|Business Credit Law and Regulations
Concerns for the Business Credit Professional
The Internet is revolutionizing how the vendor brings its goods to market, and how the credit professional handles credit transactions. In the commercial setting, vendors are finding their customers joining together to form B2B sites with the intention of acquiring goods at the lowest price. While B2B sites may take different forms depending on their location in the supply chain, a B2B site generally provides that customers list goods they seek from vendors who then electronically bid for the contract. Periodicals announce seemingly daily of industries proposing B2B sites.
Notwithstanding the announcements from various industries, B2B has been slow to be adopted, principally because of antitrust concerns that, for example, vendors may join with competitors to engage in price collusion to keep prices high. Alternatively, the FTC is concerned that B2B owners may pressure vendors to lower prices by the owners sharing price information with one another. However, the Federal Trade Commission recently approved a B2B website created by automakers Ford Motor, General Motors and DaimlerChrysler, to buy parts from vendors on a single website.
What does B2B mean to the credit professional? While setting price is traditionally a function outside of a credit professional's responsibility, establishing credit terms impacts pricing and has been recognized by the United States Supreme Court as pertinent to the antitrust laws. Are the traditional concerns of sharing credit information amongst credit professionals and industry groups now subject to added scrutiny by the Justice Department and the Federal Trade Commission in light of B2B?
Legislation And Regulation Catching Up With The Internet
E-commerce and the Internet are evolving seemingly daily. Congress and federal and state regulatory agencies are attempting to keep current with technological developments by enacting new legislation and applying some century old legislation to today's technology. For example, on June 30, 2000, President Clinton signed into law the The Electronic Signatures in Global and National Commerce Act (E-Signature Act). The E-Signature Act makes e-signatures as legally binding as ink-and-paper signatures in all states. The E-Signature Act also eliminates legal barriers to storing documents and sending notices electronically. Legislation is catching-up with the electronic credit department. But are the century-old antitrust laws applicable to the Internet and the evolving electronic credit department?
What Is B2B?
B2B is commonly referred as electronic or web site exchanges where competitors band together to create an electronic marketplace to buy and sell and goods. These web sites hope to wring more profit from suppliers and drastically reduce dependence on middlemen. Companies from mining to tires to automotive to aerospace to steel trading and chemical have stated their intention to open B2B sites.
The Antitrust Laws From The Trade Creditor's View
The United States has two federal antitrust laws that may impact a credit professional: The Sherman Act and the Robinson-Patman Act. The primary objective of the antitrust laws is to eliminate practices that interfere with free competition in the marketplace.
To violate the Robinson-Patman Act, the seller must discriminate in price between the products being sold. The term "price" is generally the amount actually paid for the goods by the buyer. The U.S. Supreme Court has held that credit terms are an inseparable part of price, and that the extension of credit is equivalent to giving a price discount.
The antitrust laws generally prohibit the exchange of price information out of concern it may lead to price fixing. However, courts have allowed the exchange of credit information through industry credit groups. However, key to sharing of credit information is that each industry group member makes credit decisions independent from competitors.
Price Fixing And B2B
Given the traditional definition of the antitrust laws, how do the antitrust laws apply to B2B and affect the credit professional? B2B sites owned by corporate manufacturing rivals create opportunities for collusion and price-fixing that did not exist before. On B2B sites, vendors offer their products, prices and credit terms jointly, and buyers combine their orders jointly. B2B sites give vendors the opportunity to signal each other about price increases or credit term changes, or buyers a chance to conspire to pay artificially low prices for their goods. The reason is that B2B sites give vendors the opportunity to see current price and credit information immediately, which makes it easier to coordinate pricing and credit terms.
Vendors bidding their products on B2B sites should resist sharing price and credit information with competitors, as it may be viewed as price collusion. The Justice Department and the FTC are scrutinizing B2B exchanges to make sure that such exchanges foster competition rather than dampen it.
Antitrust And The Credit Professional In The Internet Age
The Internet is changing the way commercial credit is granted and goods are brought to market. The FTC's recent approval of the automakers B2B website may signal that the FTC and the Justice Department will promote an antitrust policy to allow collaboration between competitors. For the credit professional, the antitrust laws still have force in their day-to-day credit decision making if done electronically. Perhaps the easiest remedy for a credit professional to avoid the appearance of price collusion and price fixing with B2B sales is that firewalls are created so that information will remain confidential between competitors.