Watchdog sees good and bad cartels

Richtig oder Falsch?
Is collusion among companies right or forbidden? (Image: John Hain / pixabay)

The Competition Commission Weko is heating up the dispute about collusion between companies. But what is really necessary?

Weko has recently taken two measures that have sparked controversy about how competition works in the Swiss market.

For example, the Competition Commission Weko updated its view on collusion between companies at different market levels, it announced Wednesday.

In doing so, i.e. with the new rules on vertical market agreements, it is responding to recent case law and case practice in Switzerland, it said.

Exception to the rule

Normally, antitrust law actually prohibits agreements between companies that severely restrict competition – or possibly even eliminate it completely. This practically always involves agreements on prices, quantities or market areas. 

However, agreements between companies at different market levels, such as between manufacturers and retailers, are commonplace. And according to the Weko, it is precisely such agreements that would generally increase efficiency within a production or distribution chain.

Stimulating competition

They are ‘good’ cartels, so to speak, because they reduce manufacturing and distribution costs, improve goods, services or manufacturing processes, or promote research, for example.

A distinction based on such cases could therefore actually have a positive effect on the competitive situation.

A foreign car manufacturer could therefore work towards corresponding distribution agreements when importing cars into Switzerland and thus appear more favorably on the market, which would stimulate competition. But the devil is always in the detail.

Clear prohibitions

Moreover, certain agreements, such as price fixing and foreclosure of the Swiss market, are fundamentally illegal. Therefore the Weko and the European competition authority indicate in their latest publications which types of conduct are permitted and which are not.

The EU updated its rules as of June 1, 2022, taking into account, among other things, findings in the area of online trading and allowing greater flexibility in the design of distribution systems.

The Weko is then ensuring that the same rules as in the EU will continue to apply in principle in this country, it said in this regard. It is also taking into account recent Swiss case law and case practice.

This includes the leading decision of the Federal Supreme Court on so-called ‘Hors List medicines’ on recommended prices.

Review scheme for checks

The announcement will take effect in Switzerland on January 1, 2023, he said. Companies now have one year to adapt their distribution to the new rules, according to the communique.

In the document, there is a practical test scheme or a flowchart to check whether the measures of the companies in the eyes of the competition watchdogs hinder competition or not or exploit their market power.

Behavior is decisive

According to antitrust law, competition agreements exist if both public and private companies ‘deliberately cooperate with each other with the purpose or effect of restricting competition.’

A legally-binding or written agreement is not even necessary; it is sufficient if companies coordinate their behavior on the market in whatever form.

Price and calculation recommendations by an association, for example, are also inadmissible, as the “Unternehmer-Zeitung” recently reported in detail on the subject.

Banks as a point of contention

Swiss companies must therefore be careful when they agree on prices or offers, make non-binding price recommendations, conclude exclusive contracts, agree on territories or simply exchange information on business data.

And this is exactly where the second measure recently taken by the Weko comes in. It initiated an investigation into possible competition violations at banks because 34 Swiss credit institutions had blithely exchanged their wage data, as also reported.

Strangely enough, even the representatives of the bank staff reacted irritably to the Weko’s action, because they don’t find the exchange of such data so bad at all and don’t see any collusion by employers to the detriment of employees. That was a little odd.

A sting in the wasps’ nest

Besides, the exchange of information among competitors, i.e. on the same and thus horizontal level, could be an ‘evil’ cartel from a scientific point of view, because the whole thing eliminates competition.

Bank employees could possibly extract more money in individual negotiations if the banks did not know what their competitors were paying for comparable positions.

And that’s where the Weko is poking into a can of worms, because it’s not immediately clear whether the exchange of salary data actually increases the economic efficiency of the financial institutions and thus actually constitutes a ‘good’ cartel but at the vertical level.

While it has startled the banks, a more in-depth clarification of the various modes of action makes perfect sense.


Watchdog sees good and bad cartels

Leave a Reply

Your email address will not be published. Required fields are marked *