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Also competitors may cooperate

25.05.2021

Competition law enforcement can dissuade undertakings from cooperating with competitive undertakings, even when it could be done in perfect accordance with competition law and to each undertaking’s benefit.

“Companies can be too cautious about working together, with the result that efficient arrangements are foregone," remarks Lotta Uusitalo, Partner at Procopé & Hornborg.

However, it is important to take a cautious stance to cooperation between competitive undertakings given that undertakings can be in breach of competition law even without realising it.

The aim of legislators is not, however, to prevent all cooperation. Only conduct, which restricts competition in a harmful way is considered a breach. When planning cooperation, it must therefore be assessed from a market perspective whether the cooperation will produce, for example, efficiencies or impediments to competition.

“Cooperation may be allowed if, for example, it increases efficiency or promotes technical development in such a way that consumer welfare is optimised and competition is not impaired significantly,” states Uusitalo.

The general logic behind the law is quite clear, but in practice cooperation must be assessed from many perspectives. Assessment is also hindered by the authorities not issuing preliminary opinions or decisions on planned cooperation. It is therefore worth seeking guidance in such assessment from a law firm specialised in business law.

The lawfulness of cooperation can be affected not only by its content but also by the size of the parties, the size of the market and the market characteristics, amongst others.

The effects of cooperation on the market is always relevant.

For example, joint component production by two industrial companies may reduce price competition in a harmful way because joint production leads to identical cost structures and therefore to similar price levels.

“On the other hand, a production plant that increases its size may boost its production efficiency and drive the price down, which could make the arrangement acceptable,” notes Uusitalo.

Companies should assess each cooperative project separately, as different examples of cooperation may have different impacts in terms of the market.  A joint product development project between two companies may be allowed, but procurement cooperation between the same companies may not necessarily be allowed.

It is also important to correctly assess what the actual markets of the companies are. The companies themselves might view their market as the entire Europe, but the authorities might think that the cooperation will have harmful effects in Ostrobothnia, Finland (“Pohjanmaa”).

Cooperation or joint venture?

Companies planning cooperation should also assess the structure of cooperation from the perspective of competition.

Sometimes a joint type of cooperation is a sensible choice for flexibility. On the other hand, there may be a lower risk that in a joint enterprise cooperation unnoticeably crosses the boundary from permitted to prohibited conduct. Such a crossover might take place, for example, if the parties exchange too much information with each other without paying much attention to it.

Such an unnoticeable crossover from lawful to unlawful conduct can easily take place because the joint plans of the companies are mainly informed by commercial thinking. Under such circumstances, competition law is not necessarily paid due attention on a daily basis.

If planned cooperation appears questionable from the perspective of competition, it is worth thinking flexibly about tweaking the content of the cooperation. By changing even a small element, the questionable conduct might become acceptable.

“Eliminating elements that compromise competition may promote efficient market conduct in a profitable way,” remarks Lotta Uusitalo.

Aspects to keep in mind when cooperating with competitors
  • Effects on competition. In terms of the lawfulness of cooperation, the effect on competition is important.
  • Market efficiencies. Can the cooperation be justified by consumer welfare?
  • Assess all projects. Different cooperative projects between two companies may result in different results when assessing their lawfulness.
  • Beware everyday unlawfulness. Permitted cooperation may become unlawful if the parties forget to pay attention to competition law.

For further information, please contact:
Lotta Uusitalo

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