Cartelization brings enterprises to a level of consensus regarding pricing or other policies that often result in the exploitation of consumers. It refers to the horizontal agreements between enterprises and is a punishable offense in many legislations around the world. A new concept of cartelization emerged with increasing business transactions called- The Hub and Spoke Model. According to this arrangement, horizontal collusions are facilitated in the economy by vertically related enterprises. For example, supplier X (say supplier of mobile phones) facilitates its resellers A, B, and C to form a cartel to mutually agree to sell mobile phones at a particular price. In this case, supplier X is the hub, and resellers A, B, and C are the spokes. There can also be a reverse hub and spoke where the resellers act as the hub and the supplier acts as the spoke. All the hubs and spokes of a cartel are entitled to punishment for cartelization in many legislations.
Development of Hub & Spoke Model of Cartelization
The first hub and spoke case emerged in the USA, in the case of Interstate Circuit v. USA. One of the biggest movie theatre chains in the US was Interstate Circuit. There were two different kinds of exhibitors: first-run theatres and second-run theatres. Both were run by Interstate Circuit. Second-run theatres are those that show films sometime after their initial release in first-run theatres. As a result, they had lower ticket prices. The price difference between first-run and second-run theatres was significantly greater due to the fierce competition among second-run theatres because of which the sales at Interstate Circuit’s first-run theatres suffered. As a result, Interstate Circuit and the distributors came to an agreement that the second-run theatres would have to charge at least 25 cents to screen their films, and if the distributors didn’t comply, Interstate Circuit threatened to stop screening their films in its theatres. The agreement could work if the majority of distributors complied because, in that case, a distributor that complied would lose sales to its competitors who did not comply, and Interstate Circuit’s threat would not be credible because retaliation against too many distributors would be expensive and therefore, unrealistic. Without any actual direct communication taking place between the distributors, Interstate Circuit, acting as a hub, was able to persuade the distributors to support the plan to raise the prices of the competing second-run theatres, thereby limiting competition. The US court held that: “acceptance by competitors [i.e., the upstream distributors], without previous agreement, of an invitation to participate in a plan the necessary consequence of which, if carried out, is restraint of interstate commerce is sufficient to establish an unlawful conspiracy under the Sherman Act.”
The collusion of horizontal competitors, whether acting alone or through a third party, to fix prices, divide markets, or rig bids is per se prohibited under US law. All conspirators are held accountable when their goal is an illegal restraint of trade that is per se prohibited. Communication between Hubs, communication between spokes, or any kind of communication between hubs and spokes are considered as evidence in Hub and Spoke cases. In recognition of the possibility that parties may pass sensitive information for justifiable reasons, the UK courts’ rulings in JJB v. Office of Fair Trading, Argos Ltd. v. Office of Fair Trading, and the Hungarian Regulator in SCA/Vajda Papr developed a “state of mind” parameter for the imputing of liability.
Addressing Hub & Spoke in the Indian Competition Law
There are a plethora of international judgments, legislations, and interpretations that have led to the recognition of and punishment for the Hub and Spoke Arrangements in India through the Competition (Amendment) Act of 2023. The CCI has also come across cases concerning Hub and Spoke Arrangements. However, due to the limited scope of the Act of 2002, the hands of the CCI were tied to apply the rule. It could be stated that the opposition party (OP) was first accused of involvement in hub-and-spoke cartels in the case of Jasper Infotech (Snapdeal) v. Kaff Appliances. The informant claims that the OP had specific contracts with its distributors and suppliers that allowed it to maintain a high price point for its goods. By instructing the Director General (the “DG”) to only look into concerns of violations of “resale price management” under Section 3(4)(e) of the act, the CCI chose to bury the issue of a hub-and-spoke arrangement in the case. Similarly, in the case of Fx Enterprise Solutions India v. Hyundai Motor India Limited, the informant described several hub-and-spoke arrangements that led to price collusion, including bilateral vertical agreements between suppliers and dealers and horizontal agreements between dealers through the use of a common supplier. To hold Hyundai accountable, the CCI focused on resale price management and ignored the claims of a hub-and-spoke arrangement, much like in the previous case.
According to the Act of 2002, only the enterprises or persons involved in cartelization were to be penalized. The Competition (Amendment) Act of 2023 states in Section 3 of the Act (that talks about anti-competitive agreements: horizontal and vertical arrangements) that if an organization or association of organizations, or a person, actively contributes to the advancement of the agreement under this section, it will also be assumed that they are a part of the agreement even if they are not engaged in the same or similar trade. Hence, all the hubs and spokes involved in cartelization shall be punished.
The Competition Act was passed in 2002 to accommodate the changes brought to the Indian economy due to the New Economic Policy of 1991. The Act had been requiring an amendment for a long time to facilitate smooth trade and business between enterprises. The amendment of 2023 has also brought changes in penalty and settlement provisions. It has also brought changes to facilitate easy and fair mergers and acquisitions. The Hub and Spoke arrangement between the enterprises was a major loophole for vertical and horizontal arrangements that facilitated cartelization. This change has given a new direction to the CCI to interpret cases and pass fair judgments in a much more diversified form.
 BIAC, “Hub-and-spoke arrangements”, OECD 2, 4, (2019) https://one.oecd.org/document/DAF/COMP/WD(2019)112/en/pdf.
 Interstate Circuit v. U.S.,  306 US 208.
 United States v. Apple, 791 F.3d 290, 322 (2d Cir. 2015).
 Toys “R” Us, Inc v. FTC, 221 F. 3d 928 (7th Cir. 2000).
 JJB v. Office of Fair Trading, Argos Ltd. v. Office of Fair Trading [20061 EWCA Civ 1318, https://www.catribunal.org.uk/sites/cat/files/Jdg_CoA_1014Argos_Little_JJB191006.pdf. (last visited, 11th May 2023).
 SCA/Vajda Papr, Vj/22/2015, https://www.gvh.hu/en/press_room/press_releases/press_releases_2018/the_gvh_terminated_its_cartel_proceeding_on_the_ma.html. (last visited, 11th May 2023).
 Jasper Infotech (Snapdeal) v. Kaff Appliances, Case no. 61 of 2014, https://www.cci.gov.in/antitrust/orders/details/238/0. (last visited, 11th May 2023).
 Fx Enterprise Solutions India v. Hyundai Motor India Limited, Case no. 36 and 82 of 2014, https://www.cci.gov.in/antitrust/orders/details/791/0. (last visited, 11th May 2023).
The author is Shubhanshi Suman, a 3rd year student at Bharati Vidyapeeth, New Law College, Pune.