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Algorithmic Hub-and-Spoke Cartels: A Japanese Perspective

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The Digital Economy and Competition Law in Asia

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Abstract

The debate on algorithmic collusion has put the hub-and-spoke cartel in the picture. In Japan, a hub-and-spoke cartel, a cartel in which there is a vertical facilitator of horizontal collusion, has long been in existence. Kansei dango, bid-rigging on public procurement projects, have been assisted by bureaucrats. The problem with this kind of cartel was that the Japanese Antimonopoly Act (AMA) is not designed to make the vertical facilitator accountable for its cooperation with the cartel. This resulted in a legislative initiative to deal with the bureaucrats participating in the cartel. A similar evolution has been noticeable in relation to trade associations. This triggers the question of how the AMA can respond to situations in which an algorithm enters the role of facilitator. This contribution argues that an easy answer cannot be given. If the implementation of the algorithm is the result of communication between the enterprises participating in the collusion, the unreasonable restraint provision of the AMA, the provision relevant to price fixing, may be applicable. The only caution that remains is whether the algorithm is implemented at enterprises competing with each other. When an algorithm is able to impose a price on enterprises at another level in the market, and there is thus no communication, even indirectly, between competing enterprises, the Japan Fair Trade Commission may shift to the unfair trade practices provision. More specifically, the unfair trade practice of conditional dealing may apply to a situation in which an algorithm fixes the prices of sellers using the algorithm.

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Notes

  1. 1.

    Kameoka (2014, p. 44).

  2. 2.

    Kameoka (2014, pp. 44–45).

  3. 3.

    Kameoka (2014, p. 45).

  4. 4.

    Wakui (2018).

  5. 5.

    Law No. 54 of 1974, shiteki dokusen no kinshi oyobi kousei torihiki no kakuho ni kan suru houritsu [Law Concerning the Prohibition of Private Monopolies and the Assurance of Fair Trade] (AML). Available at: https://www.jftc.go.jp/en/legislation_gls/amended_ama09/index.html Accessed 15 December 2020.

  6. 6.

    See infra 4.2 Bureaucrats as the Linchpin of Bid Rigging outside the Scope of the Antimonopoly Law.

  7. 7.

    Act on Elimination and Prevention of Involvement in Bid Rigging, etc. and Punishments for Acts by Employees that Harm Fairness of Bidding, etc. (Act No. 101 of 2002). Available at: https://www.jftc.go.jp/en/legislation_gls/aepibr_files/aepibr.pdf. Accessed 15 December 2020.

  8. 8.

    Ezrachi and Stucke (2017, p. 1782). Digital eye has also been termed autonomous machine in an earlier version of the Ezrachi and Stucke’s work. Ezrachi and Stucke (2015, p. 7). The Secretariat of the Organization for Economic Co-operation and Development (OECD) merely acknowledges the different roles, but uses different names. The OECD distinguished between monitoring algorithms, parallel algorithms, signaling algorithms, and self-learning algorithms (OECD 2017, pp. 24–32). Niccolò Colombo has still used other terms for the four different roles: classical digital cartel, inadvertent hub-and-spoke, tacit algorithmic collusion and dystopian virtual reality (Colombo 2018, pp. 12–14).

  9. 9.

    Van Uytsel (2018, p. 157).

  10. 10.

    Ezrachi and Stucke (2017, p. 1782).

  11. 11.

    Van Uytsel (2018, p. 158).

  12. 12.

    OECD (2017, p. 30).

  13. 13.

    Tuytschaever (2015, p. 24).

  14. 14.

    OECD (2019, p. 18).

  15. 15.

    United States v. Lapier, no 13-30279, 2015 WL 4664689, par. 8 (9th Cir. 7 August 2015).

  16. 16.

    OECD (2019, p. 20).

  17. 17.

    OECD (2019, pp. 21–23).

  18. 18.

    OECD (2019, p. 25).

  19. 19.

    OECD (2019, p. 26).

  20. 20.

    OECD (2019, p. 26).

  21. 21.

    Case C-194/14 P, AC-Treuhand v. Commission EU:C:2015:717, par. 36.

  22. 22.

    Ezrachi and Stucke (2016, p. 49).

  23. 23.

    Ezrachi and Stucke (2016, p. 49).

  24. 24.

    Ezrachi and Stucke (2016, p. 51).

  25. 25.

    Ezrachi and Stucke (2016, p. 51).

  26. 26.

    OECD (2017, p. 27); see also Capobianco and Gonzaga (2017, p. 4).

  27. 27.

    Ezrachi and Stucke (2016, p. 49).

  28. 28.

    Ezrachi and Stucke (2016, p. 51).

  29. 29.

    Ezrachi and Stucke (2016, p. 55).

  30. 30.

    Meyer v. Kalanick, 174 F. Supp. 3d 817 (S.D.N.Y. 2016); Meyer v. Uber Techs., Inc., 868 F.3d 66 (2d Cir. 2017). For a discussion, see Bostoen (2019, pp. 159–160).

  31. 31.

    For a detailed discussion, see Algorithmic Collusion and Indian Competition Act: Suggestions to Tackle Inadequacies and Naivety [this volume].

  32. 32.

    Conseil de la Concurrence Grand-Duché de Luxembourg, Case 2018-FO-01, Webtaxi, 7 June 2018. Available at: https://concurrence.public.lu/content/dam/concurrence/fr/decisions/ententes/2018/decision-n-2018-fo-01-du-7-juin-2018-version-non-confidentielle.pdf. Accessed 15 December 2020. For a discussion, see Giannino (2018).

  33. 33.

    Meyer v. Kalanick, 174 F. Supp. 3d 817 (S.D.N.Y. 2016); Meyer v. Uber Techs., Inc., 868 F.3d 66 (2d Cir. 2017). The case was eventually dealt with in arbitration. Bostoen (2019, p. 160).

  34. 34.

    Conseil de law Concurrence Grand-Duche de Luxembourg, Case 2018-FO-01, Webtaxi, 7 June 2018.

  35. 35.

    Nowag (2018, p. 19). On the inflexible approach in the US, see Anderson and Huffman (2017, pp. 907–915).

  36. 36.

    Nowag (2018, p. 20).

  37. 37.

    Ezrachi and Stucke (2016, p. 54).

  38. 38.

    See Augustine, available at: http://www.columbia.edu/~hds2/BIB95/02occupation_augustine.htm#02. Accessed 15 December 2020.

  39. 39.

    See, e.g., Gerber (2010, p. 210) and Haley (2001, pp. 1–42).

  40. 40.

    See Vande Walle (2013a, p. 36).

  41. 41.

    See Haley (2001, p. 30).

  42. 42.

    Even though the text is seen to be an amalgam of United States’ competition laws, it is not denied that the Japanese bureaucracy had an impact on the content of the actual law. See, e.g., First (2000, p. 1) and Vande Walle (2013a, p. 137).

  43. 43.

    Posey T. Kime had served two terms at the Indiana State Court of Appeals before he transferred Antitrust Division within the Department of Justice. In this capacity he was asked to lead the newly formed Antitrust Legislation Branch within the Supreme Command of Allied Powers. This Branch was to implement the Edwards Report. Kime headed this Branch for less than one year. Haley (2001, p. 30).

  44. 44.

    Ariga and Rieke (1964, p. 441).

  45. 45.

    Ariga and Rieke (1964, p. 453).

  46. 46.

    Ariga and Rieke (1964, p. 444, n. 22).

  47. 47.

    Wakui (2018, p. 250).

  48. 48.

    Vande Walle (2013b, p. 124).

  49. 49.

    Seita and Tamura (1994, pp. 177–180) (indicating that this mutual support for relaxation of the AML already was a development much earlier than from the period of regaining independence. Also, the US was not necessarily opposed to the relaxation due to the changed socio-political and geographical circumstances).

  50. 50.

    Schaede (2000, p. 81).

  51. 51.

    Schaede (2000, pp. 81–82).

  52. 52.

    Wakui (2018, p. 51).

  53. 53.

    Inoue (2012, p. 58) and Hayashi et al. (2020, p. 47).

  54. 54.

    Wakui (2018, p. 53).

  55. 55.

    Wakui (2018, pp. 90–91).

  56. 56.

    Inoue (2012, p. 58).

  57. 57.

    Wakui (2018, p. 91).

  58. 58.

    Wakui (2018, pp. 52–53) and Ariga and Rieke (1964, p. 446).

  59. 59.

    Wakui (2018, pp. 53 and 90–91) and Ariga and Rieke (1964, p. 446).

  60. 60.

    Van Uytsel (2015, pp. 95–96).

  61. 61.

    Matsushita (1997, p. 172).

  62. 62.

    Matsushita (1997, p. 172).

  63. 63.

    Decision of the Supreme Court (Oil Cartel Case), 24 February 1984, Saiko Saibansho Keiji Hanreishu 38(4) 1287.

  64. 64.

    Wakui (2018, pp. 46–48).

  65. 65.

    Tokyo High Court (Newspaper Distribution Case), 9 March 1953, 3 Shinketsushu 4.

  66. 66.

    Wakui (2018, pp. 76–77).

  67. 67.

    Wakui (2018, p. 77).

  68. 68.

    Japan Fair Trade Commission (Hokkaido Butter Co. Case), 18 September 1950, 2 FTC Decision Reports 108.

  69. 69.

    Tokyo High Court (Toho-Shintoho Case), 7 December 1953, Gyosei Jiken Saiban Reishu 4(12) 3215.

  70. 70.

    Wakui (2018, pp. 77–78) and Seryo (2004, p. 11).

  71. 71.

    Wakui (2018, p. 78).

  72. 72.

    For the absence of a discussion on this issue Wakui (2018, pp. 76–78), Kameoka (2014, pp. 37–56), Inoue (2012, pp. 59–64), and Seryo (2004, pp. 11–12).

  73. 73.

    Kameoka (2014, pp. 50–51) (giving the example of a cartel member remaining passive). Another example of a different restriction would be if one enterprise would deal in territory A and the other in territory B, despite this being one type of a restriction, i.e. a territorial division.

  74. 74.

    Wakui (2018, p. 78).

  75. 75.

    Tokyo High Court (Social Insurance Agency Seal Case), 14 December 1993, 46-III Koto Saibansho Keiji Hanreishu 322.

  76. 76.

    Seryo (2004, p. 12).

  77. 77.

    Wakui (2018, p. 79).

  78. 78.

    Kameoka (2014, p. 45).

  79. 79.

    Wakui (2018, p. 79).

  80. 80.

    Seryo (2004, p. 12) and Kameoka (2014, p. 45).

  81. 81.

    This is especially reflected in note 2 of the guideline. Available at: https://www.jftc.go.jp/en/legislation_gls/imonopoly_guidelines_files/DistributionSystemsAndBusinessPractices.pdf. Accessed 15 December 2020.

  82. 82.

    Wakui (2018, p. 80).

  83. 83.

    Kameoka (2014, p. 45).

  84. 84.

    Wakui (2018, p. 80).

  85. 85.

    Wakui (2018, p. 104) and Schaede (2000, p. 76). Trade associations were regulated under the Trade Associations Law.

  86. 86.

    Schaede (2000, pp. 76–77).

  87. 87.

    Schaede (2000, p. 77).

  88. 88.

    Schaede (2000, p. 77).

  89. 89.

    For more details on the content of the law, Schaede (2000, p. 77).

  90. 90.

    Schaede (2000, p. 77).

  91. 91.

    Available at: https://www.jftc.go.jp/en/legislation_gls/imonopoly_guidelines_files/tradeassociation.pdf. Accessed 15 December 2020.

  92. 92.

    Schaede (2000, p. 126).

  93. 93.

    Cited by Schaede (2000, p. 127).

  94. 94.

    Ariga and Rieke (1964, p. 468).

  95. 95.

    Schaede (2000, pp. 126–128).

  96. 96.

    Available at: https://www.jftc.go.jp/en/legislation_gls/imonopoly_guidelines_files/tradeassociation.pdf. Accessed 15 December 2020.

  97. 97.

    Schaede (2000, p. 128).

  98. 98.

    Schaede (2000, p. 128).

  99. 99.

    Schaede (2000, p. 128).

  100. 100.

    Schaede (2000, p. 128).

  101. 101.

    Van Uytsel (2017) and Woodall (1996).

  102. 102.

    Usui and Colignon (2003).

  103. 103.

    A third tendering system, the limited (single) tendering system will not be covered in this paper. This tendering system is limited to (1) conditions of extreme urgency due to time constraints; (2) cases in which no firms have participated in an open or selective tendering system; (3) cases in which the successful tenderer failed to conclude the contract; (4) cases that only one particular supplier can offer the goods or services due to legal restraints; (5) in other cases where the order so provides. For a full explanation, Kusonoki (2007, p. 527).

  104. 104.

    Kaikei hou [Accounts Law], Law No. 35 of 1947, last amended by Law No. 53 of 2006 (Accounts Law).

  105. 105.

    Accounts Law, Articles 29-3(1) and 29-3(3).

  106. 106.

    It is only after the Saitama Saturday Club case that the government took the open tendering as the default. See Vande Walle (2012, p. 21).

  107. 107.

    Umeda (2010) and Kusonoki (2007, pp. 526–527).

  108. 108.

    Wakui (2018, p. 43).

  109. 109.

    Wakui (2018, p. 43).

  110. 110.

    Article 96(6) of the Criminal Code in Japan criminalizes bid rigging. However, due to the severity of the sanction and the social stigma attached to it, the Criminal Code provision is not used.

  111. 111.

    Wakui (2018, p. 45).

  112. 112.

    Kameoka (2014, p. 45).

  113. 113.

    Wakui (2018, p. 43).

  114. 114.

    Kameoka (2014, p. 45).

  115. 115.

    If it were a way to guarantee the same price among retailers, we would be dealing with retail price maintenance and not a hub-and-spoke cartel.

  116. 116.

    OECD (2017, p. 27); see also Capobianco and Gonzaga (2017, p. 4).

  117. 117.

    For the hub-and-spoke scenarios, see Ezrachi and Stucke (2016, pp. 47–50).

  118. 118.

    Ezrachi and Stucke (2016, pp. 50–52).

  119. 119.

    Nowag (2018, p. 19) and Anderson and Huffman (2017, pp. 907–915).

  120. 120.

    Wakui (2018, p. 181).

  121. 121.

    Designation of Unfair Trade Practices (Fair Trade Commission Public Notice No. 15 of June 18, 1982 as revised in 2009). Available at: https://www.jftc.go.jp/en/legislation_gls/unfairtradepractices.html. Accessed 15 December 2020.

  122. 122.

    Wakui (2018, p. 191).

  123. 123.

    Wakui (2018, p. 140). It is also stipulated that only the unfair trade practices qualified in the AML can be subject to a surcharge. For a short description of the problem in this book, Regulating Competition between Digital Platforms: The Japan Fair Trade Commission’s Preference for Unfair Trade Practices [this volume].

  124. 124.

    Regulating Competition between Digital Platforms: The Japan Fair Trade Commission’s Preference for Unfair Trade Practices [this volume]. The process of notification has recently been changed to a commitment procedure.

  125. 125.

    Regulating Competition between Digital Platforms: The Japan Fair Trade Commission’s Preference for Unfair Trade Practices [this volume].

  126. 126.

    Available at: https://www.japantimes.co.jp/news/2020/07/03/business/corporate-business/uber-starts-in-tokyo/. Accessed 15 December 2020.

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Acknowledgements

This chapter has received support of the project Artificial Intelligence, Price Setting Strategies and Antitrust Law: Towards a Regulatory Framework, a Grants-in-Aid for Scientific Research (C) with No. 18K01300.

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Van Uytsel, S. (2021). Algorithmic Hub-and-Spoke Cartels: A Japanese Perspective. In: Van Uytsel, S. (eds) The Digital Economy and Competition Law in Asia. Perspectives in Law, Business and Innovation. Springer, Singapore. https://doi.org/10.1007/978-981-16-0324-2_7

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