Recently, there has been a flurry of press reports on the proposed price increases by several major manufacturers of household and personal care products, including multinationals such as Procter & Gamble and Unilever, as well as domestic manufacturers such as "Liby" and "Nice". Pursuant to the press reports, all four manufacturers mentioned above have separately announced that the retail prices for their respective brands of washing agents (including washing powders, soaps and shampoos) will increase by as much as 10% commencing from early April 2011. Commentators have said that this is the largest price hike that they have seen in relation to the household and personal care products industry, in the past 3 years.
Because the price increases by the manufacturers above were undertaken at the same time, there has been some discussion in the press in relation to whether this "collective price increase" would amount to collusion between competitors (in breach of the Anti-Monopoly Law).
When competitors increase prices of specific goods and services at the same time; this does not automatically or necessarily amount to collusion. It is possible that "unconscious parallelism" has taken place; that is that competitors have raised their prices independently as a result of common perceptions of industry developments. For instance, in relation to the above matter, we understand that some of the manufacturers have explained that the price hikes in washing agents is due to the increase in cost in raw materials used to manufacture these products (including petroleum). Other examples of where unconscious parallelism may take place include when a new product is introduced and demand for an outdated product shrinks – this would generally propel manufacturers of the outdated product to lower prices in relation to this product – in order to stimulate sales.
Pursuant to Article 13 of the Anti-Monopoly Law (AML), in order for an antitrust authority or a plaintiff to establish that a monopoly agreement exists, there must first be the existence of "an agreement, decision or [a] concerted practice" between competitors.
Pursuant to Article 6 of the Anti-Pricing Monopoly Regulation promulgated by the National Development and Reform Commission (NDRC)1 in establishing whether there has been a "concerted practice", the NDRC will consider a number of factors including: whether the business operators’ "pricing behaviors are consistent" and whether the business operators "have engaged in communication of intentions". Other factors such as market structure and any recent changes to this market structure will also be taken into consideration. Pursuant to Article 3 of the Regulation on Prohibition of Monopoly Agreements promulgated by the State Administration for Industry and Commerce (SAIC)2 , in order to establish a "concerted practice", the SAIC would also consider whether the business operators can justify this "consistent" business behavior with other reasons (other than collusion or coordination).
We are of the view that mere parallel conduct in itself would not constitute a breach of the AML (or its accompanying regulations); rather, there must be some evidence of collusion or coordination between competitors, in order to establish a breach of Article 13 of the AML. This is the position also, pursuant to United States antitrust laws and jurisprudence.
We will continue to monitor developments in relation to the above proposed price hikes – it will be interesting to see how this matter unfolds.
1The NDRC is the antitrust authority that governs price-related breaches of the AML.
2The SAIC is the antitrust authority that governs non-price related breaches of the AML.