UK buying groups get some pointers in the new Horizontal Guidance - but is the picture much clearer?
As consumer prices rise at pace and global events continue to stress supply chains, buying groups increasingly seek to pool their resources and negotiate lower input prices. However, the dividing line between ‘genuine’ joint purchasing agreements and ‘harmful’ buyer cartels has not always been easy to navigate.
The recently revised Guidance on Horizontal Agreements (“UK Horizontal Guidance”), like its EU counterpart, seeks to provide more clarity on this question as well as other aspects of joint purchasing. While clarity will be welcomed by both suppliers and buyers – the below considers whether the Guidance delivers on its promise.
A quick recap on enforcement to date
In the past 20 years, there has been limited enforcement in the EU, with around 30 decisions relating to joint purchasing arrangements, 18 of which were buyer cartels. In the UK, we have only the following two instances where the competition authority looked at buyer conduct.
Cityhook challenged a decision by the Office of Fair Trading (OFT) to close its investigation of an alleged collective refusal by the buyers to purchase from Cityhook. Cityhook did not succeed, and the case was ultimately closed. However, the court decisions provided some colour on the debate on whether such buy-side conduct should be treated as a by object or effect infringement, highlighting the need for clearer guidance on this front.
The OFT, in an informal opinion considering a proposal to jointly negotiate the purchase conditions with certain suppliers, indicated that a joint purchasing agreement would be “unlikely” to have the restriction of competition as its object unless it facilitates a cartel and, therefore, should be assessed for anti-competitive effects. With a combined downstream market share of less than 10%, the OFT concluded that the arrangement was under the safe harbour, so it was unlikely to raise concerns. Additionally, and helpfully, it provided guidance on the assessment of commonality of costs and information exchange in the context of the joint purchasing arrangement.
The opinion provides one of the only practical (albeit dated) insights into how UK competition authorities might assess joint purchasing arrangements. Many of these conclusions and assessments are reflected in the UK Horizonal Guidance.
More guidance lands in 2023
To fill the vacuum, the revised UK Horizontal Guidance (finalised in August 2023) sets out a more detailed analytical framework for joint purchasing arrangements. It provides welcome clarification on a number of points, including what ‘genuine’ joint purchasing entails, in respect of both form and function, and how businesses should go about distinguishing it from (and thus avoid) cartel conduct. It largely mirrors the EU’s Horizontal Guidelines and will be a primary source for the self-assessment of joint purchasing arrangements going forward in the UK.
The key developments relating to joint purchasing arising from the UK Horizontal Guidance are set out in the table below.
|Definition of joint purchasing
|The definition has been broadened to capture not only joint buying but also joint negotiation and to include many forms of cooperation.
|By object vs effect
|Express clarification that ’genuine’ joint purchasing arrangements do not ’generally’ amount to a restriction of competition by object.
Joint purchasing may amount to a by object restriction if it results in a buyer cartel, seller cartel, or a horizontal boycott, or involves an anti-competitive exchange of commercially sensitive information.
|‘Genuine’ joint purchasing vs buyer cartels
|’Genuine’ joint purchasing arrangements are distinguished from buyer cartels on the basis of whether they concern joint or individualised behaviour towards suppliers.
|Factors suggesting that a buyer cartel is unlikely
|A joint purchasing arrangement is less likely to be found to be a buyer cartel if it involves: (i) joint negotiation through a common or member organisation; (ii) no secrecy, with suppliers informed in advance of the joint negotiation on behalf of the members (which is binding), and (iii) written agreement, encapsulating the joint purchasing arrangement.
|While the safe harbour remains at 15% and the importance of assessing the market power and collusive outcomes is not new, the revised UK Horizontal Guidance provides more detail on the factors relevant to an effects assessment.
|Threats to abandon negotiations or stop purchasing unless the supplier offers better terms or prices (“order stops”) do not usually give rise to a by object restriction, to the extent that they are temporary and relate to products that are subject to the negotiation. Interestingly, a reference to ’delisting’ and how this is different from order stops has been removed in the final version of the UK Horizontal Guidance.
|Ancillary restraints that are limited to what is “objectively necessary and proportionate” to ensure the buying group’s proper functioning and the exercise of its buying power, vis-a-vis suppliers, would fall outside the scope of the Chapter I prohibition. For example, prohibiting a buying group’s members from participating in competing buying groups will be permissible where they are limited to what is necessary and proportionate to ensuring the proper functioning of the buyer group and its ability to exercise buyer power vis-a-vis suppliers.
|Unlike horizontal boycotts, vertical boycotts (those involving purchasers agreeing not to purchase from a supplier at a different level of the market) will not generally restrict competition by object and should be analysed based on their effects.
…but some uncertainties linger
While the clarifications and added guidance is useful in many respects, uncertainty remains, particularly with respect to the practical mechanics in applying some of the guiding principles.
Notably, the UK Horizontal Guidance attempts to delineate a bright(er) line for distinguishing genuine purchasing arrangements by spelling out factors which would save them from being classed as a buyer cartel, including whether suppliers were told about the joint purchasing and whether there was a written agreement. These requirements appear to be quite formalistic and would potentially only act as mitigating measures that would ultimately not shield a buying group if its objective were considered anti-competitive.
Given that the objective of both a purchasing cartel and a buying group is to reduce a purchase price, the anti-competitive nature of that objective would need to be established based on some additional factors. Besides damning internal documents outlining a nefarious objective, unhelpful inferences may also be drawn where the benefits of the reduced purchase prices are not anticipated to be passed on to consumers.
Additionally, while the UK Horizontal Guidance helpfully mirrors the EU Horizontal Guidelines in many respects, there are slight differences in the wording which raise questions on the intention behind the deviation (if any).