Even if information sharing can have negative effects, the literature is consistent that these potential anti-competitive effects do not need to arise necessarily in all circumstances where there is an exchange of confidential information between firms.
There are other factors that should be taken into account.
After all, there are many different factors that make a particular market more or less prone to collusion, transparency just being one of them.323
We do believe that the key one – the structure of the market - is somehow forgotten often in this mixed economic & policy literature concerning policy choices, as Professor Padilla brilliantly notes.324
320 (Bennet & Collins, 2010) page 322, op. cit. (Ivaldi, Jullien, Rey, Seabright, & Tirole, 2003) op. cit.
and (Ivaldi, Rey, Seabright, Tirole, & Jullien, 2003) op. cit.
322 (Commission, Guidelines on the Applicability of Article 101 TFEU to Horizontal Cooperation Agreements, 2011) op. cit. para. 90.
323 Among others (Bronckers & Vallery, No Longer Presumed Guilty? The Impact of Fundamental Rights on Certain Dogmas of EU Competition Law, 2011) op. cit. “As far as information exchange on prices is concerned, we would think that factors meriting analysis would include market power, market (in)stability (evolution of market shares of suppliers exchanging information), maturity of the market, and customer bargaining power.”
Going against the grain, this economist has been clearly outspoken about this issue. In his view, sharing information on future behavior will not cause any harm if the affected market does not otherwise exhibit characteristics which make it amenable to collusion. He submits that the increase in market transparency may facilitate reaching a focal point and may also facilitate monitoring compliance with the tacitly co-ordinate outcome, but it does not guarantee in itself that such an outcome is internally and externally stable.325
The number of firms and market concentration is, therefore, probably the most important one when discussing tacit collusion and the utility of information exchanges.326 When the number of firms is large, coordinating on a common price and punishment strategy tends to be more difficult, cheating may be harder to detect and smaller firms may find cheating more attractive because they have more to gain relative to what they lose from punishment.327 Thus, in these cases, the modern recent economic theory is embracing the idea that only through an express agreement firms might be able to coordinate themselves, even though stability may be still hard to sustain. Obviously, the more firms the more difficult it is to monitor the market.
When there are only a few firms in the industry, however, the members of the cartel can more easily monitor each other’s behavior. Thus, as the number of firms increase, so thus the number of two-way informational flows and it is harder to know who is cheating, even if it is clear that someone is cheating.328 That is why, as some authors argue, in most prosecuted cases the number of firms in the industry was low and concentration was high.329
324 (Padilla, 2010) op. cit. Explaining the importance of the structure see also (Wish, Information Agreements, 2006) op. cit.
325 (Padilla, 2010) op. cit.
326 Thus, as (Capobianco, 2004) op. cit. explains if there is not a concentrated structure, the burden of proof for the competition authorities is certainly high. “If the market is fragmented, the authorities have to provide persuasive and credible evidence that despite the un-concentrated nature of the market there are other factors that are likely to give rise to tacit collusion”.
327 (Kaplow & Shapiro, Antitrust, 2007) op. cit..
328 (Bishop & Walker, The Economics of EC Competition Law: Concepts, Applicaction and Measurement, 2010) op. cit..
Beyond the issue raised by the difficulty of reaching a consensus, there is another reason that makes it difficult to collude with too many competitors. Since firms must share the collusive profit, as the number of firms increases each firm gets a lower share of the pie. This has two implications. First, the gain from deviating increases for each firm since, by undercutting the collusive price, a firm can steal market shares from all its competitors; that is, having a smaller share each firm would gain more from capturing the entire market. Second, for each firm the long-term benefit of maintaining collusion is reduced, precisely because it gets a smaller share of the collusive profit. Thus the short-run gain from deviation increases, while at the same time the long-run benefit of maintaining collusion is reduced.330
Thus, for an information exchange to raise concerns, the market must be amenable to co-ordination in the first place.331 The economic literature has pointed out
330 (Ivaldi, Rey, Seabright, Tirole, & Jullien, 2003) op. cit.
331 The following are just an example of other relevant factors which have been identified by the general literature on collusion (that are, to some extent, dubious as to their impact on collusion) and that should be taken into account, in order to determine whether an information exchange is likely to result in collusion. See (Kaplow, An Economic Approach to Price Fixing, 2011) op. cit. (Motta, 2004) op. cit., (Bishop & Walker, The Economics of EC Competition Law: Concepts, Applicaction and Measurement, 2010) op. cit.
Capacity. As explained in the literature, capacity is a two-edge sword: a cheater may be able to grab more of the market if its capacity is larger but other firms may have greater ability to punish, assuming that the industry price can only be driven down if firms supply a sufficient quantity.
Asymmetries in capacity make collusion more difficult: a firm with substantially more excess capacity may gain much from cheating, whereas the others with limited additional capacity may find it difficult to impose punishment. As Motta puts it, generally speaking the role played by the presence of large levels of inventories and large excess capacity is ambiguous. On the one hand, large excess capacity implies that there is a stronger incentive to deviate (a price reduction would help fill capacity). On the other hand, if rivals are also endowed with large capacities, the punishment is more likely to be strong.
Product differentiation. Intuitively, the more different the products are, the harder to reach a consensus on quantities or prices. That is why some authors argue that most prosecuted cases involve homogenous products rather than differentiated products. According to them, when there is significant potential for differentiation, cheating is more likely because it may be more difficult to police product quality, subtle terms of sale, or other features. Moreover, when products are heterogeneous changes in market shares may reflect changes in consumer tastes or preferences rather than cheating. Nonetheless, some economists argue that product homogeneity does not unambiguously raise scope for collusion, given that the incentive to cheat in differentiated markets is smaller and even homogenous products can be seen as different by consumers thanks to marketing campaigns.
Symmetry. It can concern different dimensions (such as market shares, number of varieties in the product portfolio, costs and technological knowledge, capacities) whose importance will clearly differ across industries. Nonetheless, it is intuitive to think that people who are in a similar position would find it easier
that markets which are concentrated, stable and symmetric, and which involve homogeneous products are the most amenable to co-ordination.332