Q: I am confused about what kinds of agreements I am allowed to enter into with my competitors in our consortium. On the one hand, you have written that joint bidding for corporate accounts is allowed and even encouraged under the antitrust laws. On the other hand, I know that price-fixing and market-division agreements between or among competitors are illegal. However, aren't joint bids a form of price-fixing and market division? What's the difference, and what exactly are we not allowed to do under the antitrust laws?
A: I understand your confusion, as the antitrust laws are quite complicated in concept and hard to apply in practice, especially in a B2B context like corporate travel. However, let me try to explain the legalities as clearly as I can.
In corporate travel, what is illegal is an agreement between two or more competitors that reduces competition for travel management services. Conversely, if an agreement enhances competition by increasing the number of capable competitors, it is legal.
In other words, if a corporate procurement official could find that the amount of potential competition for the account has diminished as a result of any agreement among agencies, then that agreement surely violates the antitrust laws. On the other hand, if, due to the agreement, there is more competition than before, the agreement is fine.
Here is the simplest example of the kinds of agreements that diminish competition: agreements about the level of transaction fees, such as "let's all raise our online booking fee by $1" or "let's agree not to undercut our own prices during best-and-final negotiations."
Another kind of agreement that reduces competition is one that divides up markets horizontally, such as "I'll bid only on accounts east of the Mississippi and you bid only on accounts west of the Mississippi," in cases where both agencies are fully capable of handling corporate accounts nationwide.
Yet another kind of illegal division of markets is vertical, such as "I'll only bid on accounts over $3 million in air, and you bid only on accounts under that volume." However, such an agreement is illegal only if both competitors are able to handle both types of accounts.
A fourth type of agreement that would not pass muster is a teaming arrangement between competitors if each of them could successfully bid and perform separately. For example, an arrangement such as, "I'll be the prime contractor, and you'll be my women-owned subcontractor" is illegal if both agencies could meet the bid specifications by themselves.
By now, it should be clear that all these kinds of agreements are legal if the competitors bidding alone could not win or perform successfully if they won. For example, if a multinational account wants one contractor, an agreement among consortium members in each country enhances competition by increasing the number of potential winners beyond the mega-agencies.
Even price-fixing agreements that are part of joint bids that enhance competition will pass muster, as the joint bidders must obviously agree on pricing, even if they agree on different prices in different countries.
Of course, it is not always crystal clear whether a given arrangement enhances or diminishes competition. Therefore, proceed cautiously and get professional advice.
Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email him at [email protected].