Price Fixing

Any kind of cooperation between HEIs regarding prices for higher education or research[1] could be regarded as price fixing. This seems less problematic when it comes to research. As has been said above, HEIs only fall under the competition provision if they conduct research of an economic nature. In that case they must not fix prices. This fact does not generally seem to result in any unforeseen detrimental consequences for HEIs. On the other hand, the prohibition of price fixing might indeed cause problems for HEIs regarding tuition fees. If governmental regulations set, or put a cap on, tuition fees, this could still constitute price fixing, in cases where government rules allow scope for price competition and HEIs collaborate within this margin, for example by exchanging information in university associations. Additionally, governmental measures demanding or encouraging price fixing could equally be anti-competitive according to Article 4(3) TEU in conjunction with Article 101 TFEU.

Whilst there is no case law by the Court yet, the OFT has already investigated a group of private schools and found them to have been engaged in anti-competitive collusion.[2] The schools had conducted a ‘survey’ each year from 2001 to 2003 regarding each other’s future pricing. The sharing of confidential information, such as the prices for the coming academic year, is regarded as an infringement of competition by object, if it is conducted on a regular basis, relates to future conduct and the information is not available to the public. The OFT, therefore, did not evaluate the question whether this actually had any effect on the price levels. Instead it found the schools guilty of ‘participating in an agreement and/or concerted practice having as its object the prevention, restriction or distortion of competition in the relevant markets for the provision of educational services’. The schools each had to pay a fine of ?10,000.[3]

The OFT in its ‘call for information’ on the English higher education sector had also taken an interest in the fact that, after the fee cap was set to ?9000 in England for most HEIs, a move which had initially expected fee competition below this threshold, a majority of providers had charged the maximum possible with very little competition as regards fees. While it stated that any collusion in this regard would clearly be anti-competitive, it did not take any immediate steps as it had found no clear evidence for collusion and other explanations to justify the parallel behaviour were possible.[4] Yet, it has to be born in mind that the absence of evidence, does not necessarily indicate the absence of collusion and it can certainly be said that fierce price competition did not materialise. Indeed, the OFT did advise its successor, the Competition and Markets Authority (CMA), to investigate in the future should any further information submerge.[5]

Another possible price fixing incident occurred in the Netherlands. Due to newer legislation (Wet Versterking Besturing, Strengthening Administration Act 2010), Dutch universities could set tuition fees independently. It appears from media coverage that, after the government discontinued funding for second degrees and the universities had therefore introduced higher fees for such degrees, a student organisation (Stichting Collectieve Actie Universiteiten, Foundation Collective Action Universities) initiated legal proceedings against eight Dutch universities for charging excessive prices.[6] The writ for these proceedings apparently also included minutes of common discussions between the Universiteit Amsterdam and the Vrije Universiteit Amsterdam agreeing on prices for second masters degrees. This has then led to investigations by the Dutch competition authority (Nederlandse Mededingsautoriteit, NMa) into a possible cartel between these universities fixing prices for second bachelor and/or masters degrees except for medical subjects.[7] The investigation was closed when the universities offered to discontinue fixing prices with each other or other universities.[8]

These examples illustrate that educational institutions are not beyond the reach of the competition provisions. The prohibition of price fixing is, inter alia, intended to protect the consumer. In the cases reported above, the application of competition law would presumably achieve that aim. However, currently, with governmental funding still prevailing and higher education still considered as being in the general interest, one could imagine cases where such a collusion would be to the advantage of the students, encouraging fair pricing and equal access. Challenging this could thus be harmful to the general interest involved. This can be illustrated in a German case regarding public music schools.[9] The music schools entered into contracts with self-employed teachers, requiring them not to charge prices higher than 85 German Marks per hour of tuition. In return, the teachers were allowed to use the facilities of the music schools for their lessons and the school would arrange their contracts. The school fixed the price with the teachers in order to allow equal and low pricing, so that everybody could have access to music education. The arrangement was challenged by a music teacher, who wanted to charge higher prices for her lessons. The German court regarded the music school, as well as the self-employed teachers, as undertakings[10] and the contract terms of the music school as price fixing. This case nicely illustrates how in such cases the prohibition of price fixing could be to the detriment of the students. Additionally, the constellation of the case makes one wonder whether, in the final consequence of the thought, even governmental regulation regarding tuition fees could be challenged under Article 4(3) TEU in conjunction with Article 101(1) TFEU. While not actually challenging the fee cap in England, the OFT and CM A in their evaluations[11] have in fact pointed to competitive issues in this regards. In particular it was pointed out that the fee cap would hinder innovation as regards course structures. Since it is set per year, accelerated courses would, for example, be made less attractive to providers.[12]

Another example where price fixing could have positive effects for students can be derived from a case in the US. The Department of Justice has investigated HEIs for price fixing violating the Sherman Act (US American Competition Law Act) in the early 1990s.[13] HEIs had agreed on a policy according to which they would discuss what they believed an applicant who had applied to a variety of HEIs could pay. They would then offer financial aid to this applicant accordingly, so that the student’s financial burden would remain unchanged, regardless of which offer he or she accepted, although the level of tuition fees differed between universities. The aim of the scheme was to ensure that students would pay a price they could afford and that financial help would only be given as to the shortfall. In this way, HEIs would not compete on the basis of financial aid, thereby allowing more students to profit. Instead, HEIs would compete on the quality of their services.[14] Whilst some HEIs ended the dispute in a settlement agreeing to discontinue the allegedly anti-competitive behaviour,[15] the Massachusetts Institute of Technology continued the trial and was found guilty of price fixing in the first instance.[16] In the appeal decision, the Third Circuit decided that the rule of reason in US American Antitrust law requires a more thorough weighing of pro- and anti-competitive effects and referred the case back.[17] Before a final decision could be reached, a compromise was found and the dispute ended in a settlement the terms of which were then to be applicable to all HEIs.[18] This settlement, inter alia, provides that HEIs are allowed to give financial aid according to need, to agree on methods to determine need and to involve a third party to gather financial background information on applicants which will then be provided to all HEIs involved. It prohibits, however, agreement on common fees.

Whilst, thus, in the end, a compromise was reached which was actually very close to the original scheme, the case nevertheless shows the possible threats arising from competition law for the public service character of HEIs.[19] At the same time, it also shows the possibility of compromise in this regard and could serve as an example for European HEIs should competition law become more generally applicable to them. A problematic aspect in this regard is the fact that there is no rule of reason in EU competition. Thus it would have to be seen in how far the case law on ancillary restraints[20] or Article 101(3) or 106(2) TFEU could be utilised. As regards the ancillary restraints case law, the price fixing in this case was not just a side effect of an otherwise unproblematic main agreement. The more economic approach towards Article 101(3) TFEU and the fact that price fixing is a hardcore restrictions makes such an agreement neither an obvious fit under this provision. Article 106(2) TFEU seems to be the most likely avenue. However, that would require an entrustment act.

  • [1] Any additional potentially economic activities conducted by HEIs (e.g. housing for students,university branded merchandise etc.) shall be left aside in the following, as they are not the mainpurpose of an HEI as explored in Chap. 1 (Sect. 1.3.1) above.
  • [2] oft Decision CA98/05/2006 from 20 November 2006 available on http://webarchive.nation-alarchives.gov. uk/20140402142426/http://www.oft.gov.uk/OFTwork/competition-act-and-cartels/ca98/decisions/schools. The OFT applied the prohibition in s 2(1) Competition Act 1998, theequivalent to Article 101(1) TFEU. For more on the case see Swennen 2008/2009, p. 277; Amatoand Farbmann 2010, p. 10 seq; Greaves and Scicluna 2010, pp. 13, 21 seq; Gideon 2012, p. 175.
  • [3] Certain exception where applicable, for example, because of Crown immunity. The schoolshad also agreed to pay into an ‘educational trust fund for the benefit of pupils who attended theParticipant schools during the academic years’ which was taken into consideration by the OFTwhen calculating the fine (ibid). Interestingly and somewhat strangely, the latter was (unsuccessfully) attempted to be used as precedent in T-486/11 Orange Polska (Judgment of 17 December2015, EU:T:2015:1002) (an abuse of a dominance case in front of the General Court in which aformer public monopolist in the telecommunications sector abused its dominance in providingthe network in order to enhance its position in the neighbouring broadband market) to offset partof the fine by subsequent investments into the network.
  • [4] OFT 2014, para 6.5 seq.
  • [5] Ibid.
  • [6] de Pous I (2011) Amsterdamse universiteiten gedaagd om prijsafspraken (English translation: Amsterdam universities sued for price-fixing). de Volkskrant, 1 September 2011 http://www.votkskrant.nl/vk/nl/4884/Bezuinigingen-in-het-hoger-onderwijs/article/detail/2880822/2011/09/01/Amsterdamse-universiteiten-gedaagd-om-prijsafspraken.dhtml. Accessed 14 October 2011,Myklebust JP and O’Malley B (2011) NETHERLANDS: Dawn raids over ‘illegal’ tuition fees.University World News, 7 September 2011 http://www.universityworldnews.com/article.php7story=20110907191951868. Accessed 23 September 2011, Dijkstra PT (2011) Amsterdam Universitiesfix prices: how to prevent this from happening? knowledge debate, 5 September 2011 http://www.rug.nl/kennisdebat/onderwerpen/actueel/universitiesFixPiices. Accessed 14 October 2011.
  • [7] NMa (2011) Bedrifsbezoeken NMa bij Amsterdamse universiteiten (English translation:Company inspection by NMa in Amsterdam universities). http://www.nma.nl/documenten_en_publicaties/archiefpagina_nieuwsberichten/webberichten/2011/20_11_bedrijfsbezoeken_nma_bij_amsterdamse_universiteiten.aspx. Accessed 12 October 2011. For more on the case seeGideon 2012, p. 175.
  • [8] NMa (2012) NMa accepteert maatregelen van UvA en VU (English translation: NMa acceptscommitments by UvA and VU). https://www.acm.nl/nl/publicaties/publicatie/10780/NMa-accepteert-maatregelen-van-UvA-en-VU/. Accessed 16 October 2012.
  • [9] BGH Judgement 23.10.1979 in (1980) 82 GRUR 249. For more on the case see Kroitzsch1980, p. 251 seq; Swennen 2008/2009, p. 277; Gideon 2012, p. 178.
  • [10] In C-413/13 FNV Kunsten Informatie en Media (Judgment of 4 December 2014,EU:C:2014:2411) the Court declared that self-employed musicians may under certain circumstances (i.e. work under direction, no sharing of commercial risks, economic unit with theemployer’s undertaking) be regarded as ‘false-self-employed’. It was left open to the nationalcourt to determine that. In any case, however, the situation was different from that in theGerman Music School Case, as it did not concern music teachers, but replacement musiciansfor orchestras who conducted exactly the same tasks as employed replacements. Furthermore,the agreement had been made in the context of collective bargaining between a union representing employed and certain self-employed musicians and the employers. Thus it seems doubtfulin how far this could be applicable in a scenario such as the one in the German Music SchoolCase. Indeed, the Court stated that in general the self-employed musicians were to be regarded asundertakings (para 27).
  • [11] Being a national competition authority examining the sector under national law, they did notchallenge the national legislation, but evaluated it as an advisory body for policy changes (OFT2014, para 7.3), as a variety of issues with competitive neutrality had been identified followingthe Call for Information. On these issues see OFT 2014, Chap. 7 and CMA 2015.
  • [12] OFT 2014 para 7.17, CMA 2015 para 5.45 seq. It would appear that the envisaged changes inthe English higher education sector still foresee the cap for the future. However, it is intended tobe adjusted with inflation which only certain HEIs which perform well in the planned TeachingQuality Framework can charge. See BIS 2015, p. 57 seq, BIS 2016, p. 40 seq.
  • [13] Complaint, United States v. Brown Univ., No. 91-CV-3274 (E.D. Pa., filed May 22, 1991).For more on the case see Salop and White 1991; Carlson and Shepherd 1992; Stachtiaris1993/1994; Petronio 1994-1995.
  • [14] See Salop and White 1991, p. 198 seq who, however, doubt that such arguments would standup in Court under antitrust law (the article was written before the actual proceedings had beenstarted), Carlson and Shepherd 1992 who, however, oppose the scheme, as they believe it waseconomically inefficient and Stachtiaris 1993/1994, p. 746 seq.
  • [15] Stipulation, United States v. Brown Univ, No. 91-CV-3274 (E.D. Pa., filed May 22, 1991).
  • [16] Decision and Order, United States v. Brown Univ., No. 91-CV-3274 (E.D. Pa., filed Sept. 2, 1992).
  • [17] Opinion of the Court, United States v. Brown Univ., No. 92-1911 (3d Cir. Sept. 17, 1993).
  • [18] Letter of 22 December 1993 by the US Department of Justice—Antitrust Division, available onhttp://www.appliedantitrust.com/06_reasonableness/brown/litan_thane_settlement12_22_1993.pdf.
  • [19] Similar Stachtiaris 1993/1994, who argues that therefore HEIs should not fall under antitrustlaw in the first place.
  • [20] See n 145 above.
 
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