Walk­ing a tightrope on car­tel risk

There is no rule that says com­pa­nies are not al­lowed to share any in­for­ma­tion, but the dan­ger’s in the de­tail

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - AH­MORE BURGER-SMIDT

CON­FU­SION about the risks of con­tra­ven­ing the com­pe­ti­tion laws usu­ally pre­vents com­pa­nies from de­riv­ing the full ben­e­fits of work­ing le­git­i­mately with com­peti­tors in the mar­ket­place. Healthy com­pe­ti­tion can­not take place in a vac­uum.

Com­pa­nies need mar­ket in­tel­li­gence and in­for­ma­tion to com­pete and in cer­tain cir­cum­stances a de­gree of in­for­ma­tion ex­change is nec­es­sary to en­sure a com­pet­i­tive mar­ket­place. Com­pa­nies re­quire cer­tain types of in­for­ma­tion to com­pete ef­fec­tively and win mar­ket share while op­er­at­ing within the pa­ram­e­ters of com­pe­ti­tion law. For in­stance it is vi­tal to un­der­stand your com­peti­tors pric­ing strat­egy and how this could af­fect your busi­ness. How­ever, com­pa­nies can­not share pric­ing strat­egy in­for­ma­tion among them­selves and they must rather rely on gen­er­ally avail­able mar­ket in­tel­li­gence to find out what such strate­gies are.

A prob­lem arises when com­pa­nies are un­cer­tain about what in­for­ma­tion can be shared with com­peti­tors. Com­pa­nies are of­ten reluc­tant to take any ac­tion in case they might con­tra­vene the com­pe­ti­tion leg­is­la­tion. But in so do­ing they risk dis­em­pow­er­ing their em­ploy­ees. A com­pany with a ro­bust strat­egy that com­plies with com­pe­ti­tion law is more com­pet­i­tive be­cause sales and pro­cure­ment staff, among oth­ers, are able to use their un­der­stand­ing of key as­pects of the law to en­gage more ef­fec­tively with the mar­ket. Em­ploy­ees need to be ed­u­cated on the boundaries of com­pe­ti­tion law and must be able to grasp the essence and ob­jec­tives of the leg­is­la­tion.

A num­ber of ben­e­fits can be de­rived from le­git­i­mate in­for­ma­tion ex­change. It keeps com­pa­nies up to date on chang­ing mar­ket con­di­tions and it im­proves or­gan­i­sa­tional learn­ing. For in­stance, com­pa­nies can im­prove their strate­gies around fu­ture de­vel­op­ment if ca­pac­ity short­ages in the mar­ket are un­der­stood.

There is no rule that says com­pa­nies are not al­lowed to share any in­for­ma­tion — it’s about what in­for­ma­tion they share and what that en­ables them to do so. The big is­sue is the shar­ing of cur­rent and fu­ture in­for­ma­tion be­tween com­peti­tors, given that the com­pe­ti­tion au­thor­i­ties have pri­ori­tised the de­tec­tion, in­ves­ti­ga­tion and pun­ish­ment of car­tels.

The more con­cen­trated a mar­ket sec­tor in which sen­si­tive or eco­nom­i­cally strate­gic in­for­ma­tion of a de­tailed and con­fi­den­tial na­ture is shared, the more likely this is to fall foul of the Com­pe­ti­tion Act.

“Red light” ar­eas in which in­for­ma­tion should not be shared in­clude sales and pro­duc­tion tar­gets, pric­ing, costs, in­vest­ments, busi­ness strat­egy, re­bates, dis­counts, bid­ding and ten­der pro­ce­dures, cus­tomer in­for­ma­tion, con­fi­den­tial in­for­ma­tion and in­for­ma­tion that cre­ates a com­pet­i­tive ad­van­tage, cur­rent in­for­ma­tion and in­di­vid­ual com­pany data.

How­ever “neu­tral” in­for­ma­tion can be shared. This in­cludes: process type in­for­ma­tion that will re­sult in in­dus­try ef­fi­cien­cies, public do­main in­for­ma­tion and his­toric in­for­ma­tion. A typ­i­cal ex­am­ple of law­ful in­for­ma­tion ex­change would be the shar­ing of non­com­pet­i­tive in­for­ma­tion re­lat­ing to health and safety is­sues in the min­ing or con­struc­tion in­dus­tries.

How­ever, when com­pa­nies cre­ate an en­vi­ron­ment in which they can in­flu­ence pric­ing and co-or­di­nate their be­hav­iour to the detri­ment of con­sumers, in­for­ma­tion ex­change be­comes a ma­jor prob­lem. This can oc­cur through the shar­ing of in­for­ma­tion on in­di­vid­ual strate­gies, mar­ket share, sales and fore­cast in­for­ma­tion, for in­stance, so that com­pany A is able to de­ter­mine with a rea­son­able de­gree of cer­tainty what com­pany B will be do­ing in the mar­ket­place and in­di­rectly ad­just its con­duct and busi­ness de­ci­sions. In­for­ma­tion ex­change can serve as a mech­a­nism to mon­i­tor whether car­tel mem­bers are keep­ing to the car­tel agree­ment.

Com­pa­nies work­ing within the law to meet le­git­i­mate and com­pet­i­tive busi­ness ob­jec­tives are un­der no threat in terms of the com­pe­ti­tion leg­is­la­tion. When in doubt com­pa­nies should seek ex­pert le­gal ad­vice as to what they can and can­not do, and train­ing of all em­ploy­ees is vi­tal in or­der for them to clearly un­der­stand the boundaries of le­git­i­mate ac­tions and mit­i­gate the risk of con­tra­ven­ing the Com­pe­ti­tion Act.

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