Information exchanges between competitors: the Italian Competition Authority’s recent practice

In 2004, two cases on exchanges of information between competitors were decided by the Italian competition authority (“AGCM” – the Autorità Garante per la Concorrenza ed il Mercato). This revived a lively debate on the conditions in which these practices should be prohibited and whether they are anticompetitive per se. Over the years, the AGCM has taken a firm stand against such practices, in some cases beyond that taken by the European Commission and the European Court. This article reviews the rules and outlines the innovative approach that the AGCM has recently adopted. Information exchanges between competitors: the Italian Competition Authority’s recent practice By Antonio Capobianco and Stefano Fratta published in the 18 January 2005 issue of Competition Law Insight Competition Law Antitrust law and policy in a global market insight Published by Editorial Contacts Informa Professional Editor: Celia Hampton 30-32 Mortimer Street Tel: + 44 (0) 20 7700 7387 London W1W 7RE Email: celia.hampton@publicinfo.net United Kingdom Subscription Enquiries Clare Bendon Editorial coordinator: Eleanor Taylor Tel: + 44 (0) 20 7017 5192 Tel: + 44 (0) 20 7017 5215 Fax: + 44 (0) 20 7017 5274 Fax: + 44 (0) 20 7017 5274 Email: clare.bendon@informa.com Email: eleanor.taylor@informa.com Hosted by The Berkeley Electronic Press Exchanging information Information exchanges between competitors: the Italian Competition Authority's recent practice By Antonio Capobianco and Stefano Fratta, Wilmer Cutler Pickering Hale and Dorr LLP* In 2004, two cases on exchanges of information between competitors were decided by the Italian competition authority (“AGCM” – the Autorità Garante per la Concorrenza ed il Mercato). This revived a lively debate on the conditions in which these practices should be prohibited and whether they are anticompetitive per se. Over the years, the AGCM has taken a firm stand against such practices, in some cases beyond that taken by the European Commission and the European Court. This article reviews the rules and outlines the innovative approach that the AGCM has recently adopted. AGCM’s case law on information exchanges In the early years of its enforcement practice, the AGCM largely followed EU rulings, relying mainly on two factors: (i) the type and quality of the information exchanged, and (ii) the structure of the market on which the participants to the exchange are active More specifically, the AGCM has usually taken the following elements into account: • The subject matter of the exchange: Confidential information on the essence of the business, such as prices, quantities and commercial strategies, cannot generally be disclosed to competitors. The AGCM carries out a case-by-case assessment of exchanges of information on other matters, such as product deliveries, deliveries to customers, capacity utilisation, output and sales figures, and market shares. • The level of detail: This influences competitors’ ability to coordinate their market strategies. The greater the detail, the greater the possibility of predicting another’s future conduct and of adjusting conduct accordingly. In general, the AGCM does not object to the dissemination of aggregated data that does not allow individual companies’ information to be identified, although it has not indicated a minimum level of aggregation needed to prevent an antitrust investigation. Case by case, the degree of aggregation should be sufficient to prevent identification. • Frequency of exchange: Companies can adapt their commercial policy to their competitors’ strategies better and in a more timely fashion if data exchanges are more frequent. • The nature of the products in question: It is easier for companies to coordinate prices in homogeneous product markets. In differentiated product markets, access to detailed sensitive information about competitors may not be as useful in predicting their future behaviour. • The level of concentration in the market: According to the traditional approach of the Commission and the European Court, the more concentrated a market, the easier it is for competitors to find and enforce sustainable coordination. The AGCM is extremely careful in reviewing exchanges of information in oligopolistic markets, particularly if these are protected by high entry barriers. While this approach is in line with the Commission’s practice and the case law of the European Courts, in some recent cases the AGCM has departed from it and has adopted a different and innovative view. “Philip Morris/Cigarette Retailers” The facts In February 2003, Philip Morris (PM) notified the AGCM of a standard agreement that PM intended to enter with a significant number of tobacco retailers. According to the agreement, retailers had to transmit to PM, on an exclusive basis, information on the sales volumes of their outlets, and notably information on (i) PM’s daily sales volumes by brand, (ii) the retailer’s daily aggregated sale volumes, and (iii) the daily sales of each cigarette brand sold by the retailer. PM was to receive such information monthly. The AGCM decided to open an investigation on the ground that PM would gain a competitive advantage vis-à-vis its competitors by foreclosing access to the same or a comparable set of detailed and sensitive information on the sale of cigarettes in Italy. It considered that PM’s initiative, which would give it detailed exclusive information on its competitors’ sales on a daily basis, might go beyond what was necessary for PM to monitor its own business trends. Indeed, the investigation showed that the retailers selected by PM represented the best statistical group for such an exercise because of their number, size, location and type of business. The exclusivity clause clearly prevented competitors from replicating a similarly representative set of retailers. In the course of the investigation, PM removed the exclusivity, thus eliminating the main vertical concern raised by the AGCM. At the same time, PM argued that the agreement had procompetitive effects, in particular that it would generate distribution efficiencies, such as avoidance of the stock disruption that is the main factor driving demand towards competing brands. The decision In June 2004, the AGCM concluded that PM’s standard agreement did not infringe the Competition Act (Bolletino 24 of 2004). The AGCM was confronted by an unusual situation. There was no direct exchange of information between competitors (i.e. no * Antonio Capobianco is counsel and Stefano Fratta is an associate at Wilmer Cutler Pickering Hale and Dorr LLP, Brussels Competition Law Insight • 18 January 2005 3 http://law.bepress.com/wilmer/art44 Exchanging information direct horizontal effects) as the exchange took place between companies at different levels of trade. Nevertheless, the agreement could indirectly affect horizontal competition between cigarette suppliers since it concerned sensitive information relating to the market for the sale of cigarettes. The AGCM’s analysis of the relevant market is not very detailed. It concluded that: • The Italian market for the sale of cigarettes is extremely concentrated – HHI 4,569 in 2000 and 4,480 in 2003 (AGCM’s findings in BAT/ETI, Bollettino 51 of 2003). • The market had been affected by anticompetitive practices for many years. In particular, the AGCM had previously found that PM and ETI (the former national monopoly, now privatised and acquired by BAT – British American Tobacco) had colluded to prevent competitors from growing in the Italian market (AGCM’s findings in tobacco prices investigation, Bollettino 11 of 2003). • For about a decade, PM had been the leading operator and, together with ETI, had held a collective dominant position with a combined market share in the range 90% (AGCM’s findings in BAT/ETI). • The market is characterised by a significant degree of transparency concerning prices, which are regularly published in the Official Journal. Transparency as to volume is less, since Etinera (ETI’s subsidiary which distributes cigarettes nationwide on a de facto monopoly basis) only disseminates aggregated statistics to the market participants. • After ETI’s privatisation and sale to BAT, the conditions of competition improved considerably. PM has experienced a significant reduction in its market share, mainly to the benefit of BAT. The withdrawal of the exclusivity clause had already eliminated most of the AGCM’s concerns on foreclosure of the market for the acquisition of information from the tobacco retailers. The decision therefore focused on the effects of enforcement of PM’s standard agreement on the market for the sale of cigarettes. The AGCM took a positive view of the notified agreement. In particular, it noted that acquisition of information in such a detailed and systematic fashion could allow more efficient monitoring of demand trends on both a geographic and a point-of-sale basis. It concluded that the agreement could contribute to better product distribution and brand positioning. In support of its non-infringement decision, the AGCM noted that market conditions had significantly changed during the investigation: • the second and third largest suppliers after PM (BAT and ETI) had merged, creating the second largest operator. As a result, PM’s market share had decreased by about 10%, while BAT’s market share had risen. • Through its merger with ETI, BAT had acquired access to sensitive and extremely detailed information on its competitors’ sales through its distribution subsidiary, Etinera. • The AGCM decided to clear BAT’s acquisition of ETI subject to conditions during the course of its investigation of the PM standard agreement, which it had suspended. In particular, it concluded that the conditions imposed on BAT would eliminate the situation that had allowed the collective dominant position held by PM and ETI to be sustained. In the light of all these factors, the AGCM concluded that the standard agreement would allow