Hungarian Competition Authority

Vj-97/2002/42

VJ-97/2002

DRIVING SCHOOL CARTEL IN PÁPA

(Restrictive agreements)

Summary

The competition authority imposed a fine of HUF 150 000 (570 Euro) on ATI Megyei Autóközlekedési Kft. (hereinafter ATI), HUF 600 000 (2280 Euro) on Turbo Gépjárművezető-képző Kft. (Turbo) and HUF 350 000 (1320 Euro) on Ajkai 1. sz. GVMK (GVMK) for concerting their practices in order to restrict competition.

Reasons for the decision

I. The circumstances

The Competition Authority launched an investigation against all the driving-school-operating undertakings in the town Pápa because they acted uniformly against Eniac Kft. in order to hinder its market entry or, at least, to make this more difficult.

The undertakings concerned

The procedure was launched against all driving-schools operating already before Eniac Kft. The so-called B category training (the training for driving passanger cars) is the dominant activity of all the undertakings concerned. In the given area, from 2001 to 2002 the demand for driving instructors increased by 9%. Eniac Kft, as a new entrant, gained a market share of 16.6%. Obviously, the market shares of some other undertakings must have been decreased.

ATI trains 25 learners in a monthly average and its net sales revenue in 2001 was HUF 7.5 million [(28 000 Euro). Turbo coaches 120-140 learners per month and had a net sales revenue of HUF 32.5 million (123000 Euro) in 2001. GVMK instructs 15-20 learners per month and its net sales revenue was HUF 10 million (38 000 Euro) in 2001. Novák István`s individual undertaking teaches 5 learners a month, and the 2001-net sales revenue was HUF 2.6 million (10 000 Euro). Gőgős Zoltán`s individual undertaking trains 3-5 learners per month and the net sales revenue in 2001 was HUF 3 million(11 500 Euro).

The regulation of the market

Driving instruction can only be given with the permission and authorization of the transport authority of the county or of Budapest. The conditions of acquiring a B category driving licence are well-regulated. Since 15 July 2002, the examinations in Pápa are organized by the Veszprém County Transport Authority (hereinafter TA). Permission to giving driving instruction can only be granted to undertakings which meet the human and material requirements. As one of the latter, the undertaking must have an adequate practice (so-called routine-) track.

The use of the routine-track

The routine-track in Pápa is located in the Határ út. It is alsoan exam-track at the same time, moreover the only exam-track in that area. To run a specialised routine-track is too expensive to afford for any of the undertakings. Thus, the track is rented from the owner (who is the TA) by the undertakings. There is another possible routine-track in Pápa (the track of Agrokémia) but none of the undertakings used it since it had no conveniences yet.

A contract of tenancy for 2001 was concluded by the five undertakings concerned and the TA, of the other side. According to the contract, a possible change in the number of contractors would not affect the contents of the contract except the rates of the cost relations. Before Eniac Kft had come to the market, the routine track was used by 16 cars. Afterwards, since January 2002, it was used by 18.

The behaviours investigated

In the proceeding the following facts were investigated:

• 1)

  The undertakings concerned did not let Eniac Use the routine-track.

• 2)

  They refused to cooperate with Eniac concerning the common use.

• 3)

  They did not cooperate with Eniac when organizing the Highway Code-exams (HCEs);

• 4)

  They issued an advertisement in the local newspaper, which was suitable to damage Eniac`s goodwill.

Ad 1) Eniac wanted to start the operations in June 2001. The undertaking wanted to use the Határ út-routine-track with the same conditions as the others. But the undertakings already operating did not allow Eniac to use it saying the track was overloaded. The undertakings concerned stated they had the right to decide whether to allow it or not. (In fact, the regulation was not correct in this respect.) Eniac finally concluded a contract with the above-mentioned Agrokémia Kft. to use its routine-track. TA granted the permission hereafter. The manager of ATI admitted they had wanted to hinder Eniac`s market entry.

Ad 2) In November 2001, TA commenced a competition for running the routine-track the following year. Eniac won the competition, but the undertakings concerned decided not to cooperate with Eniac because it behaved unfairly, according to them. Later on, Eniac Renounced the operating rights and GVMK became the operator.

Ad 3) HCEs can be hold for a minimum number of 20 and a maximum of 40 learners. The driving schools did not always manage to examine their own learners alone so they usually cooperated with each other. But they were not willing to cooperate with Eniac even after the notice of the TA. Therefore, the TA withdraw the right to organize these examinations on 16th July 2002.

The opinion of the investigator

The investigation states that the instructors` intention was to hinder or restrain in common the market entry of Eniac which behaviour run counter to Article 11 of the Hungarian Competition Act.

Concerning the joint use of the Határ út-routine-track, it was found that this track was not overloaded.

Concerning the operation of the routine-track in 2002, it was stated that the five undertakings concerned rejected the cooperation with Eniac ab ovo. The same happened concerning the HCEs.

Additionally, the counter-advertisement of the undertakings was suitable to damage Eniac`s goodwill by questioning the quality of the instructions and by shaking customers` faith in Eniac`s instruction.

Opinion of the parties

All the undertakings concerned denied that they concerted their practices in order to restrict competition. They stated that their actions had only been an answer to the aggressive, unfair market entry of Eniac.

II. Legal assessment

The Hungarian Competition Act prohibits restrictive agreements as well as concerted practices. The documents demonstrate that the agreement of the undertakings aimed to hinder or at least make more difficult the market entry of Eniac. The concerted practices show a self-defending reaction to the market entry of Eniac. The driving schools formed their attitudes jointly, taking each others intentions and interests into consideration. It is as much as saying that their practices ceased to be independent.

The market of B category driving instruction service is regarded as the relevant market that offers no substitute services. The geographical area concerned is Pápa and its agglomeration. Consequently, from the aspect of the definition of the relevant market, the use of the routine-track is essential. The operating tracks in the county in question are located 25-50 km from each other, so they cannot substitute one another. Furthermore, the routine-track, which is an examination-track at the same time, cannot be substituted adequately by a normal routine-track.

Normally, every market player acts independently from the others. Nevertheless in special circumstances, it might be necessary to cooperate, because otherwise the market does not function. In this case, the use of the routine-track in Határ út was the bottleneck - the problem could not be solved without cooperation. If the market players uniformly reject the cooperation with a new entrant because of their (limited) community of interest, they realize a restrictive agreement. The fact that the undertakings concerned use the routine-track jointly with Eniac since 15 January 2002 proves that the bottleneck could not have been a strict obstacle of the market entry. And, the quality of the results of the driving instructions has not decreased. The refusal of the cooperation by running the routine-track was not justified, stated the Competition Council (CC).

Though the agreement or concerted practice concerning the common examinations were not proved unambiguously, the behaviour of the parties fitted into the market defensive strategy.

The Competition Council stated that the common advertisement was able to damage the goodwill of Eniac. Although ATI and Turbo referred to the fact that their manager did not give a consent to the advertisement, the CC did not accept this argument, since none of the undertakings disapproved the advertisement.

Summary

The CC took into consideration that a new entry on a grown-up market may lead to frictions. Neither the believed aggression of the entrant, nor the answer to it can be regarded as activities restricting competition by themselves. According to the competition law, only the concerted practice against the entrant can be regarded as abusive.

The alleged unfair practice of Eniac Kft. does not justify the concerted practice of the undertakings concerned.

It can be stated that all these practices endanger the competition on the market of the driving school services.

III. The sanctions

It is important to emphasize that concerted practices or restrictive agreements, which intended to hinder the market entry, are regarded as serious competition restrictions. In the present case, the endangering of competition was less than intermediate. The undertakings concerned realized their practices in fact, thus the potential effect of the infringement is substantial. Nevertheless, they did not achieve their purpose, but they only managed to hinder the market entry. So, the real effect was slight. The CC did not regard the service concerned as essentially important.

The basis for imposing the fines was the turnover of the undertakings concerned in 2001, since this reflects best the market shares and importance of the undertakings. The fines amount approximately to the 2 % of the turnover.