Journal of Competition Law & Economics, 8(1), 4771

doi:10.1093/joclec/nhs001
Advance Access publication 6 February 2012

BUYING ALLIANCES AND INPUT PRICE FIXING:

IN SEARCH OF A EUROPEAN ENFORCEMENT
STANDARD
Ariel Ezrachi 
ABSTRACT
This article considers the welfare implications of input price fixing and the enforcement standard to be applied to these arrangements. It explores the way in
which European competition law approaches input price fixing, the scope of
the object-based approach and the instances in which effects-based analysis
may be used in the appraisal. In doing so, the article sets to clarify the legal approach to price fixing of a procured input. It outlines a possible benchmark for
the assessment of input price fixing, with the aim of sharpening the dividing
line between instances that restrict competition by object, and those that necessitate consideration of effects.

JEL: K21; L12; L13; L41

I. INTRODUCTION

Buying alliances provide independent undertakings with a mechanism to

join forces and present a collective front, thereby improving their bargaining position and enabling them to extract greater value in negotiations
with suppliers. While these arrangements can yield efficiencies through
economies of scale, they may, at times, distort competition and harm consumer welfare.
This article considers the effects generated by buying alliances in intermediate markets, and, in particular, the welfare implications of input price
fixing. It explores the way in which European competition law approaches
these arrangements and aims to identify a clear dividing line between the
object-based approachgenerally manifested in the European Courts judicatureand an effects-based approach used to assess some forms of input
price fixing.

Director, University of Oxford Centre for Competition Law and Policy; Slaughter and May
Lecturer in Competition Law, University of Oxford; Fellow, Pembroke College, Oxford.
Email: ariel.ezrachi@law.ox.ac.uk. The author would like to thank Slaughter and May for
providing financial support for the research undertaken in relation to this article.

# The Author (2012). Published by Oxford University Press. All rights reserved.
For Permissions, please email: journals.permissions@oup.com

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Journal of Competition Law & Economics

While both object-based and effects-based approaches can lead to

similar outcomes through the use of Article 101(3) of the Treaty on the
Functioning of the European Union (TFEU), they provide inconsistent
signals as to the severity of input price fixing. This article explores this
inconsistency and the somewhat hazy benchmark for assessment,
advanced by the European Commission in its Horizontal Cooperation
Guidelines.1 Possible clarifications to this benchmark are considered, with
the aim of providing greater certainty as to the instances in which such
activity should be deemed to have an anticompetitive object. The article
concludes with a review of the main parameters for assessment of input
price fixing under Article 101(3) TFEU and as part of an effects-based
analysis.

II. THE COMPETITIVE EFFECTS OF BUYING ALLIANCES

Buyer power enables a single buyer, or a group of buyers, to influence or

dictate the terms of trade with upstream suppliers. This power may stem
from strategic advantages enjoyed by the purchaser. Alternatively, it may
derive from the attainment of a dominant or collective dominant position in
the input market.
There are two main categories of buyer power: monopsony power and bargaining power. Each generates different welfare effects upstream on sellers
and downstream on consumers.2 These effects, and their relevance to the
appraisal of buying alliances, are assessed below.

A. Monopsony Model
Pure monopsony generally refers to a single purchaser of an input good that
faces perfectly competitive sellers. A monopsonist can artificially withhold
demand and procure inputs (goods, services, or employment) at a price
below competitive levels.
The pure monopsony model serves as the standard instrument to
examine buyer power. It is important to highlight the main assumptions
at the heart of the model. It assumes that: (1) the buyer faces a competitive upstream market; (2) each additional unit purchased by the
monopsonist will increase the unit cost (represented by an upward-sloping

Guidelines on the Applicability of Article 101 Treaty on the Functioning of the European
Union to Horizontal Co-operation Agreements, 2011 O.J. (C 11) 1 72 (EC) [hereinafter
HORIZONTAL COOPERATION GUIDELINES].
Org. for Econ. Cooperation & Development (OECD), Policy Roundtable, Monopsony and
Buyer Power, at 38 (DAF/COMP, 2008) [hereinafter OECD 2008]; OECD, BUYING POWER:
THE EXERCISE OF MARKET POWER BY DOMINANT BUYERS (OECD 1981).

Buying Alliances and Input Price Fixing

49

supply curve); and (3) the increased price applies to all of the procured
units.
According to the monopsony model, the lower prices extracted from
suppliers do not entail lower costs and subsequent benefits to consumers.3
The distortion that stems from monopsony power is assumed to lead to
higher production costs and possible wasteful expenditure.4 As a result,
the monopsonist will not pass on the lower input cost, since it is marginal
cost that determines its level of output, and its marginal cost will be
higher than the marginal cost of a firm with no monopsony power.5 The
resulting allocative inefficiencies lead to welfare loss. When the market for
the output is competitive, the presence of a monopsony is not likely to
affect the price, since the monopsony is a price taker. However, when
the monopsony enjoys market power downstream, the reduced output
would lead to an increase in the output price, to the detriment of
consumers.6
Collusive monopsony, or oligopsony,7 can trigger similar welfare outcomes.8 Cooperation between buyers may enable them to decrease purchase levels below the competitive equilibrium quantity and achieve a
lower procurement price. This conduct may trigger similar distortions of
the market, leading to higher production costs, wasteful expenditure,
limited output, and possibly higher prices, all to the detriment of consumers. Accordingly, when the conditions necessary for collusion and

4
5

6
7

ROGER D. BLAIR & JEFFREY L. HARRISON, MONOPSONY IN LAW AND ECONOMICS 45

(Cambridge Univ. Press 2010); see generally Paul Dobson, Roger Clarke, Stephen Davies &
Michael Waterson, Buyer Power and Its Impact on Competition in the Food Retail Distribution
Sector of the European Union, 1 J. INDUS., COMPETITION & TRADE 247 (2000); Alan
Manning, The Real Thin Theory: Monopsony in Modern Labour Markets, 10 LABOUR ECON.
105 (2003); ROBERT S. PINDYCK & DANIEL L. RUBINFELD, MICROECONOMICS 345 (3d ed.,
Prentice Hall Intl 1997); ALAN MANNING, MONOPSONY IN MOTION (Princeton Univ. Press
2003).
JEAN TIROLE, THE THEORY OF INDUSTRIAL ORGANIZATION 65, 66-92 (MIT Press 1988).
Output levels will reduce below non-monopsony levels. BLAIR & HARRISON, supra note 3,
at 46; Jonathan M. Jacobson & Gary J. Dorman, Joint Purchasing, Monopsony and Antitrust,
36 ANTITRUST BULL. 1 (1991).
BLAIR & HARRISON, supra note 3, at 46; Jacobson & Dorman, supra note 5.
Oligopsony represents another form of distorted competition and a demand-side mirror
image of an oligopolistic market. Each purchaser is powerful enough to influence the market
but cannot act independently to the extent that it can ignore the reaction of other competitors
to its actions. Coordination between buyers would maximize collective buyer profit. On the
condition for successful coordination between oligopsonists, see James Murphy Dowd,
Oligopsony Power: Antitrust Injury and Collusive Buyer Practices in Input Markets, 76
B.U. L. REV. 1075 (1996); OECD 2008, supra note 2, at 31.
Absent price discrimination, monopsony and oligopsony will result in quantity distortion and
a loss of efficiencies. This result is aggravated when the monopsonist benefits from market
power downstream. See OECD 2008, supra note 2, at Background Note.

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Journal of Competition Law & Economics

attainment of joint market power are present,9 the welfare-reducing result

of collusive monopsony will be similar to that of a monopsony.10
In practice, the assumptions at the base of the monopsony model may
limit its relevance. While some markets may exhibit these characteristics,11
most modern markets do not. In the majority of markets, one expects to see
bilateral negotiation between the parties, which lead to a reduction in price for
any additional unit of input.12 Therefore, where joint purchasing does not
amount to collusive monopsony, efficiency and welfare loss cannot be
assumed. In such cases, buyer power and joint purchasing represent a more
complex reality in which the effects on competition vary, depending on
market conditions and the nature of the cooperation.13
B. Bargaining Theory
Bargaining theory explores the use of buyer power by focusing on bilateral
bargaining over the terms of supply in a market with few upstream and downstream players. In a bargaining model, lower prices are obtained by the threat
of shifting demand, rather than the actual withholding of demand.14 Price is
9

These include: explicit or implicit collusion, procurement of a large portion of the input,
policing mechanisms, no potential entry, or sales to third parties. See Dowd, supra note 7, at
1084-5; George Hay, Oligopoly, Shared Monopoly and Antitrust Law, 67 CORNELL L. REV. 439
(1982).
10
V. Bhaskar, Alan Manning & Ted To, Oligopsony and Monopsonistic Competition in Labor
Markets, 16 J. ECON. PERSP. 155-74 (2002); Roger G. Noll, Buyer Power and Economic Policy,
72 ANTITRUST L.J. 589 (2005).
11
See, e.g., COMPETITION COMMN, CLIFFORD KENT HOLDINGS LTD. AND DEANS FOOD
GROUP LTD.: A REPORT ON THE COMPLETED MERGER OF CLIFFORD KENT HOLDINGS
LTD., PARENT CO. OF STONEGATE FARMERS LTD., AND DEANS FOOD GROUP LTD., 20 Apr.
2007 (U.K.). Among other things, the CC considered the concerns of some producers that
the transaction would limit their distribution options and allow the merged entity to reduce
input prices.
We are concerned about the monopsony buying power of the merged company and
consider that its strong buying power would give it the ability as well as the incentive to
buy from producers on less favourable terms in a number of ways: to cut back prices to
producers; to fail to pass on any increases in price it may receive from retailers; or to
bundle its purchases with sales of inputs such as animal feed, pullets or spent hen
facilities; and to offer less favourable contracts to producers in non-price terms, such as
payment terms. Lower prices to producers of eggs could benefit consumers if passed on
to them but we believe it would ultimately result in the reduction in the quantity of eggs
produced and so would raise prices to retailers and final consumers. Hence, in our view
the merger may be expected to result in an SLC in the procurement of shell eggs from
producers.
12

13
14

Id. at 7 } 21. See also id. at 52 } 6.96.

See Adrian Majumdar, Leslie Neubecker, Ugur Akgun & Markus Baldauf, The Competitive
Effects of Buyer Groups (Office of Fair Trading, Econ. Discussion Paper OFT 863, 2007).
On buyer power, see OECD 2008, supra note 2, at Background Note.
The overall goal of the negotiation is to lower the input price and increase the quantities
purchased.

Buying Alliances and Input Price Fixing

51

negotiated bilaterally and applies to the parties to the agreement rather than
to the whole market. Welfare loss cannot be assumed in such circumstances,
because the main effect of the buying alliance would be a redistribution of
wealth between suppliers and distributors.15 Buying alliances benefiting from
bargaining powers may generate a mixture of welfare effects. Some are procompetitive, while others are harmful to competition.
1. Efficiency Gains
Joint purchasing may yield efficiencies and enhance welfare. This may
arise primarily from aggregating purchases by small undertakings and
achieving economies of scale, which position the group on an equal
footing with larger traders.16 Similarly, efficiencies could arise from
reduced transaction costs, longer production runs, better supply terms,
joint warehousing, quality control, promotion, distribution, information
exchange, and standardization. Lower input costs would benefit the
members of the alliance and may allow them to increase investment in
production, innovation, and growth. In addition, buyer power may intensify competition on price and quality among input providers and encourage efficiencies upstream.
Where the efficiencies result in lower marginal costs for the joint purchasers, one would expect some of the benefits to be passed on to consumers.17
Similarly, when the buying alliance results in increased demand or investment, and subsequently increased output and quality, some form of
passing-on is likely to take place.18 However, passing-on may be curtailed
when the alliance benefits from seller power downstream.19
2. Welfare Loss
Joint purchasing may result in welfare loss when it significantly increases
buyer power, facilitates horizontal collusion, or leads to foreclosure.
a. Horizontal Collusion Downstream
Where the purchase through the alliance forms a significant part of the
competitors product requirements, rivalry and price competition in the
downstream selling market may be considerably reduced.20 The increased
15

16
17

18
19

20

Ariel Rubinstein, Perfect Equilibrium in a Bargaining Model, 50 ECONOMETRICA 97 (1982);

Roman Inderst & Christian Way, Die Wettbewerbsanalyse von Nachfragemacht aus
verhandlungstheoretischer Sicht, Korrigierte Fassung, 25 RESEARCH NOTES 1 (2007), available
at http://www.diw.de/documents/publikationen/73/diw_01.c.72132.de/rn25.pdf.
EUR. COMMN, FIRST REPORT ON COMPETITION POLICY } 40 (1972).
Contrast this result with the monopsony model: when marginal costs are high in comparison
to a non-monopsony scenario, passing-on will not occur.
Majumdar, Neubecker, Akgun & Baldauf, supra note 12, at 6-8.
Paul Dobson, Michael Waterson & Alex Chu, The Welfare Consequences of the Exercise of Buyer
Power (Office of Fair Trading, Research Paper No. 16, Sept. 1998).
HORIZONTAL COOPERATION GUIDELINES, supra note 1, at } 201.

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Journal of Competition Law & Economics

transparency, which arises from the joint purchasing activity and exchange
of information between buyers, may further undermine competition downstream and establish an output price above competitive levels.21 This may be
the result of tacit22 or explicit collusion.23

b. Effect on Competitors
A buying alliances favorable bargaining position, combined with lower
input prices, may increase input costs for other buyers (that are not
members of the alliance) and result in waterbed effects.24 This may be the
result of the smaller order volume procured by non-members, and the fact
that upstream sellers may need to balance their books and offset losses
resulting from the discounted rate obtained by the buying alliance.25
However, even when the conditions for waterbed effects are present, there is
a possibility that prices for final consumers may decrease.26
In addition, the improved bargaining position of the buying alliance may
cause spiral effects, enhancing the alliances position as a result of nonmembers being pushed out of the market.27 The increased market concentration may lead to a price increase once the remaining companies are no
longer forced to pass on their procurement advantage.28 In the long run, it
is possible that input price fixing will lead to a reduction in output, and
21

22

23
24

25

26
27

28

On information exchange, see in particular Thyssen Stahl AG v. Commn, Case T-141/94,

1999 E.C.R. II-347, CFI judgment upheld on appeal in Case C-194/99 P, which established
that, when an exchange contains price information, it is deemed to have as its object the
restriction of competition. See also Fiatagri U.K. Ltd. & New Holland Ford Ltd. v. Commn,
Case T-34/92, 1994 E.C.R. II-905 (Ct. First Instance); John Deere Ltd. v. Commn, Case
T-35/92, 1994 E.C.R. II-957 (Ct. First Instance); T-Mobile Netherlands BV and Others
v. Raad van bestuur van de Nederlandse Mededingingsautoriteit, Case C-8/08, [2009] 5
C.M.L.R. 11 (E.C.J.).
Airtours PLC v. Commn, Case T-342/99, 2002 E.C.R. II-2585 (Ct. First Instance), [2002]
5 C.M.L.R. 7; IMPALA v. Commn, Case T-464/04, 2006 E.C.R. II-2289 (Ct. First
Instance), [2006] 5 C.M.L.R. 19.
The effects of such practice depend on the combined market share and power of the alliance.
The lower price negotiated by the buyer group and the supplier results in a higher price to
non-members. For a detailed analysis of these points, see OECD 2008, supra note 2;
Majumdar, Neubecker, Akgun & Baldauf, supra note 12, at 17-18; BundesKartellamt, Buyer
Power in Competition Law: Status and Perspectives, submitted to the OECD for the
Meeting of the Working Group on Competition Law (Sept. 18, 2008), available at http
://www.bundeskartellamt.de/wEnglisch/download/pdf/2008_ProfTagung_E.pdf.
For a detailed review of the model, its practical application, and its limited impact in the
U.K. grocery retail sector, see The Waterbed Effect in Supplier Pricing, in COMPETITION
COMMN, THE SUPPLY OF GROCERIES IN THE UK MARKET INVESTIGATION, app. 5.4 (Apr.
30, 2008). See also Majumdar, Neubecker, Akgun & Baldauf, supra note 12, at 17-18.
See OECD 2008, supra note 2, at 23-24.
Note that intervention in this case is problematic, as it requires forgoing welfare gains to
consumers who benefit from lower prices due to a speculative fear of future exit by
competitors from the market and increased concentration. See id. at Background Note.
BundesKartellamt, supra note 24, at 6.

Buying Alliances and Input Price Fixing

53

subsequently reduce total output downstream and increase unit prices, to

the detriment of consumers.
Similarly negative effects may result from the buying alliance foreclosing
competing purchasers by limiting their access to efficient suppliers or an essential input.29

c. Harmful Effects Upstream

A buying alliance may generate adverse effects on competition upstream.
Buyer power and direct or indirect pressure on prices may affect dynamic efficiency and undermine investment and innovation.30 More specifically, collusive input price fixing, which artificially skews the sellers price, is likely to
distort signalling on investment, capacity expansion, and possible entry at
the upstream level.
Such adverse effects are of main concern, since dynamic efficiency is
crucial in creating consumer welfare in the long term. In its Horizontal
Cooperation Guidelines, the European Commission reflects on these welfare
effects. It notes that where
parties have a significant degree of market power on the purchasing market (buying
power) there is a risk that they may force suppliers to reduce the range or quality of products they produce, which may bring about restrictive effects on competition such as
quality reductions, lessening of innovation efforts, or ultimately sub-optimal supply.31

Such adverse effects may emerge in particular when the cost of limited innovation and investment upstream is externalized onto other markets or
other competitors, thus not limiting the buying alliances incentive to increase its pressure on price. However, even absent externalities, short-term
planning and difficulties in quantifying long-term benefits are likely to
support increased pressure on prices. This may occur despite the negative
impact on dynamic efficiencies and the reallocation of resources that would
take place upstream.32
29

30

31

32

HORIZONTAL COOPERATION GUIDELINES, supra note 1, at } 203 (This is most likely if there
are a limited number of suppliers and there are barriers to entry on the supply side of the
upstream market.).
When competition upstream is high, suppliers margins will be limited. When faced with
concentrated downstream market and buyer power, both incentive and capacity to invest
upstream would be limited.
HORIZONTAL COOPERATION GUIDELINES, supra note 1, at } 202. On this point, see also AG
Opinion } 70, Joined Cases C-264/01, C-306/01, C-354/01 and C-355/01 AOK
Bundesverband and others v. Ichthyol-Gesellschaft Cordes and others, [2004] E.C.R.
I-2493; Warren S. Grimes, Buyer Power and Retail Gatekeeper Power: Protecting Competition
and the Automistic Seller, 72 ANTITRUST L.J. 563, 569 (2005).
On that point, note that the net benefit for the society as a whole reduces when sellers shift
investment and research and development to other markets. See J. Gregory Sidak, Patent
Holdup and Oligopsonistic Collusion in Standard-Setting Organizations, 5 J. COMPETITION L. &
ECON. 123, 142 (2009).

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Journal of Competition Law & Economics

While significant for the competitive process, dynamic efficiency is difficult to measure and appraise. This difficulty raises questions as to the extent
to which the welfare effects discussed above would materialize in practice
and the weight they should be given in analysis.
In addition, some have questioned the extent to which these harmful
effects exist upstream. For example, it has been argued that buyer power
could lead the supplier to focus more on reducing incremental supplier costs
and hence increase its incentive to innovate.33 Investment upstream may
stem from the suppliers desire to reduce the buyers marginal costs and subsequently the likelihood that the buyer will shift to an alternative supply
option.34 In addition, it has been argued that at times, despite decreasing
profits, the suppliers incentive to invest may increase when faced with a
large buyer, as it receives a larger fraction of the incremental profits generated by the investment.35 This may particularly be the case when competition upstream is limited, and the suppliers high margins provide the
capacity to invest in order to neutralize the increase in buyer power.36

III. LEGAL APPRAISAL: INPUT PRICE FIXING

As illustrated above, in a non-monopsony scenario, welfare loss cannot be

assumed. It is necessary to consider and balance the effects of a buying alliance. This undoubtedly makes the question of enforcement a difficult one,
as it is not always clear when competition law should intervene and limit
joint bargaining power. Does the transfer of wealth from the captive suppliers to buyers justify intervention? Should wealth transfer only be condemned
when it does not benefit consumers, or when it harms them? And, more specifically, how should competition law approach the fixing of input purchase
prices by members of a buying alliance?
When considering the appropriate enforcement approach for buying alliances, it is possible to envisage a spectrum of scenarios. At one end are
arrangements that involve the aggregation of purchasing orders to obtain a
33

34

35

36

Roman Inderst & Christian Wey, Buyer Power and Supplier Incentives (Center for Econ. &
Policy Res., Discussion Paper No. 3547, 2002), available at http://www.cepr.org/pubs/dps/
DP3547.asp.
Roman Inderst & Christian Wey, How Strong Buyers Spur Upstream Innovation (Center for
Econ. & Policy Res., Discussion Paper No. 5365, 2005), available at http://www.cepr.org/
pubs/dps/DP5365.asp.
Id. See also Majumdar, Neubecker, Akgun & Baldauf, supra note 12, at 21 (questioning the
validity of upstream theories of harm when argued independently of other theories of harm).
See generally Werner Bonte & Lars Wiethausy, Why Powerful Buyers Finance Suppliers R&D
(Schumpeter School of Bus. & Econ., Univ. of Wuppertal, Schumpeter Discussion Papers
No. 2008-004, 2008), available at http://elpub.bib.uni-wuppertal.de/servlets/DerivateServlet/
Derivate-1514/sdp08004.pdf; H. Smith & J. Thanassoulis, Upstream Competition and
Downstream Buyer Power (Center for Econ. & Policy Res., Discussion Paper No. 5803, 2006).
OCED 2008, supra note 2.

Buying Alliances and Input Price Fixing

55

given benefit and do not result in market power or active price making.
These arrangements, as indicated above, are likely to be procompetitive. At
the opposite end would be arrangements that create significant market
power, involve collusion, and distort competition both upstream and downstream. These, by their nature, would be treated as anticompetitive.
Two dividing lines cut through this spectrum. The first separates beneficial alliances from those that result in harmful effects and welfare losses.
The second separates harmful arrangements, which should be treated as
having the object of restricting competition, from those that should be
assessed in light of the effects they generate.
The question of where agreements between buyers to fix the input price
should be positioned on this spectrum is a challenging one. European competition law fails to offer a clear answer to this question.
A. Object of Restricting Competition
In general terms, the distinction between object and effect violations
arises from the fact that certain forms of collusion can be regarded, by their
very nature, as being injurious to the proper functioning of normal competition.37 Article 101(1) TFEU refers to the direct or indirect fixing of purchase or selling prices. The explicit reference to fixing purchase prices has
served as the backbone to the assertion that such conduct should be treated
as having the object of restricting competition.
On several occasions, the European Commission and Courts have commented on the illegality of purchase price fixing. For example, in Raw
Tobacco Spain,38 the Commission condemned a cartel of tobacco processors
that aimed, among other things, to reduce the price paid to producers for
the input. Similarly, in Raw Tobacco Italy, the Commission noted that
purchase price is a fundamental aspect of the competitive conduct of any undertaking
operating in a processing business and is also, by definition, capable of affecting the behaviour of the same companies in any other market in which they compete, including
downstream markets. This is particularly so . . . where the product affected by the buying
cartel (raw tobacco) constitutes a substantial input of the activities carried out by participants downstream.39

The European Court of Justice considered the treatment of input price

fixing in BNIC v. Clair. 40 The case concerned the fixing of a minimum purchase price for potable spirits.41 The Court held that, for the purpose of
Article 101 TFEU, it is unnecessary to take account of the actual effects of
37

38
39
40
41

Judgment, Competition Authority v. Beef Industry Development Society Ltd., Case C-209/
07, 2008 E.C.R. I-08637, } 17 (Nov. 20, 2008).
Case COMP/C.38.238/B.2 Raw Tobacco Spain, 2007 O.J. (L 102) 14.
Case COMP/C.38.281/B.2 Raw Tobacco Italy, 2006 O.J. (L 353) 0045, at } 280.
Bureau Natl Interprofessionnel du Cognac v. Guy Clair, Case 123/83, 1985 E.C.R. 391.
Id. } 12.

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Journal of Competition Law & Economics

an agreement where its object is to restrict, prevent or distort competition.

By its very nature, an agreement fixing a minimum price for a product . . . is
intended to distort competition on that market.42
A clear opinion as to the treatment of purchase price fixing was voiced by
Advocate General (AG) Jacobs in AOK Bundesverband v. Ichthyol-Gesellschaft
Cordes. 43 There, the AG noted that
an agreement or decision on the part of buyers to fix the purchase price on a given
market must be understood to have as its object to restrict competition, without the
need, at that stage of the analysis, for any investigation of its competitive effects.
Purchasing cartels are expressly identified in [Article 101(1)(a) TFEU] as falling within
the mischief of [Article 101]. The special attention which they receive can be understood
in the light of their potential to suppress the price of purchased products to below the
competitive level, with negative consequences for the supply side of the relevant market.
In my view, therefore, they should be subject to the same strict control applied by
[Union] competition law to supply cartels.44

In T-mobile,45 the Court considered an exchange of confidential information

between mobile operators and their agreement to reduce dealer remunerations for post paid mobile subscriptions. In essence, the agreement in question concerned the fixing of input prices for services supplied by dealers. The
judgment focused, predominantly, on the exchange of information between
competitors rather than on the presence of buyer power. Still, it provides valuable insight into the scope of the object category. The Court held, in line with
AG Kokotts opinion, that, in order to establish anticompetitive object, it is
sufficient that the conduct in question has the potential to have a negative
impact on competition.46 A finding of an anticompetitive object depends on
an assessment of the capacity in an individual case for that concerted practice
to produce an anticompetitive impact.47 The Court added that
[a] concerted practice may be regarded as having an anti-competitive object even though
there is no direct connection between that practice and consumer prices . . . it is apparent from
[Article 101(1)(a) TFEU] that concerted practices may have an anti-competitive object if
they directly or indirectly fix purchase or selling prices or any other trading conditions.48
42
43

44

45
46
47
48

Id. } 22.
AOK Bundesverband and others v. Ichthyol-Gesellschaft Cordes and others, Joined Cases
C-264/01, C-306/01, C-354/01 & C-355/01, 2004 E.C.R. I-2493.
AG Opinion, } 70, 2004 E.C.R. I-2493. In its judgement, the Court did not address the
fixing of input prices as such, since it concluded that the sickness funds in question
performed an obligation within the framework of the German statutory health insurance
scheme. Subsequently, the funds were held not to constitute undertakings within the
meaning of Article 101 TFEU. E.C.J. Judgement, }} 45-66, 2004 E.C.R. I-2493 (Mar. 16,
2004).
T-Mobile Netherlands and others, Case C-8/08, [2009] 5 C.M.L.R. 11 (E.C.J.).
Id. } 31.
AG Opinion, } 49, [2009] 5 C.M.L.R. 11.
T-Mobile, Case C-8/08 at }} 36, 37; see also Federation Nationale de la Cooperation Betail
and Viande (FNCBV) v. Commn, Joined Cases T-217/03 & T-245/03, 2006 E.C.R.
II-04987 } 83 (Dec. 13, 2006).

Buying Alliances and Input Price Fixing

57

It is important to note that often, in the cases cited above, the fixing of purchase prices formed part of wider infringements, including output limitations,49 the exchange of information,50 or other violations.51 As a result, the
treatment of input price fixing as having the object of restricting competition
may have been influenced by the totality of the infringement. Nevertheless,
as illustrated above, the direct reference to input price fixing as an activity to
be objectively condemned is unequivocal.
The view of input price fixing as objectively anticompetitive arguably
receives support from the European Courts recent widening of the approach
toward object. To illustrate, note for example an opinion by AG Trstenjak,
who noted the open-ended nature of the object category.52 The AG stated
that
it is clear that the category of restrictions of competition by object cannot be reduced to
agreements which obviously restrict competition. If not only the content of an agreement
but also its legal and economic context must be taken into account, classification as a restriction of competition by object cannot depend on whether that object is clear at first
sight or becomes evident only on closer examination of the circumstances and the intentions of the parties. In my view, the notion of restriction of competition by object cannot
be reduced to an exhaustive list either.53

Another illustrative case is GlaxoSmithKline Services Unlimited v.

Commission.54 The ECJ held that Article 101 TFEU aims to protect not
only the interests of competitors or of consumers, but also the structure of
the market and, in so doing, competition as such.55 Consequently, the
Court held that, in order to find that an agreement has an anticompetitive
object, it is not necessary that consumers be deprived of the advantages of
effective competition in terms of supply or price.

49

50

51

52
53

54

55

COMP/38.238, Raw Tobacco Spain (appeal dismissed by the General Court in Judgment,
Cetarsa v. Commn, Case T-33/05, 2011 O.J. (C 89) 14); Zinc Producer Group, 1984 O.J.
(L 220) 27, } 72 (on production curtailments); Decision 85/206, Aluminium Imports from
Eastern Europe, 1985 O.J. (L 92) 1 (concerning restrictions on sales to non-member
purchasers).
T-Mobile, Case C-8/08; Case COMP/C.38.281/B.2 Raw tobacco Italy, 2006 O.J. (L 353)
0045. The parties engaged in several anticompetitive activities; fixed the purchase prices for
tobacco, agreed to common trading terms, exchanged information, and allocated quantities.
For example, the French Beef case, which concerned the fixing of purchase prices as well as
restrictions on imports. See Joined Cases C-101/07 P & C-110/07 P, Coop de France Betail
and Viande (FNCBV) and others v. Commn (appealed in Joined Cases T-217/03 & T-245/
03, 2006 E.C.R. II-4987); Case COMP/C.38.279/F3 French beef, 2003 O.J. (L 209) 12.
Beef Indus., Case C-209/07, 2008 E.C.R. I-08637.
Id. }} 46-49. In its judgment, the ECJ held that an agreement may be regarded as having a
restrictive object even if it does not have the restriction of competition as its sole aim but also
pursues other legitimate objectives. Id. } 21.
GlaxoSmithKline Services Unlimited v. Commn, Case C-501/06, [2010] 4 C.M.L.R. 2
(E.C.J.).
Id. } 63.

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Journal of Competition Law & Economics

In the context of input price fixing, the GlaxoSmithKline judgment supports a shift in focus from the downstream market to the upstream one, and
a closer look at the effects on suppliers and other competitors. According to
this approach, for input price fixing to be found anticompetitive by object,
there is no need to consider harm to final consumers. It is therefore irrelevant if the savings obtained through input price fixing is passed on to consumers, as the act of price fixing and the distortion of competition upstream
are sufficient to justify a finding of violation by object.56
These judgments provide an analytical basis according to which the presence of purchase price fixing is deemed to have the object of restricting competition. Such an approach supports passive buying groups, which are
price-takers, but would condemn price-makers.57 Arguably, the assumptions
at the heart of the object approach is that social costs of collusive price
fixing outweigh any benefits and that efficiencies derived from a buying alliance can be attained without fixing the input price.
On this point, it is worth noting that the object approach is independent
of the presence of buyer power. In other words, collusive input price fixing
is condemned under Article 101 TFEU, regardless of the joint entity occupying a significant market position. Accordingly, the presence of collusive
monopsony or bargaining power is not requisite to trigger the finding of
anticompetitive object. It is the act of input price fixing that triggers the
object assumption regardless of the effect on the market. As a result, an
object approach under Article 101 TFEU subjects the buying alliance to a
stricter regime than would have applied under Article 102 TFEU, to the
extent that it would capture activities that give rise to collusion, even absent
buyer power.58
Crucially, however, although the object approach captures instances
outside the monopsony model, it does not imply over-enforcement. First,
recall that it is triggered by the collusionthe price fixingrather than the
effect. Second, as a matter of principle, any agreement having the object of
restricting competition may be exempted under Article 101(3) TFEU.59
Accordingly, the treatment of input price fixing as anticompetitive by object
does not determine the outcome of the analysis, but rather its starting point.
Having been condemned as having the object of restricting competition,
56

57

58

59

For a review of the similar U.S. approach and the statement that injury to consumers is not
necessary for a finding of per se illegality, see Sidak, supra note 32, at 144-45 (citing
HERBERT HOVENKAMP, ANTITRUST LAW } 201 1b1, at 128 29 (2d ed. 2005)).
Price taking represents an amalgamation of orders that lead to discounts, benefits, and
improved trade conditions. As such, it differs from price making, which involves direct, or
indirect, input price fixing or demand withholding. Alliances that are price-makers, on the
other hand, are able to take an active role in determining the input price and affecting
competition upstream.
In American Needle v. Natl Football League, the U.S. Supreme Court commented on the
relationship between collusion and market power. 130 S. Ct. 2201, 2208-09 (2010).
Matra Hachette SA v. Commn, Case T-17/93, 1994 E.C.R. II-595.

Buying Alliances and Input Price Fixing

59

parties may argue for an exemption for their agreements under Article
101(3) TFEU.
The onus will be on the parties to the alliance to satisfy the conditions of
Article 101(3) TFEU and establish: (1) the presence of efficiency gains; (2)
that the restrictions and input price fixing are indispensible to attain these
efficiencies; (3) that the efficiency gains are passed to consumers; and (4)
that competition with respect to a substantial part of the products in question is not eliminated.
An alternative route, which may be used to narrow the object approach
and legitimize input price fixing, may be found in the application of the
Ancillary Restraint Doctrine.60 The assessment of ancillary restraints is
limited to determining whether, in the specific context of the main nonrestrictive activity, a particular restriction is necessary for the implementation of that activity and proportionate to it.61 For example, in
Gttrup-Klim,62 the Court considered a provision in the statutes of a cooperative purchasing association, forbidding its members to participate in
other forms of organized cooperation in direct competition with it. It held
that such a restriction is not caught by Article 101 TFEU when it is limited
to what is necessary to ensure that the cooperative functions properly and
maintains its contractual power in relation to producers.63

B. Effect of Restricting Competition

An effects-based approach to input price fixing differentiates between the
price fixing of output supply and the price fixing of a procured input. The
latter may be subjected to varying approaches depending on the circumstances in which the input price fixing took place. While at times it may be
treated as anticompetitive by object, it may at times be subjected to effectsbased analysis.
The use of an effects-based approach to appraise input price fixing is
challenging, not in the least as the asymmetry in treatment of input and
output price fixing is not supported by the wording of Article 101 TFEU.64
60

61

62

63
64

Remia BV & Nv Verenigde Bedrijven Nutricia v. Commn, Case 42/84, 1985 E.C.R. 2545,
[1987] 1 C.M.L.R. 1; Metropole Television (M6) and others v. Commn, Case T-112/99,
2001 E.C.R. II-2459, (Ct. of First Instance), [2001] 5 C.M.L.R. 33.
Commn Guidelines on the Application of Article 101(3) TFEU (formerly Article 81(3)
TEC), 2004 O.J. (C 101) 94, }} 30-31 (EC).
Gttrup-Klim v. Dansk Landbrugs Grovvareselskab AmbA, Case C-250/92, 1994 E.C.R.
I-5641, [1996] 4 C.M.L.R. 191, } 45; AG Opinion, 1994 E.C.R. I-5641 at }} 23-25 (June
16, 1994) (referencing the market position of the alliance and the effects that it may have on
third parties).
1994 E.C.R. I-5641 at } 2.
Another example of such asymmetry may be found in the Notice on Agreements of Minor
Importance, in which the Commission black-lists the fixing of selling prices, but not of input
prices. Commission Notice on Agreements of Minor Importance Which Do Not

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Journal of Competition Law & Economics

The presence of a dual object/effects approach requires one to clearly define

those instances in which an effects-based approach would be favored.
In the Horizontal Cooperation Guidelines, the Commission outlines its
approach to joint purchasing arrangements and the dividing line between
object and effects analysis. It states that [ j]oint purchasing arrangements
restrict competition by object if they do not truly concern joint purchasing,
but serve as a tool to engage in a disguised cartel, that is to say, otherwise
prohibited price fixing, output limitation or market allocation.65 The
Commission adds that, while the fixing of purchase prices can have the
object of restricting competition,
this does not apply where the parties to a joint purchasing arrangement agree on the purchasing prices [that] the joint purchasing arrangement may pay to its suppliers for the
products subject to the supply contract. In that case an assessment is required as to
whether the agreement is likely to give rise to restrictive effects on competition within the
meaning of Article 101(1). In both scenarios the agreement on purchase prices will not
be assessed separately, but in the light of the overall effects of the purchasing agreement
on the market.66

This statement from the Commission is somewhat hazy. It confirms

the object approach as manifested in the case law as well as a possible
effects approach, without a clear statement as to the dividing line between
the two.
Case law provides an indication of instances in which an effects-based approach has been deemed appropriate. Such has generally been the case in
transparent buying consortiums. For example, in National Sulphuric Acid
Association,67 it was used to appraise rules of a buying pool that deprived
members of the choice to independently negotiate terms of supply and
rebates. To the extent that they were tied to the pool, members were also
prevented from purchasing inputs when prices became lower than those
paid by the pool. Similarly, in Cooperatieve Stremsel-en Kleurselfabriek
v. Commission,68 the effects of an exclusive purchasing obligation imposed
by a cooperative were considered. These cases generally reflect the view that
transparent buying alliances, whose activities result in input price fixing,
cannot be assumed to have the object of restricting competition. In such
instances, consumer harm is used as the threshold for intervention, rather
than the mere existence of input price fixing.

65
66
67

68

Appreciably Restrict Competition Under Article 101(1) of the TFEU (de minimis), 2001 O.J.
(C 368) 13.
Id. } 205.
Id. } 206.
80/917/EEC, Commn Decision of 9 July 1980 (IV/27.958 Natl Sulphuric Acid Assn)
1980 O.J. (L 260) } 31.
Cooperatieve Stremsel en Kleurselfabriek v. Commn, Case 61/80, 1984 E.C.R. 0851, } 22.

Buying Alliances and Input Price Fixing

61

The effects-based approach has been advocated by the U.K. Office of

Fair Trading (OFT) and Competition Commission (CC).69 In their joint
submission to the Organization for Economic Cooperation and
Development (OECD), the agencies noted that [o]verall, buyer power is
typically either neutral or benign for consumer (and total) welfare . . . and
harmful only in rare cases.70 They added that the direct effects of the exercise of buyer power fall upon upstream firms. However, both the OFT and
the CC take their decisions with regard to detrimental effects on consumers.71 Similarly, in a short-form opinion released in 2010, the OFT referred to the EU Horizontal Guidelines when assessing a joint purchase
agreement that included provisions for joint negotiation of discounts and
overall promotional contributions. The OFT noted that, in the absence of
parallel networks of similar agreements in the relevant market, and where
the parties have no downstream market power, such agreements are unlikely
to cause harm and that the price benefits attained by the alliance will generally be passed on to consumers.72 The OFT added that cost commonality
will give rise to concern when it leads to coordination between alliance
members that would significantly reduce competition downstream.73
The focus on market power as the trigger for intervention enables the creation of a safe havena market-share threshold under which lack of competitive harm is presumed. In its Horizontal Guidelines, the Commission
notes that there is no absolute threshold above which it can be presumed
that parties to a joint purchasing arrangement have market power that is
likely to give rise to restrictive effects on competition. However, in most
cases, it is unlikely that market power exists if the combined market share of
the parties does not exceed 15 percent of the purchasing market as well as
15 percent of the selling market.74 A market share above that threshold in
one or both markets does not necessarily indicate restrictive effects on competition; the appraisal of such effects requires a detailed market
69

70
71

72

73
74

See OECD 2008, supra note 2. The OFT notes that most theories of harm resulting from
buyer power require there to be supplier market power downstream, as well as buyer power
upstream. Id. at 229. This is in line with Majumdar, Neubecker, Akgun & Baldauf, supra
note 12.
OECD 2008, supra note 2, at 232.
Id. at 229. See also the following (referred to in id. at 229, n.1): John Fingleton, Using
Competition and Consumer Interventions to Make Markets Work Well for Consumers, Speech
delivered Sept. 2008; Competition Commn, Market Investigation into the Supply of Groceries
in the UK, at 156 (June 30, 2008) (We would expect to be able to identify current harm to
consumers or have an expectation that harm to consumers would result in the future, in
order to take remedial action.).
P&H/MAKRO Joint Purchasing Agreement (Short-form Opinion 27 April 2010), available
at http://www.oft.gov.uk/shared_oft/SFOs/SFO_on_Joint_Purchasing.pdf [hereinafter 2010
OFT Short-form P&H/MAKRO Opinion].
Id.
HORIZONTAL COOPERATION GUIDELINES, supra note 1, } 208. The Commission adds that in
those cases, the conditions of Article 101(3) TFEU are likely to be fulfilled.

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Journal of Competition Law & Economics

assessment.75 The U.K. regime mirrors the EU threshold contained in the

Horizontal Guidelines.76 Interestingly, in its report for the OFT on the competitive effects of buying alliances, RBB Economics suggested that there is
scope to increase the combined market share in the downstream market to
25 percent, and also considered an increase in the upstream market.77 An
even higher threshold may be found in the United States, where the Federal
Trade Commission and the Department of Justice stated, in the context of
healthcare services, that as a matter of prosecutorial discretion, they will
generally not intervene when purchases account for less than 35 percent of
the total sales of the purchased input in the relevant market and the cost of
the products and services purchased jointly accounts for less than 20
percent of the total revenues from all products or services sold by each competing participant in the joint purchasing arrangement.78

C. Object vis-a`-vis Effects

The object and effects doctrines respectively represent two opposite assumptions as to the effects generated by input price fixing.79 The latter more
readily assumes efficiencies flowing out of the buying alliance that outweigh
the expected social costs of collusive input price fixing. The former treats
the mere act of input price fixing as sufficiently harmful for establishing an
assumption of illegality.
These different assumptions also represent a diverging view on the role
and scope of competition law. The finding of an anticompetitive object regardless of downstream effects treats price fixing as anticompetitive irrespective of its effect on consumers. As such, it sets out to protect the
structure of the market and prevent the distortion of competition.80 On the
other hand, the assumption of efficiencies and the review of input price
fixing from an effects-based perspective focus on the detrimental effects to
75
76
77

78

79

80

Id. } 209.
See 2010 OFT Short-form P&H/MAKRO Opinion, supra note 72.
Majumdar, Neubecker, Akgun & Baldauf, supra note 12, at 27. This threshold is arguably
more consistent with merger analysis (Recital 32, E.C.M.R.). Since buying alliance can be
no worse to competition law than a merger, Majumdar, Neubecker, Akgun, and Baldauf
propose the 25% threshold as benchmark. Id.
U.S. Dept. of Justice & Fed. Trade Commn, Statements of Antitrust Enforcement Policy in
Health Care (Aug. 1996) (cited in Mark J. Botti, Observations on and from the Antitrust
Divisions Buyer-Side Cases: How Can Lower Prices Violate the Antitrust Laws?, at 1 n.3
( presented in Am. Bar Assn Antitrust Law Spring Meeting on Monopsony in Health Care,
Apr. 19, 2007)).
The inconsistency is not unique to the European Union. In the United States, for example,
one may find diverging judgements on this point. For a review of cases, see Jonathan
M. Jacobson & Gary J. Dorman, Joint Purchasing, Monopsony and Antitrust, 36 ANTITRUST
BULL. 1 (1991); Peter C. Carstensen Buyer Cartels versus Buying Groups: Legal Distinctions,
Competitive Retailers, and Antitrust Policy, 1 WM & MARY BUS. L. REV. 1, 27 (2010).
GlaxoSmithKline Services Unlimited, Case C-501/06 at } 63.

Buying Alliances and Input Price Fixing

63

consumers. Accordingly, a transfer of wealth from producers to buyers will

trigger enforcement only when it harms consumers, directly or indirectly.81
As illustrated above, the tension between the object and the effects approach
is manifested in the EU Horizontal Guidelines, which advance both lines of
analysis yet do not provide clear guidance on the scope of the analysis under
each method. It would be beneficial to have more clarity in this respect.
It is helpful to approach this issue by first separating between upstream
and downstream markets. It goes without say that output price fixing is
treated as having the object of restricting competition. The harsh and unequivocal line against price fixing among sellers has been manifested in the
Commissions communications and in case law.82 Subsequently, when
undertakings engage in collusion both upstream and downstream, the activity is likely to have the object of restricting competition. Yet, the object approach, in such mixed cases, is triggered at the outset by the sale price
fixing. Therefore, these instances of mixed upstream and downstream collusion provide limited indication as to the policy toward stand alone input
price fixing.
The crucial question concerns the enforcement standard applicable in
instances in which input price fixing does not result in downstream collusion.
The approach to this group of agreements is somewhat blurred. Supporters
of an object approach would condemn the mere act of price fixing and argue
that the case law and the wording of Article 101 TFEU suggest total condemnation as a starting point. Proponents of the effects-based approach
would significantly narrow the instances in which an anticompetitive object is
assumed, to the extent that some may support an overriding effects-based
analysis, save in cases where downstream collusion is present.
Arguably, a sensible enforcement approach that acknowledges the arguments on both sides should be based on a refined distinction between object
and effects. Such a benchmark could possibly distinguish between the creation of buyer power and its execution.

81

82

Generally, competition laws may protect total welfare or focus on consumer surplus. The
total-welfare approach relates to an aggregate economic welfare standard, taking into account
possible effects on consumers, producers, and competitors. Accordingly, a transaction or
activity would be permitted when the total welfare gain outweighs the total loss, regardless of
distributional considerations and effects on consumers. Under the consumer-surplus
approach, the welfare gain to consumers provides the focal point for assessment. The
consumer-surplus benchmark condemns conduct that reduces the welfare of consumers
irrespective of its impact on sellers and competitors. Steven C. Salop, Question: What is the
Real and Proper Antitrust Welfare Standard? Answer: The True Consumer Welfare Standard, 22
LOY. CONSUMER L. REV. 336 (2010); Douglas H. Ginsburg, Judge Bork, Consumer Welfare
and Antitrust Law, 31 HARV. L.J. & PUB. POLY 449 (2008); Robert H. Lande, Chicagos
False Foundation: Wealth Transfers (Not Just Efficiency) Should Guide Antitrust, 58 ANTITRUST
L.J. 631 (1989).
For a review of the case law, see ARIEL EZRACHI, EU COMPETITION LAW: AN ANALYTICAL
GUIDE TO THE LEADING CASES 110-22 (2d ed., Hart Publishing 2010).

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Journal of Competition Law & Economics

Accordingly, when undertakings engage in secretive input price fixing, as

a standalone activity, which is not part of wider transparent activities of a
buying alliance, it should be condemned as anticompetitive under the object
standard. This is done irrespective of downstream effects or the presence of
other limitations on members. The focus is on the illicit means by which the
buying power was achieved and the limited efficiencies it may yield. In other
words, the justification for the finding of object stems from the means used
to create the buyer power: the secrecy of the agreement and the possibility
that it may be used as a hub for further collusion. From an enforcement perspective, such clear a benchmark provides a valuable signal to the relevant
undertakings and is likely to trigger the use of the Leniency Notice in cases
of illicit input price fixing.83 As such, it will inject practical relevance to the
existing reference in the EU Leniency Notice to the fixing of purchase
prices.
On the other hand, when input price fixing forms a by-product of a wider,
open, and legitimate activity undertaken by the buying alliance, the efficiencies that stem from these activities may counterbalance the social costs associated with collusion. Such approach is consistent with the case law
discussed in Part III.B dealing with transparent buying alliances. In such
cases, the analytical approach should shift its focus from the creation of the
buyer power to its execution. In such cases, price making forms an ancillary
part of wider transparent activity. A more careful assessment of welfare benefits is required here. Downstream as well as upstream effects play a role in
the analysis and should be carefully assessed.
This refined benchmark uses the distinction between the illicit means of
creating the power and its execution. Evidently, such a distinction is not
problem-free.84 Nevertheless, it identifies the core of the object approach in
relation to buyer cartels, namely, the illicit creation of secretive price fixing
agreements. Outside this core, economics literature would justify an effectsbased approach.85
83

84

85

The notice makes direct reference to the fixing of purchase or selling price. Commission
Notice on Immunity from Fines and Reduction of Fines in Cartel Cases, 2006 O.J. (C 298)
(EC).
For instance: what extent of activities would one require to shift from object analysis to
effects? Would a restriction on independent negotiation by members of a public pool amount
to object or effect?
For an opposing view, which calls for a per se approach to input price fixing under European
competition law, see Ioannis Kokkoris, Purchase Price Fixing: A Per Se Infringement?, EUR.
COMPETITION L. REV. 115 (2007); BUTTERWORTHS COMPETITION LAW div. II, ch. 8, B.2, }
555 (Lexis Nexis 2010) (A joint purchasing arrangement under which the participants
agree not to purchase above certain maximum prices is liable to distort the structure of
demand in the market, to be prohibited by Article 101(1) and to be ineligible for exemption
under Article 101(3).. . .There is no objection under Article 101(1) to a limitation on the
authority of a joint purchasing organization to negotiate and purchase on behalf of its
members up to a specified price, provided that there is no wider horizontal restriction that
results in each of the participants refusing to purchase above that price even when sourcing

Buying Alliances and Input Price Fixing

65

It must be stressed that this distinction determines the starting point of

the assessment, not its conclusion. Arguably, while conceptually different, in
practice, an object approach that allows for adequate consideration of exemption is not necessarily that far from an effects-based approach. This has
been the experience, for example, in Germany, where buying alliances found
to restrict competition by object have often been exempted under Article
101(3) TFEU or section 2 of the German Competition Law (GWB).86 The
BundesKartellamt working assumption assumes a competitive restraint
(object) in these cases, yet subsequently considers possible exemption. In
the case of a purchasing cooperation with limited market power, this approach led to the finding of efficiency gains and subsequent clearance.87
Note that such an approach allows consideration of efficiency, while retaining the symmetry between input and output price fixing as embedded in
Article 101 TFEU.
Therefore, the object and effects approaches are not necessarily dichotomous; both allow the competition authority to balance efficiencies and
anticompetitive effects in a given case. They do, however, send a different
signal. The object approach questions the legality of price making and discourages it. On the other hand, the effects approach accepts price making as
a necessary part of attaining the benefits of the alliance and treats it as
neutral to competition prior to market analysis.

IV. PARAMETERS FOR ASSESSMENT

As indicated above, the assessment of an input price fixing agreement may

necessitate an evaluation of the actual conditions in which it functions. This
may be the case under Article 101(1) TFEU (effects-based approach) or
Article 101(3) TFEU (exemption following a finding of anticompetitive
object or effect). The following section considers the main parameters that
play a role in the consideration of the accumulation of power and its execution by a buying alliance.
The effects generated by the alliance should be appraised taking into
account a host of variants. These include the market structure, barriers to
entry, potential competition, market concentration, and supplier and buyer

86

87

requirements otherwise than through the joint arrangement. (citing EUR. COMMN, FIFTH
REPORT ON COMPETITION POLICY }} 36-37 (1975) (regarding Industrial Timber, Commn
Decision (70/118/ECSC) DSVG, 1970 O.J. (L 29) 30, [1970] C.M.L.R. 503)).
See Merkblatt des Bundeskartellamtes uber Kooperationsmoglichkeiten fur Kleinere und
Mittlere Unternehmen [Notice on Possible Cooperation for Small and Medium Businesses]
(Mar. 2007); BundesKartellamt, supra note 24, at 8 13.
Id. at 10; Merkblatt des Bundeskartellamtes uber Kooperationsmoglichkeiten fur Kleinere
und Mittlere Unternehmen [Notice on Possible Cooperation for Small and Medium
Businesses] (Mar. 2007).

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Journal of Competition Law & Economics

power. The starting point in any assessment concerns the definition of the
market. Importantly, there are two main markets that may be affected by
joint purchasing arrangements. First, there is the upstream input market for
competing uses of the sellers output.88 Second is the downstream output
market, in which members of the alliance act as sellers.89 After establishing
the boundaries of competition, one may assess the welfare consequences of
the input price fixing.

A. Buyer Power
Buyer power will exist where the buying alliance is able to influence the
terms of purchase and reduce price below competitive levels, for reasons
other than efficiency.90 When a buying alliance enjoys buyer power, it will
be able to materially affect the negotiated price, quantities, and the viability
of traders.91
In general, large market shares may indicate a position of dominance in
the input market and the presence of gatekeeper effects and foreclose
access to competing purchasers. It is important to note, however, that in a
vertical relationship, buyer power may arise even absent horizontal market
power. This may be the case where the group of buyers represents a significant portion of demand for a small or medium size seller, without which its
economic viability may be undermined.92 Subsequently, the alliance may
credibly threaten the supplier that it will limit purchases or shift demand to
another producer.93 To illustrate in the context of the retail market, it has
been suggested that switching between distribution channels is difficult,
costly, and generally impossible in the short term.94 In this context, a loss of
above 20 percent of turnover, due to the buyer switching demand, may have
detrimental effects on the supplier.95
88
89
90

91

92

93
94

95

BLAIR & HARRISON, supra note 3, at 63.

HORIZONTAL COOPERATION GUIDELINES, supra note 1, }} 197-99.
Grimes, supra note 31, at 565 (defining buyer power as the ability of a buyer to significantly
influence the terms of purchase for reasons other than efficiency). See also Roger G. Noll,
Buyer Power and Economic Policy, 72 ANTITRUST L.J. 589, 589 (2005) (defining buyer power
as the ability to force sellers to reduce price below the level that would emerge in a
competitive market).
Paul Dobson, Michael Waterson & Alex Chu, The Welfare Consequences of the Exercise of Buyer
Power (Office of Fair Trading 239, Research Paper No. 16, 1998).
PRIVATE LABELS, BRANDS AND COMPETITION POLICY: THE CHANGING LANDSCAPE OF
RETAIL COMPETITION (Ariel Ezrachi & Ulf Bernitz eds., Oxford Univ. Press 2009).
Noll, supra note 90.
Commn Decision 1999/674/EC, Case No IV/M.1221, Rewe/Meinl, 1999 O.J. (L 274) 23/
10/1999 P.0001-0022, }} 97 & 102.
Id. } 101; Grimes, supra note 31; Ariel Ezrachi, Unchallenged Market Power? The Tale of
Supermarkets, Private labels and Competition Law, 33 WORLD COMPETITION 257 (2010);
EZRACHI & BERNITZ, supra note 92.

Buying Alliances and Input Price Fixing

67

Consequently, buyer power is a relative notion that one should examine

with respect to an identifiable upstream supplier. The relationship between
that supplier and the buying alliance provides insights into the presence of
buyer power. When the alliance can credibly threaten to impose long-term
opportunity costs in relation to at least one supplier, without internalizing
similar costs itself, buyer power is present, and intervention may be
merited.96 In such cases, one should assess the tradeoff between efficiencies
and welfare loss and whether those efficiencies can only be attained through
the buying alliance.97
Where the alliances buying power amounts to a collective dominant position, Article 102 TFEU may also apply.98 Abuse of a collective dominant
position may be established when the collusive monopsonist withholds
demand or imposes an unfair purchase price.99

B. Supplier Power
Since buyer power is a relative notion, part of the appraisal of buyer power
must be conditioned on the level of supplier power. The weaker the supplier
power, the more likely it is that the buyer alliance will adversely impact competition. Of main significance here are sunk costs and barriers to exit, which
may make the seller vulnerable to the buying alliance.100 These may lead to
inelasticities of supply and allow the buying alliance to procure the input at
a reduced price without any short-term reduction in input volume.101 The
suppliers may also be affected by the product characteristics; non-differential
and non-branded products are likely to limit the suppliers power and allow
the alliance to dictate standards and lower prices.102 The ability to procure
at a lower price with no reduction in quantity may further incentivize buyers
96

For a review of buyer power in the context of retailer distribution, see OECD, Buying Power
of Multiproduct Retailers (July 16, 1999).
97
BLAIR & HARRISON, supra note 3, at 106.
98
Article 102(a) TFEU treats as an abuse of dominance the direct or indirect imposition of
unfair selling prices or other unfair trading conditions. In BetterCare Group Ltd., Case No.
CA98/09/2003, the U.K. OFT commented on the abuse of buyer power and noted that only
in exceptional circumstances will an excessively low input price amount to abuse: paying
excessively low purchase prices is likely to amount to an abuse under Chapter II of the CA98
only in exceptional circumstances, which the OFT has no reason to believe are present in
this case. Id. } 58.
99
Note that, in principle, one may also analyze the use of buyer power through the prism of
abuse of collective dominant position under Article 102 TFEU. In such cases, the
imposition of an unfair purchase price by the buying alliance may constitute an abuse.
However, owing to the complex nature of establishing such a violation, this is not an
attractive route to adopt. See, e.g., CICCE v. Commn, Case 298/83, 1985 E.C.R. 1105.
100
Grimes, supra note 31.
101
Id.
102
Ezrachi, Unchallenged Market Power? The Tale of Supermarkets, Private labels and Competition
Law, supra note 94; see also EZRACHI & BERNITZ, supra note 92.

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to push down the input price. It would also make it less likely that members
of the alliance would destabilize it by trying to procure outside its framework. Also noteworthy in this respect is the suppliers ability to switch production, as lack of production switchability would increase buyer power.
Assuming that the seller is unable to profitably enter into the downstream
market or ignore the buying group (by selling to other downstream players
or to other markets), the group represents a bottleneck with which it must
trade. It is also possible to envisage a situation in which a number of buying
groups coordinate their activities, thus resulting in a cumulative effect on the
upstream market.103 The seller will be forced to absorb these costs due to
the inelasticity of supply and the sunk costs it has suffered. This in turn may
affect its policies with respect to future investment, research and development, and may even lead it to discriminate against less powerful purchasers,
thus distorting competition between buyers.
By contrast, when the seller benefits from significant market power, the
buying alliance may present countervailing buyer power and yield efficiencies by curtailing the sellers incentive to increase price and limit quality.104
It is generally accepted that countervailing buyer power may provide a good
justification for clearance or exemption. Interestingly, the merit in allowing
buying alliances on account of countervailing market power has been questioned by some.105 While beneficial in the short term, it can be argued that,
long term, the suppliers monopoly power and profit would have induced
entry or innovation. Accordingly, only where market failure would block
such entry does a justification exist for the operation of a buyer alliance.106
C. Passing-on
Passing-on is not likely to take place when the reduced input price leads to
lower quantities, or when the buying alliance achieves a reduced price by
withholding demand. In those cases, the total output downstream will be
affected, and the reduction in quantity, services, or production will lead to
an increase in the price downstream. In addition, when the parties to the alliance benefit from significant joint market power in the selling market (even
below dominance), the lower purchase price is not likely to be passed on to
consumers.107 Similarly, when the members of the alliance operate on the
same downstream market and have a high degree of commonality of costs,
the collaboration upstream may reduce competition downstream.108 This
arises because members potentially lack the incentive to compete
103
104
105
106
107
108

Majumdar, Neubecker, Akgun & Baldauf, supra note 12, at 6-8.

Dobson, Waterson & Chu, supra note 91.
Carstensen, supra note 79, at 27.
Id.
HORIZONTAL COOPERATION GUIDELINES, supra note 1, } 201.
This assumes that input costs constitute a significant portion of the output downstream.

Buying Alliances and Input Price Fixing

69

downstream and are less likely to pass on any benefits attained through the
joint procurement of input. Lower prices and cost saving are more likely to
be passed on to the selling market when members of the alliance operate in
different, competitive markets downstream.
Passing-on is of paramount significance for the analysis under Article
101(3) TFEU. In this context, the Commission has noted that cost savings
or other efficiencies that only benefit the parties to the joint purchasing arrangement will not suffice.109 Overall, in order for input price fixing to
enhance welfare, the efficiencies passed on should outweigh the restrictive
effects caused by the collusive pricing.
D. Price Taker or Maker
A distinction can be drawn between alliances that operate as price takers
and those that are price makers. Price taking does not involve direct, or
indirect, input price fixing or demand withholding. Price taking alliances
represent an amalgamation of orders that lead to discounts, benefits, and
improved trade conditions.
Alliances that are price makers, on the other hand, are able to take an
active role in determining the input price and affecting competition upstream. This, in itself, provides an indication of likely buyer and bargaining
power. A strategy that involves withholding demand as a means of depressing the purchase price is likely to result in reduced output downstream, to
the detriment of consumers. On the other hand, a reduced input price that
does not result in reduced output requires more careful consideration, since,
absent downstream market power, it may enhance overall welfare.
E. The Form of the Alliance and Effects Downstream
As indicated above, when the members of the alliance have a high degree of
commonality of costs, collaboration may reduce competition downstream. In
its Horizontal Guidelines, the Commission notes that the extent of collusion
will depend on the presence of a high degree of commonality of costs,
market power, and market characteristics conducive to coordination.110
On the other hand, when the alliance cooperates in the procurement of
an input, but members operate in different markets downstream, there is no
apparent risk of collusion.111 Similarly, when a buying alliance does not
result in market power, it may yield efficiency gains.112 As illustrated by
109

110
111
112

HORIZONTAL COOPERATION GUIDELINES, supra note 1, } 219; see also OFFICE OF FAIR
TRADING, ASSESSMENT OF MARKET POWER, } 6, (2004) on the relevance of passing-on in
the context of the market power assessment.
HORIZONTAL COOPERATION GUIDELINES, supra note 1, }} 213 14.
Id. } 210.
BLAIR & HARRISON, supra note 3, at 106.

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Roger Blair and Jeffrey Harrison, when it yields productive efficiency, both
producer and consumer surplus will increase.113 However, when it results in
a tradeoff between productive efficiency and allocative inefficiency, the emergence of buyer power may cancel out the efficiencies.
The likelihood of collusion downstream is affected by the nature and intensity of the links between the members of the alliance. In particular, one
should assess the level and nature of information exchanged between the
parties.114 Such exchange may be allowed when it is ancillary to the buying
alliance activity, but should be carefully monitored when used to undermine
competition and establish collusion. In its Horizontal Guidelines, the
Commission notes that [s]pill-over effects from the exchange of commercially sensitive information can, for example, be minimi[z]ed where data is
collated by a joint purchasing arrangement which does not pass on the information to the parties thereto.115
A further factor at play is the nature of the membership. A closed membership alliance may affect the position of competing buyers. It may also be
used as covert coordination to support buyer and seller cartels. On this
point, it is arguably necessary to distinguish between alliances that coordinate their activities in the public eye as opposed to secretive coordination.116
The latter resembles a cartel organization and may have similar effects
upstream as collusive tendering.117
113
114

115
116

117

Id.
Fiatagri U.K. Ltd. & New Holland Ford Ltd. v. Commn, Case T-34/92, 1994 E.C.R.
II-905; John Deere Ltd. v. Commn, Case T-35/92, 1994 E.C.R. II-957 (Ct. First
Instance); Ahlstrom Osakeyhtio and others v. Commn, Joined Cases C-89, 104, 114, 116,
117, 125, 129/85, 1993 E.C.R. I-1307, [1993] 4 C.M.L.R. 407; T-Mobile Netherlands BV
and others v. Raad van bestuur van de Nederlandse Mededingingsautoriteit, Case C-8/08,
2009 E.C.R. 0000 (June 4, 2009).
HORIZONTAL COOPERATION GUIDELINES, supra note 1, } 215.
While secrecy is not a formal element of Article 101 TFEU, it is likely to play a role in a
finding of object under those circumstances. On this point, note Enterprise Act, 2002, c. 6,
188(6) (U.K.) (on cartel offenses), which states that arrangements are not bid-rigging
arrangements if, under them, the person requesting bids would be informed of them at or
before the time when a bid is made.
On collusive tendering, see, for example, Re European Sugar Cartel, 1973 O.J. (L 140) 17;
Case COMP/E-1/38.823, C(2007)512 final of 21 February 2007 - PO/Elevators and
Escalators (currently pending appeal to the General Court, Case T-145/07); SPO
v. Commn, Case T-29/92, 1995 E.C.R. II-289 } 2 (an appeal on Commn Decision,
Building and Construction Industry in the Netherlands, 1992 O.J. (L92) 1):
Where there is concentration by undertakings regarding the manner in which they
intend responding to an invitation to tender, involving the exchange of information
regarding, inter alia, the costs of the product concerned, its specific characteristics and
a breakdown of the price tenders, having in particular the object and effect of revealing
to his competitors the course of conduct which each contractor has decided to adopt or
contemplates adopting on the market and being capable of leading to the fixing of
certain conditions for the transaction, practical cooperation between contractors is
deliberately substituted for the risks of competition and an infringement of [Article 101
(1) TFEU] is thereby committed.

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V. CONCLUSION

This article considered the EU competition law approach to input price

fixing. It highlighted that, while the European Courts have endorsed a wide
object approach, some instances would call for an effects-based analysis.
Although both approaches may lead to similar results, once the possibility of
exemption under Article 101(3) TFEU is considered, they provide inconsistent signals as to legality and enforcement priorities.
Determining which of these signals is superior depends on the totality
with which one condemns price fixing, regardless of its downstream or upstream effects. To limit the inconsistency, this article proposes a refined
benchmark for distinguishing infringements by object and effect. According
to this benchmark, the symmetric treatment of input and output price fixing
as anticompetitive by object is limited to cases where the creation of the price
making mechanism is illicit. Arguably, in such cases, input price fixing
should be high on the enforcement agenda, irrespective of downstream
effects. Accordingly, it should be firmly positioned along with other cartel
activities, thus triggering the application of the Leniency Notice. In other
cases, the focal point should shift from the illicit creation of buyer power to
its execution, which calls for an effects-based approach.
This dividing line echoes the European Courts judicature as to the wider
goals of competition law and the treatment of price fixing, while limiting the
scope of object analysis and reflecting economic thinking in this area. Other
dividing lines may be used to achieve similar goals. Whichever division one
favors, there is room for the European Commission to clarify its stance and
put forward a more detailed account of its enforcement approach to input
price fixing in its Horizontal Cooperation Guidelines.