Failure to comply with the provisions of competition law can result in heavy fines, actions for damages, unenforceable contracts, imprisonment, disqualification of company directors and reputational damage. The concentrated nature of the cruise industry means that it is likely to face greater scrutiny from regulators, and also from smaller market players who may feel that the potentially anti-competitive conduct of larger players is prohibiting their growth. It is therefore essential to have strong competition compliance procedures in place in order to address such concerns. Companies should also ensure that key staff are trained in the principles of competition law.
Competition law applies both to horizontal conduct between competitors and vertical agreements with a wide range of counterparties such as shipyards, suppliers, travel agents, franchisees and on-board concession holders. There is a competition law aspect to many of the commercial decisions a company takes on a day-to-day basis.
Any company which is active in the EU will need to ensure compliance with EU competition law which is focused on three areas, namely:
- The prohibition on anti-competitive agreements.
- The prohibition on abusing a dominant market position.
- Merger control.
The Prohibition on anti-competitive agreements
The EU prohibition on anti-competitive agreements is a broad one and extends to any agreement, decision or concerted practice between companies which has as its object or effect the prevention, restriction or distortion of competition within the EU’s internal market. There does not need to be a written agreement for a breach of the EU’s prohibition on anti-competitive agreements to be established; oral agreements or the exchange of commercially sensitive data between competitors may be enough to evidence a breach. Companies should be very careful in handling any communication with competitors, including through bodies such as trade associations.
Certain types of actions, known as ‘hardcore restrictions’, will generally be deemed to be in restraint of competition. Such actions cover practices such as price fixing or market allocation between competitors or the imposition of minimum pricing in vertical agreements, for instance with on-board retailers.
However, some agreements or co-operative arrangements that may appear on their face to be anti-competitive, for example the sharing of logistical information between competitors, may not fall foul of the prohibition on anti-competitive agreements provided that they promote technical or economic progress, allow consumers a fair share of the resulting benefit, and do not contain ‘hardcore restrictions’ or restrictions that are not indispensable to promoting technical or economic progress.
Abuse of a dominant market position
Abuse of a dominant market position occurs where a company acts outside normal market behaviour to eliminate competition, for instance by predatory pricing, or uses its market power to squeeze suppliers, for instance by imposing exclusivity clauses on them.
In the EU, a market share of over 50% is deemed to be dominant, although shares of 40% or more could be dominant. The European Commission has indicated that the relevant market in which cruise companies operate is the provision of oceanic cruises, and that the oceanic cruise market is divided into separate national markets1. Companies that have a small global market share, but which have a large share in one particular national market therefore also need to be aware of this provision, and plan their commercial strategy accordingly.
More than 120 states in the world have some form of merger control procedure whereby government agencies may review the potential effects on competition of a merger or acquisition within that state, and if necessary prohibit mergers that have the potential significantly to reduce competition within a market.
The EU Merger Regulation of 2004, which operates in addition to the individual merger control regimes of Member States, will potentially apply where two or more previously independent companies merge, where a company acquires control of a whole or part of another company on a lasting basis, or where a “full function” joint venture is formed. The Regulation will only apply to mergers involving companies with turnovers that exceed certain global and EU-wide thresholds, and have a significant amount of business in more than one EU Member State. Mergers that meet the thresholds must be cleared by the European Commission prior to implementation, and if not, the Commission has the power to impose heavy fines for failing to pre-notify and obtain prior clearance.
Competition law is a tricky area for cruise companies as it seeks to control actions that could increase their profits, but at the detriment of suppliers and consumers. Cruise companies must ensure that the commercial decisions they take are for the benefit of all parties, and should seek advice where they are unsure whether an action raises competition law concerns.