Forming buying groups that comply with the antitrust laws

Raising some safeguards that may mitigate potential antitrust concerns

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.

Contributing Author

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Laura Wilkinson

Laura Wilkinson is an antitrust partner in the Washington, DC office of Weil, Gotshal & Manges with a practice focusing on mergers and acquisitions. Ms....

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