of some of the global tech and internet service companies.

International Cooperation

• International Competition Network (ICN): Provides a forum for antitrust authorities worldwide to share information, best practices, and coordinate efforts against anticompetitive practices.
• Organisation for Economic Co-operation and Development (OECD): Promotes policies and guidelines to combat anticompetitive practices and enhance international cooperation.

Private Enforcement and Dispute Resolution

Both the U.S. and EU legal frameworks encourage private enforcement of antitrust laws through civil litigation. However, the substantial costs and lengthy proceedings associated with antitrust cases often deter smaller claimants.

This has led to increased interest in Third Party Funding: The complexity and resource-intensive nature of antitrust litigation has made it a natural fit for litigation funding arrangements, enabling claimants to pursue meritorious cases without bearing the full financial burden.

Detection and Prevention

Detection

Detecting anticompetitive practices involves vigilance and thorough investigation. Common indicators include:

• Unusual Pricing Patterns: Identical or very similar pricing among competitors without a clear economic justification.
• Parallel Conduct: Competitors making simultaneous changes in prices, production levels, or market strategies.
• Market Behaviour: Stable market shares among competitors over time or lack of competition in certain geographic areas.
• Whistle-blowers: Employees or former employees providing information about collusive activities or other anticompetitive conduct.
• Leniency Programs: Promoting leniency programs can incentivise participants in anticompetitive practices to come forward and cooperate with authorities.

Prevention

Preventing anticompetitive practices involves implementing robust policies and procedures:

• Antitrust Compliance Programs: Companies should establish internal compliance programs to educate employees about antitrust laws and encourage reporting of suspicious activities.
• Regular Audits and Monitoring: Conducting regular audits and monitoring market behaviour can help identify and address potential anticompetitive practices.
• Training and Awareness: Educating employees, especially those involved in pricing, marketing, and sales, about the risks and legal consequences of anticompetitive behaviour can deter such conduct.

Penalties for Anticompetitive Practices

Penalties for engaging in anticompetitive practices can be severe and may include:

• Fines: Companies found guilty of anticompetitive practices can face substantial fines. In the U.S., fines can reach up to $100 million for corporations and $1 million for individuals. In the EU, European Commission can impose fines up to 10% of a company's global annual turnover.
• Imprisonment: Individuals involved in anticompetitive practices can face prison sentences. In the U.S., individuals can be sentenced to up to 10 years in prison. In the EU, antitrust violations do not carry EU‑level prison sentences, although some Member States may provide for criminal sanctions under national law.
• Damages: Victims of anticompetitive practices can seek damages through civil lawsuits. In the U.S., damages can be trebled (tripled) under antitrust laws. In the EU, victims can claim full compensation for their loss, but damages are not trebled.
• Debarment: Companies and individuals found guilty of anticompetitive practices may be debarred from participating in future government contracts, significantly impacting their business operations. In the EU, exclusion from public procurement is possible under national rules implementing EU procurement directives.
  
  

Key Cases

United States

• United States v. Microsoft Corp. (2001): The DOJ and several states sued Microsoft for monopolising the PC operating system market by tying its Internet Explorer browser to Windows, excluding competitors. The case was settled with Microsoft agreeing to various restrictions.
• United States v. Apple Inc. (2013): Apple and several publishers were found guilty of conspiring to fix the prices of e-books. The court ruled that Apple facilitated a horizontal price-fixing conspiracy among the publishers.

European Union

• European Commission v. Google (2018): The European Commission fined Google €4.34 billion for abusing its dominant position in the Android operating system market by imposing restrictive contracts on device manufacturers to favour its search engine.
• European Commission v. Truck Manufacturers (2016): The European Commission fined major truck manufacturers €2.93 billion for participating in a long‑running cartel. The companies colluded on truck prices and the timing of emissions‑control technology, in violation of Article 101 TFEU. This was one of the largest antitrust fines ever imposed by the EU.

Conclusion 

Anticompetitive practices pose significant risks to market competition and consumer welfare. Antitrust laws in the U.S., EU, and other jurisdictions are designed to prevent and address such practices, ensuring that markets remain competitive and dynamic. Effective enforcement of these laws is crucial to deterring anticompetitive behaviour, fostering innovation, and protecting consumers from the adverse effects of reduced competition. 

Understanding the legal standards and implications of anticompetitive practices helps businesses navigate regulatory requirements and promotes a fair and competitive marketplace. In pursuing such claims, financial barriers often pose a significant challenge, which is where litigation funding becomes highly relevant Litigation funding can play an important role in antitrust actions by providing plaintiffs with the financial resources to cover legal expenses such as attorney fees, court costs, and expert witness fees. It also allows claimants to preserve cash flow during lengthy proceedings, ensuring that they can maintain their operations or cover living expenses without financial strain. This mechanism also levels the playing field by enabling individuals or small businesses to bring actions against larger, well-funded defendants, ensuring fair access to justice.

Reviewed by:  Dr. Malte Stübinger, General Counsel Germany 

Disclaimer: The sole purpose of this article is for general information, and its contents should not be considered as legal advice, as legal frameworks / systems vary from country to country. The article is based on publicly available information and while care is taken in compiling this, no warranty, express or implied is given, nor does Deminor assume any liability for the use thereof.