The Inefficiency of Quasi–Per Se Rules: Regulating Information Exchange in EU and U.S. Antitrust Law

• Date: 01 March 2020
• Author: Jerrold Soh,Kenneth Khoo
• Published date: 01 March 2020
• DOI: http://doi.org/10.1111/ablj.12155

American Business Law Journal

Volume 57, Issue 1, 45–111, Spring 2020

The Inefficiency of Quasi–Per Se

Rules: Regulating Information

Exchange in EU and

U.S. Antitrust Law

Kenneth Khoo*and Jerrold Soh**

It is well understood that the exchange of information between horizontal competi-

tors can violate competition law provisions in both the European Union (EU) and

the United States, namely, article 101 of the Treaty on the Functioning of the

European Union and section 1 of the Sherman Act. However, despite ostensible

similarities between EU and U.S. antitrust law concerning interfirm information

exchange, substantial differences remain. In this article, we make a normative

argument for the U.S. antitrust regime’s approach, on the basis that the United

States’ approach to information exchange is likely to be more efficient than the rele-

vant approach under the EU competition regime. Using economic theories of harm

concerning information exchange to understand the imposition of liability in rela-

tion to “stand-alone” instances of information exchange, we argue that such liabil-

ity must be grounded on the conception of a prophylactic rule. We characterize this

rule as a form of ex ante regulation and explain why it has no ex post counterpart

in antitrust law. In contrast to the U.S. antitrust regime, we argue that the imple-

mentation of such a rule pursuant to EU competition law leads to higher error

costs without a significant reduction in regulatory costs. As a majority of jurisdic-

tions have competition law regimes that resemble EU competition law more closely

than U.S. antitrust law, our thesis has important implications for competition

regimes around the world.

*Sheridan Fellow, National University of Singapore. kennethkhoo@nus.edu.sg.

**Lecturer, Singapore Management University. jerroldsoh@smu.edu.sg. We would like to

thank George Priest, Ian Ayres, Fiona Scott Morton, Ramsi Woodcock, Damian Chalmers,

Andrew Halpin, Tan Cheng Han, Ho Hock Lai, Doni Bloomfield, and the anonymous

reviewers for helpful comments, Teo Jim Yang, Abigail Wong, and Shirley Yong for superb

research support, as well as the ABLJ team (Gideon Mark, Matt Meacham, and Susan Park)

for excellent editorial assistance.

©2020 The Authors

American Business Law Journal ©2020 Academy of Legal Studies in Business

45

INTRODUCTION

Rapid technological innovation over the past few decades has led to an

exponential increase in the ability of firms to store, transmit, and process

information. Hilbert and Lopez estimate that from 1986 to 2007 the

world’s capacity for bidirectional telecommunication has grown by almost

twenty-eight percent per year.

1

In contemporary commerce, firms often

rely on live, readily accessible data and information from other firms in

making important business decisions.

2

For antitrust specialists, the exchange and use of information between

horizontal competitors demands additional scrutiny,

3

as it is closely

related to the competitive structure of the market in which these firms

compete.

4

The relationship is an involved one—information exchange

has ostensibly conflicting effects on the level of competition in a given

market.

5

For example, while the existence of competitive markets is

1

Martin Hilbert & Priscila Lo

´pez, The World’s Technological Capacity to Store, Communicate, and

Compute Information, 332 SCI. 60, 63 (2011) (illustrating in a table how the compound annual

growth rate of telecommunications has grown by twenty-eight percent a year).

2

For example, institutional investors often rely on readily available information from finan-

cial data providers to determine their portfolio compositions. See Eugene F. Fama et al., The

Adjustment of Stock Prices to New Information,10I

NT’LECON.REV. 1, 20 (1969) (noting empiri-

cal evidence that investors act on the information implications of a stock split almost imme-

diately after the announcement date, supporting the conclusion that stock prices adjust

very rapidly to new information).

3

In this article, we will use the terms “competition law” and “antitrust” as equivalent syno-

nyms for each other. However, when referring to the European Union, we will preference

the “competition law” term over “antitrust;” the reverse will hold true for the U.S. regime.

See ALISON JONES & B.E. SUFRIN,EUCOMPETITION LAW:TEXT,CASES AND MATERIALS 3 (6th

ed. 2016) (noting that in general parlance, competition law is often called by its American

name, “antitrust law”). Our article also focuses on “stand-alone” instances of information

exchange. As will be explained, such initiatives should be distinguished from instances

where the trier of fact uses information exchange (that may or may not come in the form of

interfirm communications) as an evidentiary tool to infer an agreement or concerted prac-

tice under either U.S. antitrust or EU competition law. We do not deny the validity of the

latter. See infra Part II.E.1.

4

See MASSIMO MOTTA,COMPETITION POLICY:THEORY AND PRACTICE 150 (2004) (emphasizing

the role of information exchange in improving the observability of prices and quantities,

and the sustainability of collusion).

5

In this article, we use the term “information exchange” as an equivalent synonym for

“information sharing.” Both terms refer to bilateral or multilateral conduct, as opposed to

facilitating practices that may comprise instances of unilateral behavior (such as unilateral

46 Vol. 57 / American Business Law Journal

consistent with the free exchange of information between firms and con-

sumers, it is also uncontroversial that the exchange of price-sensitive

information may facilitate collusion between competing firms.

6

This com-

plex relationship mirrors the approach that both the EU and

U.S. antitrust regimes have adopted. While many forms of information

exchange between competitors are procompetitive and unlikely to

infringe antitrust law, other types of information exchange will raise

competition concerns and may amount to violation of the law.

7

However,

despite ostensible similarities between EU and U.S. antitrust law con-

cerning interfirm information exchange, the two regimes diverge sub-

stantially regarding the liability imposed upon firms for information

exchanges. Firms face a far greater risk of liability for such exchanges

under the EU competition regime as compared to its U.S. counterpart.

Under the EU competition regime, many forms of information exchange

are subject to a presumption of illegality, which may be difficult for the

firm laboring under the presumption to rebut.

8

In contrast, under the

U.S. antitrust regime, most forms of information exchange are subject to

a “rule of reason” analysis that places the burden of establishing anticom-

petitive effects on the party alleging illegality.

9

This divergence should not come as a surprise. For many years, anti-

trust scholars have noted that relative to the United States, EU

invitations to collude). See ANDREW I. GAVIL ET AL., ANTITRUST LAW IN PERSPECTIVE:CASES,CON-

CEPTS,AND PROBLEMS IN COMPETITION POLICY 396–97 (2002) (noting the distinction between

unilateral practices that might facilitate coordination as opposed to practices that are

adopted by agreement). A “facilitating practice” is “an activity that makes it easier for parties

to coordinate price or other behavior in an anticompetitive way.” See PHILLIPAREEDA &HER-

BERT HOVENKAMP,ANTITRUST LAW 1407B(2d ed. 2003). A facilitating practice makes tacit col-

lusion more likely to occur, and makes tacit collusion more effective. See id. Judge Posner

first coined the term in Richard A. Posner, Information and Antitrust: Reflections on the

Gypsum and Engineers Decisions,67G

EO. L.J. 1187, 1196–97 (1978). It has subsequently

enjoyed extensive use by U.S. antitrust scholars, lawyers, and judges.

6

See generally Matthew Bennett & Philip Collins, The Law and Economics of Information Shar-

ing: The Good, the Bad and the Ugly,6E

UR.COMPETITION J. 311, 315, 320 (2010) (“Well-

informed and confident consumers can play a key role in promoting vigorous competition

between firms…. The primary way in which information sharing can harm consumers is if

it has the effect of facilitating coordination. Specifically, it can play a role in allowing firms

to engage in, and sustain, tacit or explicit coordinated behaviour.”).

7

This is discussed in more detail in infra Part I.

8

See infra Part I.A.2.

9

See infra Part I.A.1.

2020 / Inefficiency of Quasi–Per Se Rules 47