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Hub-and Spoke arrangements – SECRETARIAT – December 2019 OECD discussion

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This presentation by Sabine Zigelski, OECD Competition Division, was made during the discussion “Hub-and-spoke arrangements” held at the 132nd meeting of the OECD Competition Committee on 4 December 2019. More papers and presentations on the topic can be found at oe.cd/hsa.

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Hub-and Spoke arrangements – SECRETARIAT – December 2019 OECD discussion

  1. 1. HUB-AND-SPOKE ARRANGEMENTS Presentation by the Secretariat to the Competition Committee 4 December 2019
  2. 2. A cartel between competitors on one market side (spokes) that is co-ordinated through a vertically related, common intermediary (hub), usually a supplier or a retailer. The information exchange between the competitors is mostly or solely indirect. Definition 2
  3. 3. Supplier or retailer induced 3 Supplier Retailer 5 Retailer 4 Retailer 3 Retailer 2 Retailer 1 Retailer Supplier 5 Supplier 4 Supplier 3 Supplier 2 Supplier 1 Direct information exchange between retailer(s) and supplier(s) that would be perfectly legal in the vertical relationship may become problematic, when this information is passed on to horizontal competitors by the common hub.
  4. 4. What are the incentives for the hub to enable or facilitate a cartel on the other market side? Economic dependency, passing on of input cost increases, implementation of a cartel agreement, foreclosure of competitors … Enabling market structures? Market power on at least one market side? (No) “typical” product markets? Movie pricing, vodka, dairy products, toys, coffee, sweets, paint & varnishes, drugstore items, e-books, … Economic questions 4
  5. 5.  How to determine if inherently legitimate conversations between suppliers and retailers are used for anti-competitive purposes?  How to distinguish between hub-and-spoke and parallel vertical agreements/exchanges?  Liability of the spokes  For passing on/receiving of information they did not ask for?  Liability of the hub  Degree of awareness, intent, motive?  Not a horizontal competitor – restriction of competition?  RPM as an implementation device – or vertically imposed – or bilaterally agreed? Legal questions 5
  6. 6. Algorithms Parallel use – joint use Monitoring device Co-ordination device Platforms Across platform parity agreements as commitment device (US e-books case) Direct co-ordination of sellers’ retail prices by platform (through algorithms) Digital challenges 6
  7. 7. Proof of exchange of information over at least two instances can be difficult. Proof of intent/state of mind – rarely documented. Scope of proceedings can easily become very large – prioritization. Enforcement challenges 7

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