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COMPETITION LAW
CHAPTER 3 HORIZONTAL MONOPOLY
AGREEMENTS
Yu Ling
Law School of JUFE
LEARNING OBJECTIVES
(1) DEFINE MONOPOLY AGREEMENTS
(2) DEFINE HORIZONTAL AGREEMENTS
(3) DISPLAY TYPES OF VIOLATION
(4) EXPOUND HOW TO DETECT, INVESTIGATE AND FIGHT
CARTELS?
(5) ACTIVITY: CASE STUDY
CONTENTS
1. THE DEFINITION OF MONOPOLY AGREEMENTS
2. THE DEFINITION OF HORIZONTAL AGREEMENTS
(CARTELS)
3. TYPICAL RESTRICTIVE HORIZONTAL PRACTICES
4. HOW TO DETECT, INVESTIGATE AND FIGHT
CARTELS?
5. ACTIVITY: CASE STUDY
Recommended Reading Materials
OECD ANTI-CARTELENFORCEMENT MANUAL (2007)
THE ANTITRUST REVIEW OF THE AMERICAS (2011)
THE ANTITRUST REVIEW OF THE AMERICAS (2014)
Cases:
Case T-35/92 John Deere Ltd v. Commission
IV/30.907 Peroxygen products
 COMP/29.273 visa international
Lead-in：LISTENING TEST
• Lead-in video: Horizontal and Vertical Agreements that Violate the
Sherman Act
• After watching the Video, then discuss:
• (1) What are two types of restrictions under the Sherman Antitrust Act? What is the main difference between them?
• (2)Please list some examples of both types of agreements.
• (3) What does “Monopolies” mean in this video?
•
LISTENING TEST
(1) A horizontal agreement between competing businesses
includes price fixing, and a vertical agreement between sellers
and buyers.
(2) Price fixing
Market allocations;Boycotts;Tying agreements
Monopolies
(3) Monopolies involve one or very few companies who
dominate a particular market, leaving no room for others to
compete. This domination could be market-based or even
product-based. They are probably the most dangerous.
1. THE DEFINITION OF
MONOPOLY AGREEMENTS
monopoly agreements
(1)
In AML, refers to agreements, decisions or
other concerted behaviors that eliminate or
restrict competition.
Horizontal agreements
(2)
Among competing business operators and in
the same levels of the production or
distribution chain.
Vertical agreements
(3)
Among business operators up or down the
supply chain from one another and at different
levels of the production or distribution chain.
HAs
 among competitors
Seller
Seller
Seller
Buyer
Buyer
Buyer
Questions
MANUFACTURER A
RETAILER 1
MANUFACTURER B
RETAILER 2
RETAILER 3
An agreement for the purpose of minimizing
competition among who may constitutes
HAs?
MAs
Horizontal
agreements
Vertical
agreements
among
competitors
upstream&
downstream
companies
Hazardness Of MAs
1) Injury the interests of other business operators
2) Injury the interests of consumers
3) Destroy the competition mechanism
2. THE DEFINITION OF
HORIZONTAL AGREEMENTS
(CARTELS)
(1) DEFINITION OF HORIZONTAL AGREEMENTS
 (1) Horizontal agreements: Horizontal agreements are those
concluded between undertakings operating at the same level of
production or distribution. P.89
Competitors: The term competitors most often refer to
companies at the same level of the economy (manufacturers, distributors, or
retailers) in direct competition with each other to sell goods or
provide services.
(2) DEFINITION OF CARTEL AND HARDCORE CARTEL
Cartel: It refers to practices which have as their object the
restriction of competition.
(3) Hard-core cartels: They are anticompetitive agreements by
competitors to fix prices, restrict output, submit collusive tenders,
or divide or share markets. (OECD)
The 1998 Recommendation condemns such cartels as the most egregious violations of
competition law.
(3) Qs:
A cartel is usually a formal agreement among competitors. Must a
cartel have a formal agreement? Are the authorities required a
formal agreement to establish a infringement?
Read textbook pp.89, 96, 97.
No, the authorities aren’t required to distinguish between agreements or
concerted practice to prove membership in the cartel.
They may rely on the concept of single overall agreement to prove
membership in the cartel. (T-305/94 Limburgse Vinyl Maatschappij v Commission ECR II-931)
(3) Qs:
An agreement can be said to exist when the parties adhere to a
common plan which limits or is likely to limit their individual
commercial conduct by determining the lines of their mutual action
or abstention from action in the market.
It does not have to be made in writing; no formalities are
necessary, and no contractual sanctions or enforcement measures
are required. The fact of agreement may be express or implicit in the
behaviour of the parties.
(3) Qs:
“It is well established in the case-law that for there to be an
agreement within the meaning of Article [81(1)] of the Treaty it is
sufficient for the undertakings to have expressed their joint
intention to behave on the market in a certain way".. (T-305/94 Limburgse
Vinyl Maatschappij v Commission ECR II-931)
Where participation in such meetings has been established, it is for that
undertaking to put forward evidence to establish that its participation in
those meetings was without any anti-competitive intention by
demonstrating that it had indicated to its competitors that it was
participating in those meetings in a spirit that was different from theirs.
P.96
 Video: Understanding competition law
Chapter 2 - Cartels
 Please figure out how does a cartel
operate?
(4) Discussion: why cartels should
be regulated?
discourages enterprises
from developing new
technologies or new
products
cancer in the market
economy
cartel
cartels cause an
increase in prices by
at least 10%
forces consumers to buy
products of poor quality at
higher prices
frustrates the improvement of potential production capacity throughout
the national economy by stifling technical innovation and adversely
affects the economy in general.
3. TYPES OF VIOLATION
AML Article 13
The competing business operators are prohibited from reaching
any of the following monopoly agreements with each other:
1. Fixing or changing the price of commodities;
2. Restricting the production quantity or sales volume of
commodities;
3. Dividing the sales market or the raw material supply market;
4. Restricting the purchase of new technology or new facilities or
the development of new technology or new products;
5. Jointly boycotting transactions; or
6. Other monopoly agreements as determined by the Antimonopoly Law Enforcement Agency under the State Council.
TYPES OF VIOLATION
1
Price Fixing
2
Market Sharing
3
Output Restrictions
4
Information Exchange Arrangements
5
LISTENING PRACTICE
Read textbook: pp.90-91
Video link: Price Fixing
Qs: What is the economic effect of price fixing?
• Price Fixing
• Market Sharing
• In general, it is an agreement
intended to ultimately push
the price of a product as high
as possible, leading to profits
for all the sellers.
• It can shield cartel
members from the
pressure of competition
by dividing market
between them.
• It can shield cartel members
from price competition and
transfers wealth from
consumers to the conspiring
undertakings.
• IV/30.907 Peroxygen
products p.100
• Rarely benefit from
exemption.
HMs
Case study
• Price Fixing
• Market Sharing
• Rarely benefit from
exemption.
• It can shield cartel
members from the
pressure of competition
by dividing market
between them.
• COMP/29.273 visa
international
• P.99
• IV/30.907 Peroxygen
products p.100
• Material
HMs
About Information Exchange Agreements
B
A
The exchange of information have an adverse
effect on competition …
…depend on the circumstances of each
individual case: the market characteristics, the
type of information and the way in which it is
exchanged.
 P.91 Case T-35/92
John Deere Ltd v. Commission
C
About Information Exchange Agreements
Burden of Proof
It is not necessary to demonstrate that exchanges of
information led to a specific result or were put into
effect on the market…
Case T-141/94 Thyssen Stahl v Commission [1999]
ECR II-347
 p.103
The Hierarchy of EC Courts
European Court of First Instance (ECR) 欧盟初审法院
the Court of First Instance(CFI)
European Court of Justice (ECJ)欧洲法院
the Court of Justice (ECR)
4. HOW TO DETECT,
INVESTIGATE AND FIGHT
CARTELS?
(1) Lead-in Case
Video link: 民航垄断公司疑为机票
涨价幕后推手
How to prove?
How to
regulate?
AML Article 3
Why do so many countries want to eradicate
cartel? Can you explain the legality of
eradicating cartel from contract law view?
(2) How to prove/ presume a cartel?
The Chain
of Proving
There is a price following in
the market.
1
to prove the
existence of
an agreement
2
4
33
It may not happen without
“meeting of minds”
To prove that it has a restrictive
effect on competition
To prove there is no Justification for exemption
The Chain of Proving
Justification for exemption: AML Article 15
• (i) agreements to improve technology, to research and develop new products.
• (ii) agreements for the purpose of product quality upgrading, cost reduction and
efficiency improvement, of unify standards, norms or specialise;
• (iii) agreements by small and medium-sized enterprises to improve operational
efficiency and to enhance their competitiveness;
• (iv) agreements to cope with economic depression, to moderate serious decrease in
sales volumes or distinct production surplus;
• (v)agreements to achieve public interests, such as save energy, protect environment,
relieve the victims of a disaster and so on;
• (vi) agreements to maintain legitimate interest in the cooperation with foreign
economic entities and foreign trade;
• (vii) other situation stipulated by laws and the State Council.
• Undertakings pursuant to (i) to (v), and therefore exempted from Article 13, 14, must
additionally prove, that the agreements can enable consumers to share impartially
the interests derived from the agreements, and will not entirely eliminate the
competition in relevant market.
34
How to detect a cartel?
Observing the
means by which
firms coordinate
No direct
communication
Cartel
direct
communication
Observing the end
result of that
coordination
Video link:Learning from
Crime- The Case of
Overpriced Vitamins
an employee who
stumbles across evidence
or
the discovery of
documents associated
with a tentative merger
use economic analysis in
detection
How to investigate a cartel?
Lead-in video: Dawn raids
To collect evidences
investigation planning
Cartel
It is a surprise visit to the offices of…
Dawn raids
(search and seizure)
It is also often difficult to obtain a search
warrant especially since most judges are
not conversant with competition issues.
They are generally used as the last resort
in attempting to obtain information…
How to fight a cartel?
Essence: to grant leniency by levying a lesser penalty on a member of the cartel
who provides full, true and vital information regarding the cartel. The scheme is
designed to induce members to help in detection and investigation of cartels.
Deterrence
inspiration
Evidence Collected Through the
Leniency Programme
Leniency
programmes
Three cornerstones of LPs
heightened fear
of detection
severe
sanctions
transparency in
enforcement policies
LPs
4) Recent Cartel Practices in US
Character
Fines less than
Imprisonment
original
misdemeanor
5000
1 year
1955
misdemeanor
50000
1 year
1974
felony
100000
3 years
1990
felony
To corporate: 10000000
To person: 350000
3 years
2004
felony
To corporate: 100000000
To person: 1000000
10 years
5) Recent Cartel Practices in China
Activities: Please search and sort out recent cartel practices in
China according to the following table.
Time
1
2
3
4
5
Case Name
How did LP operate in
this case?
BRIEF CONCLUSION
• Relationships among competitors are subject to close
scrutiny under the antitrust laws because they can so
easily evolve into conspiracy that can destroy the
competitive integrity of the marketplace.
Activity:CASE
writing
practices
STUDY
Rainbow v. Johnson & Johnson Medical
• In 2013, Shanghai High People's Court ordered Johnson &
Johnson Medical China Ltd and Johnson & Johnson Medical
Shanghai Ltd to pay 530,000 yuan ($86,456) in compensation to a
former dealer.
• The court said the Chinese subsidiaries of the US giant adopted
a monopolistic practice by setting a price floor for its Chinese
dealer Rainbow Medical.
Questions:
After reading the judgment of Shanghai High People's Court ,
please a write a “brief to case”.
Then discuss:
(1) What is real reason that Johnson & Johnson be blamed for?
(2) Why the dispute between Johnson & Johnson and its dealer
can't settled by the contract between them?
(3) Why did so many people pay so high attention to this case?
(4) What are the key issues of this dispute?
(5) What are the implications of the Case?
ASSESSMENT
• Your work will be evaluated on effort
(including the depth of information and
personal insight) and competency in writing.
• Your scores on this assignment will be
recorded on your regular grade, and finally
on your Total Mark of this subject.
Law School of Yale University