Ananlysis Of Hub & Spoke Cartel

Author: LawSphereX

Category: Competition Law

Published: 2026-08-23T18:01:15.825406+00:00

Updated: 2026-08-26T17:12:09.442+00:00

ANANLYSIS OF HUB & SPOKE CARTEL

Siya Pasriza, B.B.A LL.B. (Corporate law), UPES, Dehradun Tripti Priya, B.B.A LL.B. (Corporate law), UPES, Dehradun

ABSTRACT

Recently, there has been a lot of public debate about amendments to the Competition Act, 2002 and due to the dynamic changes in various industries questions have been raised about the competency of Competition Commission of India to provide solutions to issues emerging in the field. Due to this The Ministry of Corporate Affairs has drafted Competition (Amendment) Bill, 2020 and kept it open for public comments. Amongst various changes, it also addresses a new issue of Hub and Spoke Agreements. Hub and spoke agreements share aspects of both horizontal and vertical anticompetitive agreements, but do not fit neatly into either. This article examines the hub and spoke agreements, their economic implications, and the market as a whole.

The proposed amendment is scrutinised by addressing its benefits and drawbacks, and a comparison with other countries such as the United States, the United Kingdom, Germany, Poland, Russia, and the European Union is made. Finally, the study proposes practical solutions to address anticipated issues during the amendment's implementation. Keywords: Horizontal Agreements, Vertical Agreements, Hub and Scope Agreements, Draft Competition Amendment Bill, 2020 and, Economic Effects

INTRODUCTION

Hub and Spoke ("H&S") agreements are a kind of vertical agreements that combine two anticompetitive agreements. Each agreement has a different party for each agreement (the "spokes") and a common party (the "hub"). In the production chain, the hub is at a different level than the spokes, which are rivals functioning at the same level. Through the Competition (Amendment) Act of 2023, the Indian legislature amended the Competition Act of 2002 (Act). As part of these changes, Section 3(3) of the Act now includes an explanation proviso. Huband-spoke cartels and other hybrid anti-competitive arrangements are specifically recognised under this proviso. Additionally, it acknowledges partners that are not involved in the same industries, such as facilitators or intermediates. In markets, the Hub and Spoke cartel structure is becoming more and more common.

It operates under the pretence of a legal structure. It is made up of three primary parts: a) An intermediary, or hub b) Spokes (competitors/horizontal players) c) A vertical accord, or rim in a hub-and-spoke cartel, each spoke and the hub have an agreement that binds all of the cartel members to the hub. The perimeter of the arrangement is this agreement. It is impossible to form a Hub and Spoke cartel without determining the rim. The phrase "hub and spoke" comes from the metaphor of a wheel, in which the parties involved in the same stage of the production cycle are the spokes, the participant—who could be the retailer or a common supplier—is the hub, and the agreement—which is the rim—is the wheel. This arrangement creates a working mechanism.

OBJECTIVES

The Hub and Spoke cartel aims to generate above-average profits for its members, central hubs, and satellite spokes, by stifling market competition. To address this issue, we must analyse the underlying factors enabling such agreements to arise.

METHODOLOGY

This research paper was set up using a theoretical approach to research, which incorporates a variety of auxiliary information from various sources, including books, articles, research papers, online legitimate data sets, uncovered demonstrations, and so on. The information gathered from these sources structures the essence and content of the research project in order to arrive at an equitable conclusion.

EVOLUTION OF HUB &CARTEL LEGISLATION IN INDIA

The hub-and-spoke cartel dispute was initially brought up in the 2017 case. Hyundai of Fx Enterprise Solutions (India) (P) Ltd. v Motor (India) Ltd1., but the CCI expressed no view regarding the cartel's existence at that time. In Samir Agrawal v. ANI Technologies (P) Ltd2., a case from 2018, the issue of the hub-and-spoke cartel's existence was brought up once more. CCI looked at things like spokes exchanging sensitive information through the hub and whether

there was any price-fixing conspiracy in an effort to uncover hub-spoke collusion. But since there was no hub-and-spoke cartel found and there was no evidence of cooperation between the opposing parties, the CCI rejected the case. In a report that was released by the Ministry of Corporate Affairs 3in 2019, the Committee suggested that Section 3(3) of the Act be amended to provide an explanation that would clearly ascribe the hub's obligation based on the rebuttable presumption rule that is already specified in that section. It is important to note that the inclusion of hub-and-spoke cartels is highlighted in the aforementioned report as "expressly including hub-and-spoke cartel in Section 3(3)," suggesting that the recommendation aims to provide further context to the current provision. However, the report adds that "knowledge" and "intention" are not needed factors in the explanation.

Following that, in the draft of the Competition (Amendment) Bill, 2020, the following explanation was proposed: "Providing that an enterprise or association of enterprises or a person or association of persons, though not engaged in identical or similar trade, shall also be presumed to be part of the agreement under this sub-section if it actively participates in the furtherance of such agreement. "... Later, the same explanation was proposed to be included in the Competition (Amendment) Bill, 2022, where a lot of discussion focused on "active participation," because it was unclear what

1 2017 SCC OnLine CCI 26.

2 2018 SCC OnLine CCI 86.

3 Government of India, Ministry of Corporate Affairs, Report of Competition Law Review Committee (July 2019).

"active participation" meant. As previously noted, the proposed amendment does not require the hub's "intention" or "knowledge" because it is based on the rebuttable presumption rule under Section 3(3) of the Act. The CCI has traditionally used Section 3(1) to consider agreements that are neither horizontal nor vertical, or that contain both of these aspects. In the Hiranandani Hospital case, the majority of the CCI expressly held that anti-competitive agreements that did not fall within the scope of Section 3(3) or Section 3(4) could still be covered by Section 3(1), which prohibited all forms of anti-competitive conduct and was not limited by sub-sections (3) or (4). The majority order stated that Section 3(1) was enforceable independently of Sections 3(3) and 3(4) since the latter were expansions of Section 3(1) and did not limit its scope.

While the majority ruling was overturned on appeal, the then-appellate tribunal, COMPAT, did not address whether Section 3(1) may be implemented without regard to Sections 3(3) and 3(4). Over time, Section 3(1) has been utilised independently, and the current position appears to be that, even if hub-and-spoke systems cannot be evaluated under the cartel provisions of Section 3(3), they can still be assessed under Section 3(1).

CHARACTERSTICS OF HUB & SPOKE CARTEL AGREEMENT

To establish a hub-and-spoke cartel, there must be proof of anti-competitive activity, such as an explicit collusive aspect. To demonstrate the hub's liability, the plaintiffs must provide evidence of a horizontal agreement between spokes, participation by the vertical participant (hub), and active facilitation of the scheme. Furthermore, it is important to remember that many conversations between the hub and each spoke are usually required to obtain an agreement. This evidence-based reasoning was produced in cases such as Toys "R" US and Apple e-book, where the US Court determined that these hub-and-spoke cartel arrangements are basically horizontal and thus must be reviewed under the per se rule.

Furthermore, based on the study of situations in the United States and the United Kingdom where hub-and-spoke agreements have been shown, it is determined that the major goal of the aforementioned agreements is to facilitate horizontal coordination. This coordination will be carried out among the spokes, who are often competitors functioning at the same level. The interaction will be facilitated by the hub, which functions on a distinct level. However, explicit collision between the spokes is demonstrated through indirect communication via the hub. As

a result, hub-and-spoke agreements are essentially horizontal agreements and are examined using the per se criteria.

TYPES OF H&S AGREEMENT

a. Pure H&S Agreement: In a pure H&S agreement, the hub serves as a means of communication between rivals. It merely facilitates cartel development and plays no other role in the process. The conduct of the parties, the market, and so on will decide any restrictions or harmful effects on competition. b. Mixed H&S Agreement: A mixed health and safety agreement allows for both horizontal and vertical constraints. For example, in addition to exchanging information, the hub may impose vertical limitations such as Resale Price Maintenance ("RPM"), tie in agreements, and so on in order to promote the horizontal agreement or to profit itself. It not only encourages collusion, but actively participates in it.

ECONOMIC ANALYSIS OF H&S AGREEMENT

By bearing in mind two fundamental ideas, an analysis of the H&S arrangement's economic components can be produced. The first is the fundamental tenet of economics, which is the inverse relationship between supply and pricing and the direct proportionality between demand and price. The second premise is the beneficial effects of competition on the market, which include enhanced efficiency, higher productivity, fair and competitive pricing, international competitiveness and innovation, and the promotion of dynamic markets and economic growth. Because a monopoly at any level will negatively impact the traders at other levels, it may be detrimental to H&Ss' economic interests at several stages of the production chain. As an illustration, suppose that A supplies the product 'R' and serves as a central point of contact for producers B, C, and D of R.

In the event that this arrangement causes the market for R's production to become an oligopoly and the spokes become the only producers who can make a profit, they will eventually raise their selling prices, forcing A to comply with their demands because there are no other options. In a similar vein, could R's supplier market turn into a

monopoly As A emerges as the sole producer, the spokes must likewise yield to its demands.4 One cannot assume harm, as in the circumstances of direct collusion, if the interaction between the horizontal market actors is wholly indirect, occurring through a common hub and solely through vertical transactions between actors on various market levels. Every day, suppliers and their retailers deal with vertical constraints and information exchanges, including that which is competitively sensitive. These interactions are frequently efficient and pro-competitive because they can resolve a variety of commitment issues that may arise between independent vertical actors and can heighten inter-brand competition. When a restriction would encourage cooperation, cause competitors to foreclose, or weaken competition, harm could result.5

A. ECONOMIC INCENTIVES

As a result, it is crucial to comprehend the financial incentives for these agreements. The OECD offers four scenarios, each of which has financial advantages that H&S can take advantage Retailers' requests are addressed by the supplier: If the retailer isn't the market leader, the supplier has two options: either it lowers prices at the retailers' request, which will send the retailers into an unending downward spiral of ever-increasing losses, or it allows the retailers to set standard or coordinated prices through an H&S arrangement. The supplier and retailers will make more money from this than they would from uncoordinated reduced prices, even though the overall sales would decline as a result of the higher prices. 6

B. LARGE ECONOMIC EFFECTS ON THE MARKET

An H&S agreement offers the parties a number of incentives and benefits, as was previously indicated, but it will unavoidably have anti-competitive repercussions. The idea of harm states that these kinds of agreements will not only impede economic growth but also have an impact on the free flow of trade within the market. Retail prices for the goods and services will inevitably rise as a result of these coordinated tactics, which will be detrimental to customers' interests. This could lead to a decline in demand and a search for alternatives by customers, which would be detrimental to the H&Ss industry. Aside from the product's quality and sales 4 Anumeha Agrawal , Akansha Singh , Hub and Spoke: An Analysis of the Existing International Scenario and the Draft Competition Amendment Bill 2020, Vol. 1: Issue 1, pg. 32020 ,https://indraprasthalawreview.

in/wpcontent/uploads/2020/10/ggsipu_uslls_ILR_2020_V1-I1-12-anumeha_agarwal-akanksha_singh. pdf.

5 https://one.oecd.org/document/DAF/COMP(2019)14/en/pdf.

6 Supra 1.

volume, other non-price factors could also suffer. In severe cases, it can finally result in the foreclosure of rivalry and the industry's demise in question. 7

US ANTITRUST LAWS AND H&S CONSPIRACIES

1. INTERSTATE CIRCUIT V USA8

Eight first-run cinemas and the distributors (and owners) of the copyrights to a feature picture entered into a contract. In addition to requiring a minimum admission price and exclusive show timings, the agreement required the owners to not share the show timing with any other feature film and to issue licences to second-run theatres in Texas and New Mexico. Such an agreement served two purposes: first, it shielded the distributors from competition from other theatres showing feature films at the same showtime; second, it shielded the first-run theatres from the second-run theatres by keeping their ticket prices high and enforcing a minimum entrance price. Since there was no evidence to the contrary, all of their activities appeared to be independent of one another.

But the Court rejected the requirement for a contemporaneous action and maintained that awareness of the other owners' participation was presumed. The Supreme Court came to the conclusion that Section 1 of the Sherman Act was violated by the distributors' contract and the cinemas' conspiracy. 9

2. THEATRE ENTERS INC. V PARAMOUNT FILM DISTRIB. CORP10

Although the case's facts were the same, the court determined that the agreement among the spokes is what makes an H&S agreement, and that parallel vertical agreements without evidence of a competing agreement do not constitute an H&S agreement.

3. UNITED STATES V. GENERAL MOTORS CORPORATION11

In this case, the defendant sought to defend the vertical agreement among the H&Ss' procompetitive effects, but the courts rejected this argument, holding that the horizontal agreement among the spokes' inherent illegality supersedes any such effects. In numerous judgements, the

7 Ibid.

8 Interstate Circuit v. U.S., 306 U.S. 208 (SC: 1939).

9 Supra 3.

10 Theatre Enters., Inc. v. Paramount Film Distrib. Corp., 346 U.S. 537, 541 (SC: 1954).

11 United States v. General Motors Corporation, 384 U.S. 127 (SC: 1966).

Supreme Court affirmed the need to demonstrate a horizontal agreement between spokes in order to establish a health and safety agreement. This condition can be met through direct or circumstantial evidence. It has been stated that "rimless wheels do not give rise to a hub and spoke conspiracy and are not actionable." These cases are handled as nothing more than multiple lawsuits brought against the same person. “Plus factors" are circumstantial evidence that supports the presence of a horizontal agreement. A few of these are abrupt modifications to company procedures. spokes acting against their own interests, being aware of other spokes' agreements and anticipating reciprocation.

INDIAN JUDICIAL APPROACH

Prior to the Competition Amendment Bill, 2020's introduction, the Indian Competition framework contained no provisions addressing H&S agreements. Nonetheless, a small number of case laws make reference to H&S agreements. They may not provide a clear picture of how H&S agreements are treated by competition law, but they do provide us with a concept of how the Competition Commission of India ("CCI") sees these agreements.

1 Fx ENTERPRISE SOLUTIONS INDIA PVT. LTD. And ANR. V. HYUNDAI MOTORS

INDIA LIMITED (“HMIL”)12

In the present case, both the first and second informant had dealership agreements with the Opposite Party (“OP”) i. e. HMIL. Contentions of the Informants were as follows: . It was contended that OP had entered into exclusive dealership agreements with and had set up “Discount Control Mechanism” through which it fixed the range of discounts. They were also accused of entering into tie-in arrangements with its dealers . It was also contended that as per the Dealership Agreement the dealers were not allowed to take the dealerships of the competitors. . In respect of H&S agreement, it was contended that the OP had facilitated such agreements thus leading to price collusions.

The informant defined the conduct as “where bilateral vertical agreements between supplier and dealers and horizontal agreements between dealers through the role played by a common supplier, results in price collusion. ” The HIML was fined 87 crores by the CCI after it was found guilty of only a few activities, including tie-in arrangements and RPM, but solely with regard to oils and lubricants. Despite 12 7Fx Enterprise Solutions India Pvt. Ltd. and Anr. v. Hyundai Motor India Limited, Case Nos. 36 & 82, (CI: 2014).

the fact that CCI remained silent regarding the H&S arrangement and whether the OP had helped to facilitate it in this particular case is noteworthy even though it is the first time an organisation has been charged with signing H&S agreements.

2. SAMIR AGRAWAL V ANI TECHNOLOGIES PVT. LTD AND ORS 13

The informant in this instance claimed that the algorithmic pricing practices of taxi aggregators, such as Ola and Uber, amounted to price-fixing. The informants' disagreements included the following:

1. It was argued that because of algorithmic pricing, drivers were forced to accept the fare

because the pricing algorithm lacked judgement in the matter and they were not free to alter prices at whim or to offer discounts. Furthermore, it prohibited the riders from haggling over pricing with the drivers.

2. Ola/Uber was taking advantage of the individualised data it had about riders by entering into

vertical agreements with its drivers in order to set minimum pricing, or RPM.

3. Another argument made was that the drivers employed by the independent third-party service

providers of the Cab aggregator. They did not form a single economic unit because they were not employees. Thus, it was argued that Ola/Uber served as the "Hub" to let the spokes to coordinate and collude on prices, and that the cooperation among drivers arranged by the Cab aggregators led to "concerted action. " According to CCI, a "hub and spoke arrangement" is when rival businesses share confidential information with one another via a third party, which encourages their cartelistic activity. The Commission came to the conclusion that this situation is not the same. According to the Commission, The app uses an algorithm to calculate the tariffs based on massive data sets, or "big data," which takes into account a variety of factors such rider personal information, time, location, festival, traffic conditions, etc.

One cannot consider such an arrangement to be a conventional "H&S agreement. “The Commission declared that there should be some sort of conspiracy, that H&S arrangements typically involve the spokes to use a third-party platform, i. e. , a hub for the exchange of information, and that the fact that drivers have decided to set prices algorithmically does not imply collusion between them. In order for there to be a huband-spoke cartel, all of the drivers would need to coordinate or agree on costs through the

13 Samir Agrawal v ANI Technologies Pvt. Ltd and Ors. Case No. 37, Para 5, (CCI: 2018).

platform. The chauffeurs made no such arrangement. The claims of price discrimination and RPM were also rejected by CCI.

UNITED KINGDOM’S APPROACH

Such actions are punishable under Section 2(1) of the Competition Act 1998, which is drafted similarly to Section 101 of the TFEU, under the UK's competition law. Sports Replica Kits Case 37 OFT determined that some sportswear suppliers and merchants had engaged in pricefixing. Because Sports Soccer, one of the new competitors, was offering prices far lower than the recommended retail prices (or "RRP"), Umbro, the maker of replica sports apparel, was contacted by JJB, another retailer, who requested that Umbro lower its wholesale prices in order to preserve its profit margin.

After that, Umbro went up to other merchants and made deals with them to charge prices that were more than the RRP and gave them information regarding the behaviour of customers The Competition Appellate Tribunal ("CAT") received an appeal, which confirmed the ruling and included some important new information regarding how such activities should be handled. CAT established that: "if (i) retailer A notifies supplier B of its intended future prices in situations where it may be assumed that A intends for B to use

the information to influence market conditions by disclosing it to other retailers (of which C is or may be one); (ii) B actually does disclose the information to C in situations where it may be assumed that C is aware of the circumstances surrounding A's disclosure of the information to B; and (iii) C actually uses the information to determine its own future pricing intentions, then It is appropriate to consider A, B, and C as participants in a coordinated practice with the goal of limiting or distorting competition.14

LEGAL ASSESSMENT

1. INFORMATION EXCHANGE

The CCI has frequently viewed the sharing of private information between rivals as evidence of collusion. However, information sharing between a retailer and a supplier is normal business

14 JJB Sports PLC v. OFT, 27, (2004: CAT).

operations and is not cause for alarm. However, there is a chance of indirect competitor coordination if all of the spokes provide the hub access to private information.

2. VERTICAL AGREEMENT

Signing vertical agreements is the next step in completing the arrangement. Following the exchange of private information, the rivals agree on a certain system via the hub, and each spoke separately signs a vertical agreement with the hub. In essence, a vertical agreement is not considered anti-competitive in and of itself. However, because they subtly carry out a horizontal agreement, which is assumed to be anticompetitive, these forms of vertical agreements are seen as anticompetitive per se. The cartel's rim is formed by this vertical agreement between the hub and spoke. Via the hub, others can exert pressure on a spoke who disobeys the agreement. Thus, the agreement guarantees compliance.

3. UNIFORM AND SUDDEN PRICE RISE OR OTHER INDICATORS

A consistent and coordinated shift in the market is seen while the agreement is being carried

out, such as an increase in price or a drop in supply. This completes the puzzle about the existence of a cartel composed of hubs and spokes.

CONCLUSION

The development of H&S cartels presents serious obstacles to consumer welfare and fair competition. A complex strategy that includes international collaboration, efficient enforcement mechanisms, and legal reforms is needed to address these issues. Regulations protect market competition and foster innovation and economic progress by being watchful and aggressive in detecting and punishing anti-competitive behaviour. Furthermore, in order to stop these cartels from ever starting in the first place, it is crucial to promote a culture of compliance and moral business practices. The escalation of H&S cartels can be stopped and the values of fair competition in the international market preserved with the combined efforts of legislators, competition regulators, and industry players.