Benchmark prices are common in many industries, especially for commodity products or logistical services such as containerised freight. These benchmarks can help overcome issues of information asymmetry and allow parties to negotiate better prices. However, the process of setting these prices is a sensitive one, and can potentially be abused to reinforce existing market imbalances.

This potential for abuse was precisely the backdrop of the Belgian Competition Authority's ("BCA") recent decision in the Belgapom case, which provides crucial guidance on how to ensure compliance for benchmark pricing models and information exchange mechanisms in trade associations.

In this article, we examine this commitment decision as an opportunity to explore the legal framework surrounding information exchange between competitors and its practical implications for sector associations.

Background

Since 2001, following the end of public price quotations by the federal government, Belgapom, Belgium's potato trade and processing association, which represents more than 95% of potato processors and traders, has published weekly price benchmarks for different potato varieties. The benchmark reflected "the most used price observed on the previous working day" for transactions between potato growers and their first buyers (traders or processors).

The BCA’s Assessment

Importantly, this publication of the benchmark price was preceded by weekly meetings of the Belgapom pricing commission, where members would directly communicate their individual purchase prices from the previous day and market sentiment assessments through multiple rounds of discussion. 

The BCA unsurprisingly considered that this constituted commercially sensitive information. Notably, the BCA took into account that the exchange related to very recent, non-aggregated and non-public information. An interesting point is that the case relates to purchasing prices rather than sales prices, which is a more classic issue. This decision aligns with broader European trends in competition enforcement which increasingly focus on purchasing markets.[1]

The Authority also took into account the manner in which the sensitive information was exchanged. Because the discussions in the Belgapom pricing commission took place through direct multilateral exchanges on video calls, competitors could directly associate strategic commercial information with particular competitors. The BCA considered that this posed substantially greater risks than anonymous systems, as they enable participants to attribute commercially sensitive information to specific companies.

Consequently, the BCA considered that the information exchanged facilitated potential coordination between the Belgapom members, by reducing uncertainty about their individual market behaviour.

Finally, the BCA also considered market characteristics. The Belgian potato market exhibits a striking structural imbalance in the Belgian potato sector, which is characterised by a highly fragmented supply side - comprising over 13,000 potato-growing businesses - and a concentrated demand side of less than 80 processors and traders. This asymmetry creates conditions where, as the BCA noted, coordination amongst buyers could be "more easily achieved and better maintained". 

Efficiencies

During the procedure, Belgapom had argued that the benchmark price benefits both purchasers and sellers, as it helps to remedy the information asymmetry which exists between potato producers and purchasers. The benchmark is also used to settle transactions on the futures market and by insurance companies.

The BCA, however, considered that these efficiencies do not justify the type of information exchanged (commercially sensitive, individualised, non-public and recent data) nor how it is exchanged (multilateral, direct and attributable exchanges). 

Committing to Compliance

Rather than pursuing a formal infringement decision, the BCA closed its investigation after accepting binding commitments from Belgapom.

Belgapom has implemented comprehensive structural reforms by abolishing all physical and digital meetings for price information exchange, replacing these with a digitalised platform where members individually submit data without sight of the competitor’s submissions. Belgapom’s CEO then determines quotations using predetermined criteria based upon aggregated data. The reference period has also been extended to capture the most frequently utilised price over three working days rather than one, thereby reducing commercial sensitivity through broader market representation.

The reformed system incorporates rigorous oversight through mandatory unannounced audits (minimum three annually) with invoice verification and sanctions ranging from suspension to permanent exclusion. An independent qualified auditor conducts annual reviews of data accuracy and quotation process, whilst Belgapom must submit comprehensive annual reports to the BCA throughout the 2024-2026 implementation period, ensuring continuous regulatory supervision during this transitional phase.

Key takeaways 

Associations operating information exchange mechanisms should consider:

1. Risk Assessment: Evaluate whether current practices involve the exchange of commercially sensitive information between competitors, and consider the exchange's risk profile based on the nature of the information exchanged, how it is exchanged and on the characteristics of the market.
2. Structural Review: Market conditions change (e.g., acquisition causing a reduction of the number of market players, reorientation of the product focus, etc.). It is advised to ensure recurrent reviews of the information exchange system to enable adjustment where needed. 
3. Technology Solutions: Explore digital platforms that can aggregate information whilst maintaining anonymity.
4. Governance Framework: Implement clear methodologies and oversight mechanisms.

If you need more information or further guidance in this area, please contact Baptist Vleeshouwers and Claire De Neve.

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[1] Commission Decision AT. 40669, End-of-life vehicle recycling.; Commission Decision AT.40018, Recycling autoaccu’s.; Commission Decision AT.40410, Ethyleen.