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- The concept of Hub and Spoke Cartel has been recognised under the Competition Act, through an amendment in 2023.
- A Hub and Spoke cartel refers to an arrangement wherein two or more undertakings, which are in competition with each other, interact with each other indirectly, through another undertaking, not directly in competition.
- For instance, an industry association may be considered as a Hub, if it is facilitating exchange of anti-competitive commercial information amongst the industry members, that is, the Spokes.
- In order to be considered anti-competitive, there must be an agreement between the spokes, to be bound together to the Hub. Therefore, a mere collaboration of competitors would not constitute an anti-competitive practice.
The Competition (Amendment) Act, 2023 introduced significant changes that strengthened the Competition Commission of India (CCI) to deal with contemporary issues concerning competition in the Indian markets. One such important amendment pertains to the codification of the concept of "Hub and Spoke Cartel" in the law. The Supreme Court of India, in Samir Agrawal v. CCI (2021) 3 SCC 136, explained the "Hub and Spoke" Cartel. In this model, a cartel requires its members, that is, "the Spokes" to use a third-party platform or "the Hub", for the exchange of commercial information in order to facilitate the cartelization.
More specifically, a Hub and Spoke Cartel can be defined as the indirect exchange of information between two independent undertakings which are horizontal competitors on supplier or retailer level ("Spokes"), through another undertaking operating at a different level of the production or distribution chain ("Hub"). The Hub facilitates the coordination of competition between the Spokes without direct contact between the Spokes. All the Spokes have an agreement with the Hub, which keeps every member of the cartel bound together to the Hub. This agreement is the "Rim" of the arrangement, in the absence of which, an alleged Hub and Spoke cartel does not establish horizontal collusion.
In traditional cartels, the competitors directly communicate and agree, whereas, in Hub-and-Spoke cartels, the Spokes coordinate indirectly through the Hub. The Hub enters into separate agreements with each Spoke. Sensitive information, such as prices, sales, or market share is collected by the Hub and passed between the Spokes thereby indirectly enabling the Spokes to fix prices, market or customer allocation, bid rigging, production restrictions or related concerted actions. There is usually no direct communication between the Spokes in a cartel.
For example, in one of the cases, an industry association was acting as a Hub. It acted as a central point and the member companies, considered as Spokes, used the association to exchange information on prices and supply, leading to coordinated pricing patterns.
The Competition Act, 2002 ("the Act") prohibits anti-competitive agreements, both horizontal and vertical, leading to an appreciable adverse effect on competition. The Hub and Spokes agreements were earlier outside the purview of the Act. However, post the 2023 amendment, there is explicit recognition for prohibition of Hub and Spoke cartels. According to the amendment, an enterprise would be held liable for cartelization under Section 3(3) of the Act even if it is not engaged in a trade similar to the cartel members because such an enterprise acts as a facilitator of the cartel.
Further, the amendment enlarges the liability of the Hub by making it liable for both explicit and implicit arrangements. According to the new provision, an entity participating in furtherance of an agreement is presumed to be part of the cartel, regardless of whether its business is identical or similar to the other participants. The amended law penalizes the intent to participate, apart from actual active facilitation. The change has played a pivotal role in allowing the CCI to investigate and penalize these more complex, indirect cartels more effectively.
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