Decarbonisation Technology - August 2023 Issue

Vertical integration

Horizontal integration

Retailers

Wholesalers

Distributors

Manufacturers

Suppliers

Economies of scale

Figure 2 Examples of vertical and horizontal integration

facilities. The most common target of antitrust regulations is co-ordination among horizontal competitors, meaning firms supplying similar products or services. Although, some provisions also limit arrangements between vertically related firms in supplier-customer relationships. For horizontal competitors (such as two refineries or two plants supplying similar chemicals), the most obvious infringements to be avoided would be agreements on pricing of feeds or products (for example, agreements to set the same prices or to not cut prices of a particular product or service) or market allocation, thereby restricting one firm to some products and the other to different products. For example, in 2020, the European Commission concluded an investigation into four chemical companies that were found to have participated in a cartel concerning purchases on the ethylene merchant market between December 2011 and March 2017. They colluded to buy ethylene for the lowest possible price under supply agreements, which made reference to an industry price reference, or ‘Monthly Contract Price’ (MCP), resulting from individual negotiations between ethylene buyers and sellers. This was to the detriment of ethylene sellers. The companies were found to have colluded and exchanged information on purchase pricing. In particular, the companies co-ordinated their price negotiation strategies before and during the bilateral MCP ‘settlement’ negotiations with ethylene sellers to push the

MCP down to their advantage. The companies were fined a total of €260 million. For vertically related firms (such as an upstream supplier and its downstream customers), while there is some ability for regulatory authorities to scrutinise the price levels applied, concerns are more commonly raised if a given arrangement excludes other rivals, either at the upstream or the downstream level. For example, an upstream process facility might supply a critical ingredient to just one downstream customer, which could possibly harm competition with other rivals of that downstream customer within the same cluster. Similarly, a downstream firm might provide the exclusive opportunity to convert upstream products into saleable goods, or a downstream company might be the exclusive channel through which upstream products can be distributed to customers. In these cases, an exclusive arrangement might harm competition among upstream producers. Clustering for the greater good? The underlying premise of establishing a particular cluster might be of substantial societal benefit, for example, decarbonising a regional manufacturing zone comprising many carbon- intensive processes. At what point does the need to benefit the greater good outweigh the need to avoid antitrust concerns? In each of these cases, at least within European (and UK) competition policy, there is some scope to justify