(September 2012) Our annual financial ranking shows some remarkable shifts among the industry’s shareholder value leaders. Despite flat demand and low commodity prices, investor-owned...
e-Commerce Collusion? The Trustbusters Take Aim
most of the FTC commissioners seemed content at the workshop simply to foreshadow the possibility of regulatory oversight rather than arguing for a plan of action. The FTC regulators preferred to be in "learning mode," as they called it, and that comment appeared to please many in the audience.
Yet at least one other regulator saw potential problems of biblical proportions.
"I wonder if there is a serpent in the garden of [B2B] efficiencies," remarked Bill Cohen, deputy director at the FTC, perhaps skeptical of the "invisible hand" argument made by many executives, who argued that market forces would provide the best oversight.
Such fire-and-brimstone references may have put industry on the defensive. Analysts interviewed during and after the meeting noted that workshop participants spent their energy debating which e-commerce model deserves the most antitrust scrutiny, when they could have presented a united front against federal regulation.
For example, executives representing suppliers argued heatedly that consortium exchanges led by buyers would erode their profits to the point of bankruptcy.
"Buyer exchanges lower costs by starving the supply chain downstream," said Harpal S. Sandhu, president and chief executive officer at Integral Development Corp., a provider of B2B e-commerce software and services for capital markets.
Suppliers, he said, are concerned with rules dealing with fairness and unfairness.
"In the next four years, there will be 10,000 verticals," added Stephen Attanasio, president and CEO at WIZNET.Com, a content provider for e-commerce platforms. "How do you keep intellectual property, specifically? I don't want new business rules [on how to present my product on exchanges] because it will commoditize my product."
Buyers, on the other hand, alleged that supplier-led exchanges would lead to cartels that arbitrarily set prices too high and slash the buyer's profits.
"Supplier-led exchanges could lead to price-fixing, restriction of access, dissemination of information to suppliers, or preferential treatment," said one workshop attendee, adding that some suppliers may exclude other suppliers.
One antitrust lawyer attending the workshop was more blunt: "Collusion is not only possible, but likely."
Privacy Concerns: Can Gaming Be Prevented?
Some at the meeting raised concerns about privacy and criticized both supplier- and buyer-owned exchanges for their claims in neutrality.
Setting up a procurement exchange owned by competitors that conduct "arms-length" transactions with the "independent" company they've formed may not be enough to ensure the security of competitors' sensitive corporate information, said Kaushik Shridharani, managing director in equity research at New York investment bank Bear Stearns & Co.
In addition, he said, without regulatory oversight, consortium-led exchanges may be induced to perform "front running." Front running is a practice whereby a securities or commodities trader or the owner of a procurement exchange takes a position to capitalize on advance knowledge of a large upcoming transaction expected to influence the market price.
"For example, if Exxon-Mobil needs chemicals within a week, the price of that chemical will go up," Shridharani said.
To prevent that information from being used to game the market, Exxon-Mobil will want assurances such as non-disclosure agreements in all supplier deals, he explained. But non-disclosure agreements may not be