Joint purchasing – Three key points in the current clash

There currently is much debate about how joint purchasing should be assessed going forward, and whether existing purchasing alliances should face greater scrutiny. This piece highlights three key points on joint purchasing, antitrust, and the involved politics.

The European Commission lays out its view of joint purchasing in its Horizontal Guidelines, published already in 2011. Basically, joint purchasing is unlikely to raise concerns where:

• the parties have a combined market share not exceeding 15 % on the purchasing market as well as a combined market share not exceeding 15 % on the selling market; and/or
  
• the parties are not active on the same relevant selling market.
  

So, what is there to still write about?

Although the basic legal concept seems to be quite clear, there still is much debate – given the language of some stakeholders even fight – about how joint purchasing should be evaluated under antitrust law. At least three points stand out:

1. Thin line to buyers’ cartels

In recent years regulators have imposed fines for “buyers’ cartels” in a number of cases. The European Commission closed Car Batteries Recycling in 2017 and Ethylene in 2020, and the German Bundeskartellamt closed Auto Steel in 2019. All ended with significant fines.

In theory, cartels between companies regarding their respective purchasing activities might be easy to distinguish from permissible joint purchasing. But in practice, the line can be thin: In Auto Steel, for example, suppliers negotiated with joint customer groups and, thus, knew that customers were coordinating their purchasing activities. This shows that acting transparently alone does not save members of a potential purchasing cooperation from being fined.

2. Revision of the Horizontal Guidelines

The European Commission is currently revising its Horizontal Guidelines and will (have to) put a new version in place by the end of 2022. The last consultation round closed last month, and the Commission has meanwhile gone through a number of workshops with stakeholders, including one on joint purchasing.

According to a Commission Staff Working Document published in May 2021, the regulator had previously received feedback pointing out that there should be a clearer distinction between joint purchasing and buyers’ cartels, that greater focus should be put on negative effects on consumers and competitors, and that the 15%-market share thresholds should be increased. The coming weeks and months will show the extent to which changes to the joint purchasing chapter in the Horizontal Guidelines can indeed be expected.

3. Retail heat

To some extent sparked by the revision of the Horizontal Guidelines, representatives of both sides of the retail industry, i.e. suppliers and retailers, currently clash on how joint purchasing should be assessed going forward and whether regulators need to step in to prevent certain practices.

Retail, in particular food retail, is one the industries where purchasing alliances play a highly important role. The European Brands Association AIM, representing manufacturers of branded consumer goods, spoke out in no uncertain terms against Epic, a purchasing alliance launched this summer by, inter alia, some of Germany’s, Poland’s, Portugal’s, Russia’s, Sweden’s and Switzerland’s largest retailers. AIM accused Epic of “extortionate fees charged to access markets” and called on the European Commission to launch an investigation. Just a few days later, the Swiss competition regulator confirmed it was putting a close eye on joint purchasing in the retail sector (note that Epic is based in Switzerland, same as other purchasing alliances).

One did not have to wait long for a response to AIM’s statement: EuroCommerce, representing retailers and other trading companies, asked the Commission to recognise “even more strongly the pro-competitive effects of alliances”, given retailers were “facing stronger, more concentrated suppliers”. EuroCommerce pointed to retailers facing practices like excessive pricing, abusive rebate schemes, territorial supply constraints and requiring retailers to stock products which sell less well to gain access to popular lines.

How to strike a balance?

An easy question to ask, but by far not an easy question to answer. Striking a balance between two so outspoken groups is a difficult task – and a highly political one. Regulators are likely not keen to be seen as taking a too tough stance on purchasing alliances and then being accused of being responsible for higher consumer prices. At the same time, regulators are sensitive to the risk of purchasing alliances having too much power, and thereby its members having too much leverage over smaller rivals.

Either way, companies from other industries than retail are well advised to not only follow developments, but make their position known to the European Commission, so that the issues and concerns from a broad range of industries find their way into the regulatory perspective. Even though that might not necessarily make the political balancing act much easier.

[Photo by Priscilla Du Preez on Unsplash]