Legislative Issues: B2B And Competition

Business-to-business (B2B) arrangements are all the rage in the commercial world and have been set up at a rapid pace over the last year. Many involve those in the ceramic industry, either as a way for ceramic companies to acquire goods and services, or as a means to market ceramic products. Some B2Bs appear to be functioning well, many are adjusting operations to meet the true needs of users, and others have ceased operations. Still others are in the planning stages and have not yet started to function in the marketplace.

A major legal issue with respect to B2Bs is whether they promote or retard competition. If the latter is true, then some real problems may arise under the antitrust laws. Both the U.S. Department of Justice and the Federal Trade Commission (FTC) have been looking at B2B matters to see if they promote or restrict competition. In late October, the FTC issued a staff report dealing with possible antitrust issues related to B2B transactions.

What is B2B?

Basically, B2B arrangements involve doing business over the Internet. Since there is no set method of conducting B2B business, some methods will present no antitrust problems at all, but others can raise serious issues.

It is estimated that the total volume of B2B trade will be at least $1.4 trillion by 2002 and $7.3 trillion by 2004. B2B presents a particularly exciting method for small businesses to access markets and suppliers on a large scale. B2B trading, if properly conducted, can greatly shorten the time for transactions to take place and can ensure that they occur with greater accuracy. This can make the entire supply chain process more efficient for everyone.

B2Bs have been organized under a variety of structures. Some involve only one seller linking to each of its customers, with its customers able to review products and services as well as price options online and place orders electronically. A customer can also check the status of its accounts and orders and perhaps track shipments. Other B2B trades are conducted by third parties who do not themselves buy or sell but provide online services that enable potential buyers to review a number of options for products, servicing and pricing and then electronically connect to the vendors they want to deal with.

The Antitrust Question

The type of B2B arrangement that raises the most antitrust questions involves cooperative efforts by members of the same industry to buy or sell over the Internet. Recently, the FTC examined a fledgling cooperative effort among General Motors, Ford, DaimlerChrysler, Renault and Nissan to provide services to firms in the automotive supply chain. These are, of course, among the largest automobile manufacturers in the world and compete with each other for sales. The entity formed is supposed to facilitate the purchase of supplies. The FTC has discontinued its investigation because the arrangement is still in the early stages of development without operating rules or terms for participant access. It does, however, indicate how cooperative B2B buying and selling can attract scrutiny.

Due to the diverse nature of B2B arrangements, the FTC has remarked that any inquiry into competitive issues is highly fact-intensive. This makes it difficult for enforcement agencies to state any general guidelines for them.

Pricing is the antitrust problem most commonly identified with cooperative B2B arrangements. If each participant can post its own individually established prices and is free to negotiate pricing with particular customers (e.g., “off-line pricing”) then a price fixing problem will probably not arise. Any restrictions on pricing can raise problems, however. For instance, a B2B arrangement involving restraints on participants to alter prices or requiring uniform prices would be almost certain to violate the antitrust laws.

In addition, a cooperative B2B arrangement that restricted credit terms or resulted in some members boycotting particular suppliers would also raise serious antitrust issues. Any B2B arrangement that mandated that members only deal with each other would also engender problems. The nature of some arrangements could be to accomplish such unlawful objectives in subtle fashion. Nevertheless, it would still be unlawful.

In addition to cooperative actions such as price-fixing, a B2B arrangement could also present antitrust problems if it were used to exploit a monopoly position, such as combining nearly all the members of a particular market segment in one selling pool in such a way as to enable them to raise prices or otherwise exploit a market.

Participants in joint B2B arrangements need to realize that under the antitrust laws, all members of a “conspiracy” may be held equally liable, even if they did not actively participate in the particular transactions raising questions. For this reason, anyone in the ceramic industry participating in a cooperative B2B venture needs to be certain that all arrangements are in conformity with the antitrust laws.