Hub-And-Spoken Conspiracies: A Case Study

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Competition authorities generally differentiate vertical agreements - agreements between firms operating at different levels of the supply chain - from horizontal agreements - agreements between competitors active on the same relevant market. While vertical agreements can potentially increase consumer welfare by facilitating coordination through the value chain, horizontal agreements are generally a breach to antitrust laws. Yet, an increasing number of arrangements appear as a mix of vertical and horizontal agreements: they involve competitors and at least one participant which operates at a different level of distribution. Those agreements are often labeled “hub-and-spoke” conspiracies. Indeed, the US antitrust law uses the analogy of a…show more content…
The Origins of Hub-and-Spokes Conspiracies At first sight, the existence of a hub-and-spoke conspiracy appears at odds with anticompetitive purposes: it seems unclear why an entity would want to increase the market power of upstream or downstream firms. This part first defines the different types of hub-and-spokes conspiracies, it then explains their reasons of existence and finally outlines five historical cases that contributed to the definition of hub-and-spoke conspiracies. Hub-and-spoke conspiracies can be cases of upstream or downstream collusion. In the first type of hub-and-spoke conspiracy, there is one manufacturer/supplier acting as the hub and several distributors/retailers acting as the spokes. In this case, retailers endorse a common supplier with the role of setting prices, monitoring their implementation and punishing retailers who do not abide by it. A single supplier thus generally agrees on an identical RPM with many retailers. In the second type of hub-and-spoke conspiracy, there is one retailer acting as the hub and many suppliers acting as the spokes. N.B. In both cases, there may be intermediaries between the suppliers and retailers, such as manufacturers and…show more content…
The failure of one of this aspects is enough to end a cartel. In a hub-and-spoke conspiracy, the spokes delegate these organizational functions to a third-party, the hub, located at a different part of the value chain. For example, a Resale Price Maintenance (RPM) imposed by the hub can replace a price fixing agreement between the spokes. The spokes consequently communicate and make decisions indirectly through a third party. The introduction of a vertical relationship into the conspiracy thus facilitate coordination. However, hub-and-spoke conspiracies are hard to identify. Indeed, a firm can adopt several vertical restraints with trading partners, and yet it would not be a case hub-and-spoke. To prove the existence of a hub-and-spoke conspiracy, there must be evidence of what US antitrust law calls a “rim requirement”, i.e. proof of communication between the spokes. Without this proof, there is no horizontal agreement and the relationship would be considered as a set of parallel vertical relationships. Proving a hub-and-spoke conspiracy thus comes down to proving the existence of the rim that connects the
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