Competition Board’s Decision on Hub and Spoke Cartel in the Retail Sector

Determination of Violation made in the Decision

In the decision, the main allegations related to the hub and spoke cartel involving a large number of suppliers and chain markets operating in the retail sector are summarized as follows:

• Coordination of prices and/or price increases by means of indirect contacts between retailer undertakings through common suppliers.
• Sharing competitively sensitive information such as future prices, price increase dates, seasonal activities, and campaigns through common suppliers.
• Ensuring that the prices are increased to the detriment of consumers by intervening through suppliers, in the prices of retailers that have reduced prices or have not yet increased prices during the period when prices increased across the market.
• Continuous monitoring of compliance with collusion between undertakings through various strategies, such as product-specific price reductions (distortion) in case competitor prices are not increased.

Accordingly, the Board concluded that there has been a violation of Article 4 of Law No. 4054 by means of agreements or concerted practices in the nature of a hub and spoke cartel, with the purpose of fixing the retail prices of a large number of products on the market. The Board decided that the retailers and suppliers which are parties to the investigation are jointly and equally liable for this violation, referred to as a hub and spoke cartel.

Within the scope of the decision, the Board decided to impose administrative fines on 12 supplier undertakings which were parties to the investigation. As for 5 retail undertakings which were also parties to the investigation, despite the fact that the decision contained a violation determination, it was concluded that there was no room for imposing an administrative fine. This is due to the Board’s recent Chain Markets decision where administrative fines were imposed against the same retailer undertakings, as a result of the same practices. Therefore, the general principle of “ne bis in idem” was applied in the case at hand.

The Board’s Evaluations in Terms of Hub and Spoke Cartel

The evaluations and findings in the decision are instructive in terms of the elements of hub and spoke cartel and the standard of proof. Within the scope of its evaluations, the Board drew attention to the atypical nature of hub and spoke cartel and emphasized that it is a relatively new type of violation, which has just begun to be subject to competition law enforcement.

In this context, the Board initially provided explanations regarding the definition of hub and spoke cartel. The Board stated that in a hub and spoke cartel, the information gathered through an undertaking in the position of a hub is distributed to the spokes. Therefore, the cooperation between the undertakings in the downstream or upstream market is ensured. In light of the Board’s evaluations, in a hub and spoke cartel, information is exchanged between undertakings in different two ways and a common understanding is reached through these means. In the first case, a common supplier in the upstream market (hub) is used to reach a common understanding among the retailers in the downstream market (spokes), while in the second case, a common retailer in the downstream market (hub) is used to reach a common understanding among providers operating in the upstream market (spokes). The decisive factor for deciding on the existence of a violation is that the information flow provided through the undertaking which is a party to the vertical relationship ensures that the strategic uncertainties are eliminated or reduced for other undertakings, by means of becoming aware of competitively sensitive information such as the pricing strategies that competitors will follow. This condition is met in case the information that would give rise to a competition law violation is shared directly between competitors at the same level. For instance, future prices and price transition dates are conveyed through common suppliers or buyers. On the other hand, the Board expressly stated that it is a reasonable and legitimate market behavior for undertakings to obtain and monitor the prices of their competitors from publicly available sources and to take positions based on these prices.

The Board further stated that although hub and spoke cartels have vertical characteristics, they are essentially horizontal cooperation agreements. Moreover, the Board emphasized that the authority and court decisions worldwide involving hub and spoke cartel determinations are generally related to the FMCG retailing sector, similar to the case at hand. The Board also drew attention to the increase in the number of such cases in recent years and mentioned that the recent Chain Markets decision is an important milestone in terms of hub and spoke cartels.

The Board clarified that Article 4 of Law No. 4054 covers anti-competitive agreements between competing undertakings operating at the same level (horizontal agreements) as well as agreements between non-competing undertakings, i.e. undertakings at different levels of trade (vertical agreements).

Within the scope of the decision, the Board evaluated the evidence separately for each undertaking. In general, it is observed that the Board evaluated communication evidence and economic evidence together within the scope of its evidence assessment for the hub and spoke cartel. For products that are subject to correspondence between undertakings, the Board examined in detail the price movements within certain date ranges. Therefore, it assessed whether price transitions for certain products occurred on the same or close dates and whether prices were raised to the same level in parallel with e-mail or WhatsApp correspondence between the relevant parties. As a result of this evaluation, the Board reached the conclusion that in case it is demonstrated that the price movements referred to in the correspondence have been realized, the coordination is deemed to have taken place among the undertakings.

As for the standard of proof, the Board stated that it each of the evidence presented about the cartel doesn’t need to meet individually the standard of proof. Nonetheless, the evidence must be clear, convincing and consistent when considered as a whole. In addition, the Board emphasized that it is not sufficient for undertakings to provide a plausible explanation for the various individual pieces of evidence in the evidence set to prove the absence of a violation. The Board also clarified that it expects the conclusion reached on the totality of the evidence to be rebutted. The Board also stated that the reliability of the evidence increases as the level of detail included in the evidence indicating coordination between retail undertakings through suppliers increases.

As a result of its evaluations and findings, the Board decided to impose a total administrative fine of TRY 878 million against 12 supplier undertakings.

Conclusion

It can be observed that the elements set forth by the competition authorities in comparative law for hub and spoke cartel have begun to be addressed by the Turkish Competition Authority, within the scope of various recently published decisions. In particular, the practices of retailer and supplier undertakings operating in the FMCG retailing market are under the scrutiny of the Board. To establish the existence of a hub and spoke cartel, the elements determined through case law must be presented by a sufficient standard of proof. Certainly, the specific conditions of the relevant market and communication should not be disregarded within the scope of the evaluation conducted, as not every exchange of information constitutes a hub and spoke cartel. In the upcoming period, it is expected that hub and spoke cartel will continue to be the focus of the Board’s decisions concerning various sectors.