Three (or more) is a magic number: hub & spoke collusion as a way to reduce downstream competition

Abstract:

The so called “hub-and-spoke” conspiracy combines horizontal collusion with some forms of vertical restraints, typically RPM and MFN. The economic literature has already shown that such vertical restraints may have horizontal effects and could constitute antitrust infringements.

The scope of this article is to show that hub-and-spoke collusion features some specific conditions, which makes it different from both purely vertical restraints and classic horizontal cartels. In order for the hub-and-spoke theory of harm to apply, the retailer(s) must have a significant degree of bargaining power vis-à-vis their suppliers. The retailers exploit such power to reach horizontal collusion at some level (either downstream or upstream), through a network of vertical restraints, with the ultimate goal of reducing competition at the downstream/retail level. The suppliers agree to engage in such conduct as they expect to share with the retailers some of the extra-profits derived from the reduction in downstream competition.