Hub-and-spoke Cartels

In the current competition law regime, the investigations to prove the presence of a cartel arrangement foc­uses heavily on determining the presence of collusion either at a horizontal level or at a vertical level. This leads to a difficulty in dealing with what is popularly known as “hub-and-spoke arrangements,” which operate in the form of a hybrid of the horizontal and vertical arr­angements. Hub-and-spoke agreements operate through the coming together of act­ors operating at one horizontal level of the economic process (the spokes) controlled through a common agent operating at a different level (the hub), thus creating a space wherein the exchange of information is facilitated through the common agent between the various parallel and competing horizontal actors resulting in facilitation of collusions in the market.¹ Hub-and-spoke cartels can have the same negative effect in the markets as is achieved though the horizontal agreements without the information ever getting transferred directly bet­ween the competitors situated on the same horizontal plane, thus making it difficult for the investigators to prove the presence of a collusion among the competing businesses.

The Competition Commission of India (CCI) has investigated a few cases wherein the parties have alleged the presence of a hub-and-spoke agreement, but the same contentions were not traversed in detail. This hesitation can be pinpointed to a gap in law that would allow for the pen­alisation of the vertical actors operating in a hub-and-spoke arrangement. More times than not, the courts do not usually go forward to hold agreements operating vertically as being anti-competitive until and unless they explicitly show an “appreciable adverse effect on competition” and at the same time is not mandated the test of “rule of reason.”²