By Richard Meares
Industry moguls have hatched many a cartel on the golf course, but now competition authorities are watching closely to make sure they do not take their game online.

Old-economy industries have been urged to embrace the Internet, which many are now doing. But, one aspect of this nascent e-business that anti-trust authorities are watching closely is the trade exchange, where buyers or sellers in apparel, textiles, aviation, or any industry join to cut costs and do business more efficiently.

"There are very real competition issues here," said Brian Sher, a competition lawyer with international law firm Linklaters & Alliance.
If most of the world's aircraft makers get together, for example, they could dictate prices to their suppliers. The Net makes doing this far easier technically than it ever has been.

If such practices abound, an obscure word may enter the wider vocabulary - monopsony, where market power is held by buyers, rather than the sellers who have had the upper hand in the past through monopolies.

"Price fixing is going to be the thing that is subject to most suspicion. Any forum in which competitors meet could be used for joint bids or to swap information or to discuss prices," said Tim Frazer, a lawyer at Arnold & Porter in London.

Too much muscle
With globalisation most business to business (B2B) exchanges are transnational. "Obviously you shouldn't have 90 per cent of the buyers aggregated on a website. If they are going to buy collectively, it's going to raise some real issues," says Joel Klein, the US antitrust official who took on Microsoft.

The US Federal Trade Commission and the European Commission have looked at issues raised by exchanges such as these, but it is very early days.

Lawyers say the exchanges are likely to be approved or restricted on a case-by-case basis depending on the measures they have in place to limit or counter dubious activities.

Officials look not just at whether rival companies actively do something together online - such as fixing buying or selling prices - but at whether the risk of collusion exists through the companies' formal links inside an exchange.

Fair play for all
For example, they will check whether there is a level playing field for founder companies who jointly own an exchange and "outsiders" who have no stake but join to use the site.

To prevent unfair practices, officials say, there must be firewalls between those running the exchange and the parent companies who might benefit from access to the sensitive data about prices or customers posted by their rivals.

"The authorities will be concerned that information does not get into the hands of the owners of the exchange which could give them a competitive advantage," said Frazer.

Anti-trust authorities will also check to see if there is sufficient competition between market places - so that an exchange run by one consortium does not stifle all alternative ways of doing business within an industry.

"If there are two B2Bs that could still be a duopoly if they are both blocking out smaller players," Frazer said.

A spokesman for the Office of Fair Trading (OFT) said he was not aware of any exchanges that Britain's regulators had dealt with yet, but the issue is addressed in an OFT report available online at http://www.oft.gov.uk/html/rsearch/reports/oft308.doc.

"Internet technology might seem to offer the ideal micro-climate for collusion," the report warned.

"Regulators are trying to walk a fine line to ensure there is no collusion or exclusion of competitors," Linklaters's Sher said. "On the other hand they do not want to stand in the way of progress."

(C) Reuters Limited 2000.