There are numerous types of anticompetitive practices. While we frequently encounter the most typical ones, we are very often unable to recognise them, and we are even less aware of their harmful effects. Although just a few undertakings and people financially gain from the creation of such practices, their negative impact on society is quite substantial. With this in mind, it is worth becoming more familiar with these typical, prohibited practices restricting competition.
Agreements restricting competition
Where there is competition on a market undertakings are forced to ‘fight’ for consumers by offering lower prices, higher quality products and more advantageous sales conditions otherwise consumers would turn to their competitors. However, if undertakings agree to respect each other’s interests and to not compete on the market and, as a consequence, to charge higher prices and to apply less favourable conditions to consumers, this detrimentally affects consumers as their ability to change suppliers is reduced. To protect competition, agreements restricting economic competition are prohibited in accordance with the provisions set out in the Hungarian Competition Act (GVH).
Every written or oral contract, other form of agreement or concentration of undertakings’ conduct constituted by organisations and individual persons pursuing economic activity, aiming at the unification of market activity are qualified as agreements between undertakings. Not only the coordination of active or non-active behaviours of undertakings are prohibited but also their concerted practices, for example if the undertakings, for example by means of information flow or based on knowledge of each other’s market plans or of a future event, change their economic activities. If undertakings – as members of an association, or of a chamber or of an advocacy organisation – try to coordinate their market behaviour by applying the restrictive decisions of any of the aforementioned organizations then it also amounts to a restrictive agreement.
Vertical and horizontal agreements
Depending on the business relationships that exist between the parties bound by the restrictive agreements, the restrictive agreements can be qualified as either horizontal agreements between competitors or vertical agreements between suppliers and buyers. Although, the provisions of the GVH are equally applicable to both types of agreements, in general due to their character, vertical agreements restrict competition to a lesser extent.
The restrictive object and effect of the agreements
In the case of both horizontal and vertical agreements, a distinction can be made between those restrictive agreements having the primary and direct aim of restricting competition, and those agreements in which the restriction of competition is just an instrument to reaching a goal, which may be even positive from the point of view of the whole economy, e.g. to achieve research results. In accordance with the GVH, horizontal restrictive agreements which are directly aimed at restricting competition encompass the following behaviours: price-fixing between competitors, limitations placed on production, market sharing, collusion in tender or public procurement (bid rigging) and resale price maintenance. These conducts are capable of restricting competition between undertakings by their very nature and therefore qualify as the most serious restrictions of competition. As a result, these behaviours can only be considered legal in exceptional situations. Accordingly, whether the result of an agreement is that it restricts competition has to be based on the actual restriction which arises from the agreement and the intentions of the parties to the agreement are irrelevant, i.e. it does not matter if the parties intended to restrict competition or not or whether the agreement had a lawful purpose in addition to the restriction of competition. As regards the second distinction, the possibility of qualifying an agreement as lawful always exists as it can bring socially useful benefits which may make it acceptable. In order for this to be established, conditions which enable an exemption to be granted must exist (see below).
Examples for restraint of trade
E.g. an agreement is restrictive and prohibited, if its aim or potential or actual effect is:
- directly or indirectly fixing of purchase or selling prices or any other trading conditions;
- limitation or control of production, markets, technical developments, or investments
- sharing of sources of supply and restriction of the freedom of choosing from among them, as well as the exclusion of specific consumers and/or business partners from the purchase of certain goods;
- market sharing, exclusion of any party from selling, and restriction of the choice of marketing possibilities;
- the hindering of market entry;
- discrimination between trading partners;
- making the conclusion of contracts subject to the acceptance of obligations, which, by their nature or according to commercial usage do not belong to the subject of such contracts.
Restrictive decision of association of undertakings
The restrictive decision made by association of undertakings (such as the social organizations of undertakings, or public corporations, associations and other similar, for example industrial associations, advocacy organisations, chambers) is a special case of the summarising definition of agreements, which falls also under the prohibition. This provision of the GVH aims to prevent undertakings from claiming that they cannot be held responsible for the restrictive practice, as it was not them, but the association of undertakings (to which they were members) which entered into the agreement resulting in anticompetitive conduct. (e.g. complying with the ethical rules not to cause economic difficulties to partner(s) by applying excessively low prices). These organisations are, in fact, capable of affecting their member undertakings’ market conducts using their legal or effective instrument, thus the association itself qualifies as a market player.
Exceptions and exemptions
Although the prohibition on the restriction of competition is a general rule, it does not apply to several agreements or if an agreement fulfils the exemption conditions contained in the GVH.
If an agreement is exempted from the general prohibition then it may not be qualified as a restrictive agreement. Such legal exceptions are agreements of minor importance (or bagatelle), agreements concluded between undertakings which are not independent from each other, and agreements between undertakings in a principal-agent relationship.
a) Agreements of minor importance shall not be prohibited (where the joint share of the participating undertakings does not exceed ten percent on the relevant market i.e. the undertakings participating in the agreement are such small market operators that their agreement or concerted practices are not capable of restricting competition on the merits.
b) Agreements between undertakings under control of the same undertaking or belonging to the same group of undertakings (essentially the same proprietary or concern group) shall not be qualified as restrictive. To give an example: if undertaking “A” has the right to control undertakings “B” and “C”, which are able to continue operating independently as authorised by undertaking “A”, (where “B” and “C” can be competitors or operating on various levels in the supply chain) then while under the management of “A”, the agreements between “B” and “C” shall not be qualified as restrictive on the ground that they do not have the right to decide freely due to the control and possibility of a final decision over theirs by undertaking “A”.
c) The agreement shall not qualify as restrictive if no controlling relationship exists between the undertakings based on ownership rights or other factors. However, if one of the undertakings is not operating independently and its market behaviour is determined by the other undertaking, then this is qualified as a ‘real agency agreement’ by competition law. Whether an agreement between two undertakings amounts to an agency agreement does not depend upon the name given to the agreement by the parties subject to it. According to competition law, the relationship that exists between two undertakings qualifies as a ‘real agency’ relationship if one of the undertakings (which is acting as the agent) does not bear significant responsibility for the business risks associated with its operation at the time of distribution and sale of the other undertaking’s (mandator) goods. In other words, if the distributor is pursuing a non-independent retail activity as an agent under the authority of the mandator while not taking any market risks, it is not considered as an undertaking pursuing independent market activity. Consequently, the agreement the undertaking has entered into with the mandator shall not be qualified as prohibited under competition law rules. ‘Not real agency contracts’ are those in which the distributor is considered to be an independent merchant who is e.g. freely able to determine his/her own market strategy. In the latter case the agreement between the parties is defined as a restrictive agreement between independent market operators, despite the name given to the agreement by the parties.
If an agreement restricts competition but also results in social benefits then it may be exempted from the general prohibition.
If beneficial economic effects arise from an agreement then it may be exempted from the general prohibition of restrictive agreements in case conditions set out in the GVH are met. It is an essential condition that a fair portion of the benefits arising from the agreement are enjoyed by the consumers; additionally, the agreement shall not restrict competition more than the extent required for attaining these benefits and competition must not be fully eliminated due to the effects of the agreement. This may be the case if, for example, several undertakings concert their research activity in order to develop a product which the undertakings would not be able to create – or not in that form - on their own. Namely, if the aim of the agreement is to successfully achieve a social and/or economic object from which both society and customers will significantly benefit AND the agreement does not completely eliminate competition or restrict it or more than is necessary for the achievement of the object (e.g. regarding jointly procured materials for research), then the agreement may be exempted from the general prohibition.
It is the responsibility of the undertakings to determine whether an agreement concluded between them fulfils these conditions (positive economic/social effects, the remaining existence of competition and that it is restricted or distorted only to the extent necessary) as contained in the GVH. The block-exemption regulations (or government regulations on block exemptions) can help the undertakings to comply with the above-mentioned conditions. These block-exemption regulations declare the relevant scope (e.g. distribution of motor vehicles) or the relevant activity (e.g. research and development, technology transfer, distribution of products) and determine the conditions that according to the regulatory bodies an agreement has to meet in order to have more benefits than negative effects for the consumers, and consequently to be allowable (automatic immunity). The Hungarian block-exemption regulations, which take the form of national government regulations, are practically identical to the European Union’s block-exemption regulations. Therefore it falls to the undertakings to judge and incidentally prove in a competition supervision proceeding that an agreement meets the conditions contained in the Competition Act, or that it complies with a block-exemption regulation and as a result is exempt from the general prohibition; the GVH will not, and also may not, deliver a formal preliminary decision on the exemption of a proposed agreement. The GVH may only give a legally valid declaration through a competition supervision proceeding as to whether a specific conduct is qualified as an agreement or concerted practice, is restrictive, benefits from automatic immunity or individual exemption, or is unlawful.
The most serious cases of restrictive agreements are the secretly effectuated so-called hard-core anti-competitive conducts (in other words: cartels). Such agreements concern the direct or indirect fixing of purchase or sale prices between competitors, market allocation between competitors (including also collusion in tenders), or the determination of a production or sales quota. Consequently, they cannot benefit from exceptions or immunity. There is a separate section of the website which deals in detail with cartels.
The following “don’t” column demonstrates typical conducts which in addition to cartels, also qualify as restrictive agreements. While the “do” column provides indications for allowed conducts for better distinction.