Many companies are turning to joint purchasing agreements or buying groups in order to lower procurement costs. Courts and the antitrust agencies acknowledge that many joint purchasing agreements are procompetitive because they allow companies to lower input costs and achieve other cost savings. These purchasing efficiencies, however, have to be balanced against the potential to create monopoly buying power (monopsony power) and facilitate collusion through standardization of costs and information sharing. Therefore, joint purchasing arrangements can raise antitrust concerns if the arrangement accounts for so large a portion of the purchases of a product or service that the buying group can effectively exercise market power in the purchase of the product or service (“monopsony concern”); or the products or services being purchased jointly account for so large a proportion of the total cost of the products or services being sold by the participants that the joint purchasing arrangement may facilitate price fixing or otherwise reduce competition (“collusion concern”).
In the United States, the Department of Justice, Antitrust Division (DOJ) and Federal Trade Commission (FTC) address joint purchasing arrangements in two documents: the DOJ/FTC Antitrust Guidelines for Collaborations Among Competitors (Competitor Collaborations Guidelines) and the DOJ/FTC Statements of Enforcement Policy in Healthcare (Health Care Statements), which provides an analytical framework that may be applied in contexts outside the health-care field. Both documents provide safe harbors for joint purchasing arrangements. Under the Competitor Collaborations Guidelines’ safe harbor, absent extraordinary circumstances, the Agencies will not challenge any joint purchasing arrangement when the market shares of the venture and its participants collectively account for no more than 20 percent of any relevant market — upstream or downstream. Under the Health Care Statements’ safe harbor, absent extraordinary circumstances, the agencies will not challenge any joint purchasing arrangement where the purchases account for less than 35 percent of the total sales of the purchased product or service in the relevant market, and the cost of the products and services purchased jointly accounts for less than 20 percent of the input costs of the products or services sold by each competing participant in the buying group.
A joint purchasing arrangement that falls outside of the safe harbor does not necessarily raise antitrust concerns, but such an arrangement should be carefully examined. Indeed, there are some safeguards which, if adopted by the participants in the buying group, may mitigate potential antitrust concerns:
- Ongoing monitoring and analysis of purchasing levels and market shares to ensure that the levels do not go too far above the safe harbors.
- Allowing for optionality so that members of the buying group are not required to utilize the joint purchasing arrangement for all of their purchases of a particular product or service.
- Using an independent negotiator or agent to conduct negotiations on behalf of the buying group.
- Implementing reasonable information sharing safeguards including keeping confidential any communications between the buying group and each individual member, and where the buying group negotiates on behalf of the members, it should not share with any member the prices previously paid by other members.
- Communicating carefully with suppliers to avoid the risk of a per se violation of the antitrust laws for fixing prices. A careful approach when negotiating with suppliers may include beginning by asking what the supplier’s price would be based on the group’s larger proposed purchase volume rather than dictating a price to the supplier.
- Limiting the buying group’s activities to the legitimate joint purchasing function and not entering into agreements, understandings, or discussions regarding other activities.
- Providing antitrust counseling to personnel who will have negotiating and purchasing roles, or have access to other members’ competitively sensitive information.
Although it may not be feasible to include all of these safeguards into a specific joint purchasing arrangement, best practices involve incorporating as many of them as practical to mitigate potential antitrust issues where the safe harbors are not applicable. In addition, companies have the option to use the DOJ’s business review process to seek guidance from the government regarding proposed terms of a joint purchasing arrangement or other joint conduct.