Why worry about signalling in market announcements?
Doing business without public announcements is almost unthinkable. Product launches, promotions, mergers & acquisitions and financial reporting are part and parcel of how many businesses operate. Rules on unfair trading, advertising and market manipulation spring to mind in this context, but antitrust is typically not relevant.
This changes when announcements concern future business conduct, in particular for intended price increases. Both the European Commission and other competition authorities have raised concerns about such announcements, out of fear that such announcements may be a tool for competitors to align business strategies. The line between what is legal and what is not is sometimes not clear.
Digitalisation and the use of pricing algorithms add to these concerns: companies can publish, monitor and react to announcements in real-time. This is of increasing concern to antitrust regulators (see a recent report on Algorithms and Competition).
The wider context
The most obvious cases are those where market announcements fit into a wider strategy found to be anti-competitive. For example, the UK Competition Appeal Tribunal upheld a fine imposed on Royal Mail for abuse of dominance. Royal Mail set up its wholesale prices for mail delivery as a way to keep a competitor from entering the market. Before implementing it, Royal Mail publicly announced the new pricing structure. This was sufficient for the competitor to abandon its market entry plans. Royal Mail was fined GBP 50 million. The problem, however, was not the public announcement, but the pricing structure itself.
Less straightforward are cases where the conduct that is being announced is not a problem as such, but the announcement could facilitate coordination. This was the theory of harm in the European Commission’s container liner shipping investigation. The carriers used to announce intended future increases of freight prices on their websites, via the press, or in other ways. The Commission felt that these announcements did not provide full and reliable information to customers but mainly made carriers aware of each other’s contemplated business strategies. In the end, the carriers offered commitments that ensured their announcements would be useful for customers and price increases were limited to what was announced.
What are the red flags?
It is hard to see the wood from the trees when assessing public announcements from an antitrust perspective. Is there sensitive information included? Is there a legitimate reason? Is there too much detail? Or is there too long a lead time for an intended price increase? Is the communication channel appropriate? Is there deviation from market practice? Is there a legal obligation to make the announcement?
We suggest starting with three far simpler questions. Is the announcement necessary to meet a legal requirement? Are customers asking for a prior announcement? Does it go further than necessary to meet these objectives?
Most cases where announcements have led to enforcement action concern situations where announcements went further than they had to in order to meet investors’ or customers’ expectations or regulatory requirements. Announcements were made in a way that was seen to facilitate collusion.
Consider the Commission’s container liner shipping case: the companies announced intended price increases rather than binding maximum prices that are more useful for customers. Similarly, customers will rarely ask for generic announcements of price increases with long lead times. They prefer binding price quotes that enable them to find the best available offer for their specific needs. Similarly, investors may legitimately be reassured about strategies to increase performance, including improving margins. But this will not require publicly announcing a detailed action plan for price increases, in particular, when these increases are subject to competitors following a trend.
While the antirust assessment of announcements may not always be trivial, there is some comfort in the fact that announcements that aim to comply with the requirements of customers, investors or regulators are far less likely to be challenged under antitrust rules.