The Hungarian Competition Authority (HCA) recently ruled on whether the exchange of past business information, in the framework of a quarterly circulated market research paper, is anticompetitive or not. Finding that such an information exchange system, in certain circumstances, should be regarded as a restriction of competition, the HCA imposed a fine on all of the parties involved except for the immunity applicant. The case concerned Hungarian contact lens distributors who exchanged their past individual sales volumes and values through a market research system. The exchanged information was entirely from the previous quarter – and it was not publicly disclosed, but only circulated by the market research company to the enterprises involved in the HCA’s proceedings.
The decision is unique: this is the first time a European competition authority has ruled on an infringement of competition rules that consisted exclusively of the exchange of purely past information.
The main message of the decision, which is under judicial review, is that even an exchange of past information in itself can be restrictive of competition. As a result, companies need to reassess the market research they are involved in on a case-by-case basis, even if the research involves only exchanging information from the past.
Although a case-by-case assessment is necessary, the decision detailed below gives a quite complete list of the aspects that need to be reviewed when assessing a market research system. It is also a good insight into the methodology of a national competition authority dealing with market researches.
During the investigation, the HCA sought to determine if the enterprises’ conduct was capable of restricting or distorting competition, considering the specifics of the market for contact lenses and accessories in Hungary and the specific characteristics of the information exchange. The HCA found that the enterprises, by exchanging their detailed company- and product segment-specific information (which could not be obtained from public sources) regarding their recent income and sales volumes, were operating an information system that was capable of restricting competition.
According to one of the HCA’s position statements, information exchange systems, the purpose or effect of which is to lower the risks stemming from the behaviour of competitors, are anti-competitive. Such reasoning follows the European Court of Justice’s decision in T-Mobile Netherlands: “An exchange of information between competitors is tainted with an anti-competitive object if the exchange is capable of removing uncertainties concerning the intended conduct of the participating undertakings.” The underlying question: is the exchange of past information capable of removing uncertainties concerning intended conduct?
In the given case, the HCA carried out a step-by-step analysis of the main aspects and principles laid down by the European Commission in its 2011 Horizontal Guidelines and by the ECJ in its decision in Asnaf Equifax i.e., (i) purpose of the information exchange; (ii) access to the market research; (iii) terms and conditions of joining to the system; (iv) type of information exchanged (public or confidential, aggregate or individual, future or past information and their significance in determining prices, sales volumes or other commercial terms). The result of such analysis, which is also a list of the aspects to be reviewed by every company involved in market research, are as follows:
The parties covered 80 percent of the relevant market, the market was heavily concentrated and no new market entry could be expected. Only one market player was not involved in the exchange system. Furthermore, the relevant markets can be divided into certain segments in which only one to three market players were active, which made the exchange even more sensitive.
Lack of public information
As no similar public information was accessible to other market players and customers, the exchange system offered by this research significantly increased the transparency of the market to the companies concerned. Moreover, there no other source afforded other market players similar information. Retail prices could be collected from retailers, but wholesale prices could not be estimated based on retail prices because distributors offered varying discounts to retailers.
Age of information and frequency of the exchange
Market players made business decisions on an annual basis, i.e., they determined prices once a year for the entire coming year. Therefore, a quarterly data exchange should be regarded as a frequent, non-historic information exchange.
Strategic, detailed information
The market research consisted of sales volumes and values, market shares and average wholesale prices split by product categories. Such information should be regarded as strategic information, according to the HCA. In an oligopolistic market, regularly exchanged sales data allows the parties to observe any alteration in the business strategy of their competitors, e.g., a new marketing campaign or a price cut. This led to a situation in which the parties were able to eliminate market uncertainties.
Publicity of information
The exchange significantly increased market transparency only for participants of the exchange system, resulting in an information asymmetry that harmed consumers and downstream market players.
Use of information exchanged
It was shown that the market research was used and assessed in strategic business decision making. According to the HCA, benchmarking could be a pro-competitive use of the market researches, but such pro-competitive purposes could have been achieved by the exchange of aggregated data as well.
Potential of influencing business decisions
The parties involved in the proceedings argued that the market research was unable to influence business decisions, therefore could not be anti-competitive, due to the fact that business strategies were determined by the headquarters and not by the local management who were involved in the market research. The HCA did not accept this reasoning as it was confirmed that local management fine-tuned and localized overall business strategies emanating from headquarters.
The result of the analysis was that even if there was no evidence of any effect on the market due to this market research and even if it consisted of only past information, it was anti-competitive.