Global trends drive new competitive practices in trade, and the legal structure is built upon those new practices. In line with international shifts, a new competitive strategy has begun to influence business in Türkiye: Hub-and-Spoke Cartels. With their complex and unconventional structure, Hub-and-Spoke Cartels have recently stood out in the competitive market, laying the foundation for new practices.
Legal Basis and Practice
Act no. 4054 on the Protection of Competition (“Act”) does not make a direct reference to Hub-and-Spoke Cartels. While the Guidelines on Vertical Agreements have no specific provision on this subject, the “Guidelines on Horizontal Cooperation Agreements” specify violations regarding undertakings’ direct or indirect information exchange.
What are those violations? They concern the process when one or several horizontal competitors (suppliers or retailers) exchange information “indirectly” through another undertaking operating in a segment of the distribution or production chain. In other words, competitors (“spokes”) obtain indirect information through a producer or distributor (“hub”). Although the hub does not guarantee a direct and accurate exchange of information between competitors, this indirect exchange and coordination might suffice to create cartels in the commercial market.
Surely, the information exchange between horizontal competitors can serve legitimate purposes, and one cannot say that any information obtained through a vertical undertaking constitutes a violation of law. Therefore, to identify the formation of a “Hub-and-Spoke” cartel, each case should be analyzed with reference to the previous rulings of the Court of Appeal as well as global precedents.
Types of Hub-and-Spoke Cartels
Basically, there are three (3) types of Hub-and-Spoke Cartels that form when:
a) There is information exchange between competing “Retailers” (spokes) through a “Supplier” (hub).
b) There is information exchange between competing “Suppliers” (spokes) through a “Retailer” (hub).
c) There is information exchange between competing undertakings (spokes) through an independent third party (hub), who is not a market participant and an upstream or downstream figure for the competitors in question. Even if this third party does not actively participate in competition and is not directly involved in any part of the relationship, they may be investigated by the Competition Board if the indirect information that they provided creates a violation in an actual case.
Violation Terms
Due to their nature, Hub-and-Spoke Cartels are at the intersection of other violations of the competition law as an indirect violation occurs between undertakings at different levels. Therefore, as stated above, each case should be analyzed separately. The United Kingdom Competition Appeal Tribunal provides some objective and subjective criteria based on its assessments of various cases[1].
The objective criteria are as follows:
i) The hub obtains “Strategic Information” having the quality of “Sensitive Information” regarding the competition of a downstream or upstream retailer or undertaking,
ii) The hub discloses the acquired “Strategic Information” to another downstream or upstream retailer or undertaking.
The subjective criteria are as follows:
i) It is known/foreseen that a hub will share information regarding an undertaking at the horizontal level with another undertaking at the horizontal level, i.e. the former’s competitor.
However, it remains unclear whether the decisive point here is that the hub will convey the information or that it is the foresight of the undertaking (the subject of that information) at the horizontal level.
ii) The disclosure time of strategic information is also critical. If information is exchanged while negotiating a contract directly related to that information, no violation occurs.
iii) It is also important whether information exchange has an economic motive and what circumstances lead to it.
A Case Study
While investigating the case regarding the exchange of price increase information between Goodyear, Pirelli and Brisa for the next period, the Competition Board focused on determining whether these dealers had common dealers and, if any, whether information was exchanged through these common dealers. In line with the explanations above, the Competition Board concluded that Goodyear, Pirelli and Brisa, which operated at the horizontal level, exchanged information through their common dealer, who served as a hub, and determined that these companies agreed on their future pricing with this information exchange.
Therefore, the Board decided that there was no violation in this case. The Board determined that although information was exchanged, the purpose was not to obtain commercial gain, but rather to utilize the price as a negotiating tool.[2]
Since Hub-and-Spoke Cartels are not clearly regulated, they are at the intersection of all violations and, due to their homogeneous nature, entail investigating each case separately to determine the existence of any violations.
This new sphere of violation, which is followed by our lawyers, is subject to some objective and subjective criteria. Any pertinent revisions to the Turkish legislation will be based on the practices of the Competition Board as well as the expectations and requirements of the commercial market.
[1] https://www.catribunal.org.uk/sites/default/files/Jdg1014Argos141204.pdf, Argos Limited and Littlewoods Limited v Office of Fair Trading file no. 1014 and 1015/1/1/03, CAT decision no. 24 of 2004, ZT: 9/1/2023; https://assets.publishing.service.gov.uk/media/555de4c5e5274a74ca00014b/replicakits.pdf, OFT’s Price-fixing of Replica Football Kit Decision no. CA98/06/2003 of 01.08.2003, Z.T. 9/1/2023
[2] Competition Board’s LSIAD Decision of 16.12.2015, file no. 2015-4-38, decision no. 15-44/731-266, https://www.rekabet.gov.tr/Karar?kararId=bbc4b8ac-90fd-473d-ab4d-1d0052e72a11, Z.T.; 9/1/2023
