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
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.