When economic agents seek to distort the functioning of markets, we are facing anti-competitive practices. Among them are collusive practices.
Collusive practices encompass different behaviours performed by companies with the explicit intention of obtaining benefits at the expense of a free market, healthy competition, and satisfied consumers.
Collusive practices restricting competition are forbidden by national law [in Portuguese] and by the Treaty on the Functioning of the European Union [in Portuguese].
What are the most common collusive practices?
They include agreements — horizontal and vertical — and decisions by business associations. These practices have in common the fact that they lead the companies involved to give up their autonomy in the market, intending to reduce or eliminate competition risks. No-poach and hub-and-spoke arrangements are also considered collusive practices.
Cartels and horizontal agreements
Horizontal agreements are arranged between competing companies belonging to the same production, distribution, or retail sector. This is the case of cartels, considered to be the most severe anti-competitive practice established between companies.
Through a cartel practice, companies might:
- Fix prices;
- Limit production;
- Divide up markets and customers;
- Exchange commercially sensitive information.
This prevents free choice on the part of consumers and leads to an increase in prices of products and services.
Even though we are dealing with highly secret agreements, the truth is that the Competition Authority has means and instruments to detect, investigate and punish these practices.
Often, it is the initiative of one of the companies involved that allows the investigation to be launched. When collaborating with the AdC, the company benefits from immunity or reduction of the fine under the Leniency Programme.
This is what happened, for example, with some of the companies involved in the cartel concerning public tenders [in Portuguese] for the supply and assembly of prefabricated modules for the temporary installation of classrooms. When they confessed their involvement in a cartel, they were excused from paying a fine or had reductions of 30% to 40% but the remaining companies had to pay fines in full.
Whenever there is a cartel, all of society is affected. Consumers pay higher prices while having a smaller choice. The other companies are prevented from entering the market, which ends up preventing further development of innovation.
And it should not be forgetten that, when the cartel takes place in public procurement, the damage affects State resources and, consequently, all of us, the taxpayers.
Decisions by Business Associations
The decisions of business associations [in Portuguese] become collusive practices whenever they influence and constrain the market performance of their members. This can happen in different ways: for example, at the level of pricing or other relevant commercial conditions of the members.
Decisions can either cover rules of the association statute or internal regulations, decisions, or recommendations adopted under those rules.
In 2020, the Competition Authority convicted ANT — National Association of Topographers[in Portuguese] to pay a fine for this association’s publication on its website of a salary chart to promote the standardisation of prices for services provided by its members.
No-poach is a horizontal agreement through which companies mutually commit not to hire or make spontaneous proposals to employees of the companies that are part of the agreement.
Competition Law prohibits no-poach as it limits the autonomy of companies in defining strategic commercial conditions, in this case, the hiring policy of human resources departments, which can happen in any sector of the market.
Non-poach agreements between competing companies have been considered as competition restrictions by American and European Authorities. Among others, the cases that involved several technology companies have stood out.
In Portugal, in 2020, the Competition Authority ordered the Portuguese Professional Football League (LPFP) to immediately suspend a decision that prevented the hiring by clubs of the First and Second Leagues of footballers who had unilaterally rescinded their employment contract, invoking issues raised by the Covid-19 pandemic. Recently, in 2021, the AdC issued a statement of objections for an agreement not to hire workers involving the Portuguese Professional Football League and 31 football club companies.
The no-poach practice is likely to affect workers by reducing negotiating power and wage levels and decreasing labour mobility.
It should also be noted that, in cases where labour can be a relevant element in the innovation process, the no-poach agreements can reduce the level of innovation in the market to the detriment of consumers.
This form of collusive practice has been the target of several investigations and convictions by the AdC.
In this practice, distributors contact a common supplier to ensure their adherence to the recommended retail price (RRP).
Unlike what happens in cartels, the hub-and-spoke practice of the price combination between market operators is made indirectly.
Recently, the AdC imposed fines on six supermarket chains, two beverage suppliers, and two individuals responsible for indirectly fixing sales prices.
Since this practice involved some of the largest Portuguese retailers, many Portuguese consumers have been harmed for almost a decade.
This refers to concertation between non-competing companies, which means companies that are at different levels of the production or distribution chain. We are talking, for example, about an agreement established between a producer of certain goods and its distributors.
In vertical agreements, several practices restricting competition may occur, namely:
- Fixing minimum resale prices;
- Certain absolute territorial restrictions;
- The prohibition of active and passive sales to final consumers by retailers in a selective distribution network;
- The prohibition of cross-sales between distributors in a particular distribution network.
In a case decided in 2015 [in Portuguese], the AdC investigated the commercial relationship established between companies in the Galp Energia group, namely Petrogal, Galp Açores, and Galp Madeira, and their bottled LPG distributors. The AdC concluded that the distribution contracts contained the prohibition of bottled LPG distributors to sell outside a geographical area defined in the agreement, even in response to spontaneous orders from consumers located outside their contractual territory (passive selling). This competitive restriction is likely to penalize consumers with higher prices, as the bottled gas distributors of the Galp Energia group companies can offer prices and commercial conditions without any competitive pressure from other competing distributors.