Unit 1: Restrictive Agreements

ICT Industry and Markets

Page 52 of 73 pages. Chapter: 5: OLD Unit 1: Fair Trade and Competition Policy

Restrictive Agreements

Types of Restrictive Agreements

Most telecommunications regulators and virtually all competition authorities are called upon, from time to time, to review potentially anti-competitive agreements involving telecommunications operators. Some types of regulatory review are ante, such as where laws or licence conditions require prior approval of some types of agreements entered into by regulated operators. Other reviews are ex post, such as in cases where a competitor complains about the anti-competitive effect of an existing contract.

Some types of telecommunications agreements, such as interconnection agreements, are routinely reviewed by regulators. Interconnection agreements are discussed in Module 3. The following discussion focuses on other types of agreements between telecommunications operators.

Two categories of agreements may raise concerns of anti-competitive conduct. "Horizontal agreements" are agreements among competitors. They will cause concern to the extent that they restrict he competitors' ability to compete independently.

"Vertical agreements" are agreements between upstream and downstream participant in the same or related markets. These agreements can exclude or restrict competition or harm consumer welfare. Problematic vertical agreements include some agreements that fix retail prices or grant exclusive distribution rights in a given geographic market.

Only horizontal or vertical agreements that have anti-competitive effects should be prohibited. There are many useful forms of horizontal agreements. These include some agreements to adopt common standards, or other product specifications or design features. Such industry standardisation may result in greater production efficiency. It can also promote competitive entry by establishing an "open" market with increased product interoperability.

Certain vertical agreements can also benefit the public, such as exclusive marketing agreements that induce a distributor to invest in the development of a difficult new market. Exclusive arrangements can also be used to maintain high levels of customer support.

Box 1- 16:
Examples of Restrictive Agreements

Price Fixing-price fixing agreements among competitors are designed to manipulate pricing. The simplest example is an agreement on the prices to be charged to consumers. Variations include agreements to jointly implement price increases, resist price decreases, establish a formula to generate uniform prices, or remove lower price products from the market in order to shift demand to higher price products.

Bid-rigging- is collusion among bidders in order to determine who will win or what the wining price or conditions will be. Various forms of bid-rigging can occur. Some bidders may agree not to submit a bid in response to a particular tender. They may agree to submit tenders at higher prices or take turns as to which of them is to succeed in a particular tender, a practice often referred to as “bid rotation”. This can inflate prices for all bidders.

Market Allocation- can be implemented by horizontal or vertical agreements. Market allocation reduces competitive entry. In horizontal agreements, competitors allocate geographic or product markets amongst themselves. They will agree not to compete in each other’s markets. Such agreements are anti-competitive, and should almost always be prohibited. In vertical market allocation agreements, it may be acceptable to support a period of territorial exclusivity. This may be required to induce investment to develop a market properly. Competition from suppliers of substitute products or services may also reduce the anti-competitive impact of such agreements.

Other types of agreements can have anti-competitive effects, depending on the circumstances. Some are subject to legal prohibitions and remedies in different countries. Remedies and sanctions for restrictive agreements are generally similar to those for abuse of dominance. They can include fines, awards of damages or other compensation, orders rescinding agreements and other corrective orders.

Evidence of Anti-Competitive Effect

Legal and regulatory approaches to restrictive agreements vary. In some countries, some forms of restrictive agreements are prohibited outright. In other jurisdictions, prohibitions incorporate a reasonableness test.

In the US, for example, collusive arrangements among competitors, such as price-fixing and market allocation, are illegal regardless of whether the agreed restrictions are considered reasonable or not. Participants to a restrictive agreement can be punished if it proven that: (1) such an agreement exists, and (2) it could have anti-competitive consequences.

Similarly, Article 81 (formerly Article 85) of the EC Treaty prohibits all agreements between undertakings "which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market." Article 81 specifically prohibits price-fixing and production allocation agreements which prevent, restrict or distort competition.

A different approach is taken in Canada. There, only agreements among competitors that lessen competition "unduly" are prohibited. Accordingly, in Canada, it is necessary to prove: (1) the existence of a prohibited agreement; and (2) that the agreement lessens competition unduly. This additional requirement is a major reason why there have been few successful prosecutions in Canada for agreements that would be recognised as anti-competitive in other jurisdictions.