Hub-and-Spoke Cartel Structures — 

1. Introduction

A hub-and-spoke cartel is a form of coordinated anti-competitive conduct in which competing businesses—the “spokes”—do not necessarily communicate directly with one another. Instead, they coordinate through a common intermediary—the “hub.”

The basic structure is:

Spoke A ↔ Hub ↔ Spoke B ↔ Hub ↔ Spoke C

The hub may be a:

• manufacturer;
• supplier;
• distributor;
• retailer;
• trade association;
• digital platform;
• algorithm provider; or
• other intermediary.

The important competition-law issue is that apparently separate vertical relationships can collectively constitute a horizontal cartel where the intermediary facilitates coordination among competitors.

The concept has particular importance in retail distribution, online platforms, hotel booking, digital markets, algorithmic pricing and information exchange.

2. Basic Structure

A conventional hub-and-spoke arrangement can operate as follows:

Competitor A
↓ confidential pricing information
Common Hub
↓ information or assurance concerning Competitor B
Competitor B

For example:

1. Retailer A tells a manufacturer that it intends to increase its price.
2. The manufacturer communicates that information to Retailer B.
3. Retailer B knows that Retailer A intends to increase its price.
4. Retailer B communicates its own pricing intentions to the manufacturer.
5. The manufacturer effectively coordinates the two retailers.
6. Both retailers adjust their prices accordingly.

There may be no direct communication between A and B, but the intermediary can nevertheless create the necessary coordination.

3. Why Hub-and-Spoke Cartels Are Difficult to Detect

Traditional cartels normally leave evidence of:

• meetings;
• emails;
• telephone calls;
• direct price discussions;
• agreements between competitors.

Hub-and-spoke arrangements are more complicated because the evidence may appear to consist only of legitimate vertical communications.

For example:

Manufacturer ↔ Retailer A

and

Manufacturer ↔ Retailer B

are individually ordinary commercial relationships.

The competition concern arises when those relationships are used to create:

Retailer A ↔ Manufacturer ↔ Retailer B

and the manufacturer becomes the mechanism through which the competing retailers coordinate.

Consequently, enforcement authorities normally examine the totality of communications and conduct, rather than looking only for a written horizontal agreement.

4. Essential Elements

A. Existence of competing spokes

There must ordinarily be competing undertakings whose conduct is being coordinated.

Examples:

• competing retailers;
• competing dealers;
• competing distributors;
• competing publishers;
• competing service providers.

B. A common intermediary

The hub facilitates the communication or coordination.

The hub need not necessarily be economically dominant.

It can be:

• a supplier;
• manufacturer;
• platform;
• intermediary;
• information provider;
• algorithm;
• trade association.

C. Exchange of competitively sensitive information

The information may include:

• future prices;
• discounts;
• margins;
• output plans;
• inventory;
• promotional plans;
• customer allocation;
• capacity;
• strategic intentions.

Future pricing information is particularly sensitive because it can reduce uncertainty between competitors.

D. Communication through the hub

The hub may:

• transmit information from A to B;
• transmit information from B to A;
• communicate a competitor's intended price;
• assure one competitor that others will follow;
• monitor compliance;
• punish deviation;
• coordinate implementation.

E. Horizontal understanding or concerted practice

This is the crucial element.

A mere vertical contract does not automatically become a cartel merely because the same supplier has contracts with several competitors.

There must generally be evidence sufficient to establish that the vertical relationships formed part of a broader horizontal coordination mechanism.

5. Hub-and-Spoke vs Ordinary Vertical Agreement

Thus, the existence of a hub is not itself unlawful.

The critical question is whether the hub is being used to facilitate coordination between competing spokes.

6. Legal Theory

Hub-and-spoke cartels are generally analysed through the law relating to:

1. Agreements

An agreement may be express or inferred from conduct and surrounding circumstances.

2. Concerted practices

A formal written agreement is not necessarily required where competitors knowingly substitute coordination for independent market behaviour.

3. Information exchange

The exchange of commercially sensitive information can itself create competition concerns.

4. Facilitator liability

A party that is not itself competing in the relevant downstream market can, depending on the jurisdiction and evidence, become liable for knowingly facilitating a cartel.

7. Major Case Laws

1. Interstate Circuit, Inc. v. United States

United States Supreme Court, 1939

This is one of the earliest and most important examples of what modern competition-law literature describes as a hub-and-spoke conspiracy.

Facts

Interstate Circuit was a major film exhibitor. It sent letters to distributors containing conditions concerning the distribution and exhibition of films.

The distributors were aware that similar requirements were being imposed on the other distributors.

Principle

The U.S. Supreme Court accepted that an agreement could be inferred even though the distributors did not necessarily have direct negotiations with one another.

The circumstances surrounding the communications were important in establishing concerted action.

Importance

The case demonstrates an essential proposition:

Direct communication between competitors is not necessarily indispensable where the surrounding circumstances establish coordinated conduct.

It is therefore an important historical foundation for hub-and-spoke analysis.

2. Toys “R” Us, Inc. v. FTC

221 F.3d 928 (7th Cir. 2000)

This case concerned Toys “R” Us and several toy manufacturers.

Facts

Toys “R” Us allegedly communicated with toy manufacturers concerning their dealings with competing warehouse clubs and other retailers.

The manufacturers were allegedly encouraged to restrict supplies to particular competing retailers.

Issue

The central issue was whether the conduct represented merely independent vertical arrangements or a broader horizontal conspiracy among manufacturers facilitated by Toys “R” Us.

Decision

The Seventh Circuit upheld the FTC's finding of an unlawful arrangement.

Importance

The case demonstrates that a firm occupying an intermediary or buyer position can potentially facilitate coordination among otherwise competing suppliers.

It is particularly important for understanding:

• intermediary-facilitated coordination;
• collective restrictions;
• vertical contracts containing a horizontal component;
• evidence of a common understanding.

3. Argos Ltd & Littlewoods Ltd v. Office of Fair Trading

[2004] CAT 24; subsequently [2006] EWCA Civ 1318

This is one of the classic European hub-and-spoke cases.

Facts

Hasbro supplied toys to competing retailers Argos and Littlewoods.

Hasbro communicated with each retailer concerning recommended resale prices.

The retailers were concerned about whether the other retailer would undercut the agreed pricing.

Hasbro effectively became the communication channel between the retailers.

Hub-and-spoke structure

Hasbro — Hub

↙ ↘

Argos Littlewoods

The retailers did not need to communicate directly with each other.

Decision

The UK competition authorities found an overall price-fixing arrangement involving Hasbro, Argos and Littlewoods.

The Competition Appeal Tribunal rejected the argument that the absence of direct retailer-to-retailer communication necessarily defeated the infringement.

Importance

This case establishes an important principle:

A horizontal arrangement can exist through indirect communication where the intermediary's conduct creates the necessary coordination between competitors.

The case is widely treated as a leading UK hub-and-spoke precedent.

4. JJB Sports v. OFT / Replica Football Shirts

[2004] CAT 17; Court of Appeal, [2006] EWCA Civ 1318

This case concerned the market for replica football shirts.

Structure

The relevant conduct involved:

• sports manufacturers/suppliers;
• competing retailers;
• information concerning future retail pricing.

Information could move through suppliers between competing retailers.

Legal issue

The important question was whether the exchange of information through the common supplier could establish a concerted practice despite the absence of direct communication between competing retailers.

Principle

The case illustrates that indirect information exchange can be sufficient where the surrounding evidence demonstrates that competitors understood the commercial significance of the information and acted upon it.

Importance

It is frequently discussed alongside the Hasbro/Argos/Littlewoods case as part of the development of the UK A-B-C information-exchange theory.

The UK case-law literature identifies both the Replica Kit and Toys cases as important hub-and-spoke precedents.

5. Tesco Stores Ltd v. OFT

[2012] CAT 31 — Dairy Retail Price Initiatives

This is an especially important case because it demonstrates the evidentiary difficulties associated with indirect information exchange.

Facts

The OFT alleged that competing supermarkets exchanged future retail pricing intentions concerning certain cheese products through common suppliers.

The alleged mechanism was essentially:

Supermarket A → Supplier → Supermarket B

and

Supermarket B → Supplier → Supermarket A

Tribunal's approach

The Competition Appeal Tribunal examined carefully whether the evidence actually established that information had passed through the suppliers and whether the necessary inference of concerted conduct could be drawn.

Importance

The case demonstrates that authorities cannot simply assume that:

information + common supplier = cartel.

The evidence must establish the relevant communication and the parties' knowledge or understanding sufficiently to support liability.

The CAT judgment specifically concerned alleged indirect exchanges of future retail pricing intentions through common suppliers.

6. United States v. Apple Inc.

791 F.3d 290 (2d Cir. 2015)

The Apple e-books case is one of the most important modern hub-and-spoke cases.

Facts

Apple entered the e-book market and negotiated agency agreements with major publishers.

The publishers had a common concern regarding Amazon's pricing of e-books.

Apple communicated with multiple publishers and encouraged coordinated action.

Alleged structure

Apple — Hub

↙ ↓ ↘

Publisher A — Publisher B — Publisher C

Apple's communications helped create a coordinated approach among the publishers.

Court's reasoning

The Second Circuit concluded that the evidence supported a horizontal conspiracy involving the publishers, with Apple playing a central facilitating role.

The court distinguished the underlying vertical contracts from the broader horizontal conspiracy.

Importance

The case is particularly significant because it demonstrates that:

A series of individually vertical contracts can form part of an unlawful horizontal conspiracy when the intermediary knowingly facilitates coordination among competing parties.

The Second Circuit's judgment describes Apple's efforts to maintain a "united front" among the publishers and keep them informed about participation.

7. Eturas UAB v. Lietuvos Respublikos konkurencijos taryba

C-74/14, EU:C:2016:42

This is an important digital-era case involving a common booking system.

Facts

Travel agencies used a common computerised booking platform.

The platform administrator communicated a message concerning restrictions on discounts available through the system.

The system subsequently imposed a technical limitation on discounting.

Legal issue

The CJEU considered whether participation in the common system could amount to a concerted practice.

Principle

The Court focused on:

• receipt of the relevant communication;
• knowledge of its content;
• participation in the system;
• evidence that the undertaking could reasonably be regarded as having accepted the coordinated practice.

However, the Court also emphasised that the presumption arising from receipt of information is rebuttable.

Importance

Eturas is highly relevant to modern hub-and-spoke structures because the hub can be a digital platform rather than a traditional supplier.

It demonstrates how competition law can apply where coordination is facilitated through common technological infrastructure.

8. Samir Agrawal v. Competition Commission of India

Supreme Court of India, 2020 — (2021) 3 SCC 136

This is particularly important for Indian competition law.

Facts

The allegation concerned algorithmic pricing on ride-hailing platforms such as Ola and Uber.

The argument was essentially:

Platform = Hub

Drivers = Spokes

The allegation was that the platform's algorithm effectively coordinated the prices charged by drivers.

CCI's approach

The CCI examined the traditional concept of a hub-and-spoke cartel and found that merely accepting algorithmically determined prices did not establish the necessary collusion among the drivers.

Supreme Court

The Supreme Court dealt with the broader question of whether there was sufficient material to establish a prohibited agreement.

The case is important for the proposition that common use of an algorithm or platform does not automatically establish a cartel.

There must be evidence of the necessary agreement, understanding or coordinated conduct.

The Supreme Court judgment records the allegation that the platforms were being treated as hubs and the drivers as spokes.

Significance after the 2023 amendment

The case must now be read together with the Competition (Amendment) Act, 2023, which expressly strengthened the statutory treatment of intermediaries/facilitators participating in cartel arrangements.

Thus, the Indian legal position has evolved beyond the precise factual setting considered in Samir Agrawal.

9. Indian Legal Position

Section 3 of the Competition Act, 2002

Section 3 prohibits agreements that cause or are likely to cause an appreciable adverse effect on competition.

Section 3(3) addresses horizontal arrangements involving, among other things:

• price fixing;
• limiting production or supply;
• market allocation;
• bid rigging.

Historically, one difficulty with hub-and-spoke arrangements was that the hub may not itself operate at the same level of trade as the spokes.

The 2023 amendment addressed this issue by expressly recognising arrangements involving parties that may not be engaged in identical or similar trade where they participate or intend to participate in furtherance of the anti-competitive arrangement.

10. Why the 2023 Indian Amendment Matters

The amendment is significant because a traditional cartel provision can create a conceptual difficulty:

What happens when competitors coordinate through an intermediary that is not itself their competitor?

The amended framework is capable of addressing this hybrid horizontal-vertical structure.

For example:

Manufacturer / Platform

↓ ↓ ↓

Retailer A — Retailer B — Retailer C

The manufacturer may not be a competitor of the retailers, but it can potentially be involved in facilitating their coordination.

The amendment therefore reduces the possibility that the intermediary escapes scrutiny merely because it occupies a different level of the supply chain.

11. What Evidence Can Establish a Hub-and-Spoke Cartel?

Competition authorities may examine:

A. Communications

• emails;
• WhatsApp messages;
• meeting records;
• supplier communications;
• internal memoranda.

B. Pricing information

• future prices;
• planned discounts;
• margins;
• promotional schedules.

C. Knowledge

Did the spoke know or reasonably understand that the hub would communicate the information to competitors?

D. Reciprocal information flow

Was information moving:

A → Hub → B

and:

B → Hub → A?

E. Conduct following communication

Did competitors subsequently:

• raise prices;
• eliminate discounts;
• change promotional policies;
• restrict output;
• align commercial conditions?

F. Monitoring

Did the hub monitor whether competitors complied?

G. Assurance

Did the hub reassure one competitor that other competitors would follow the same strategy?

12. Important Evidentiary Test

A useful analytical framework is:

Step 1 — Identify the spokes

Who are the competing undertakings?

Step 2 — Identify the hub

Who or what connects them?

Step 3 — Identify the information

What competitively sensitive information moved through the hub?

Step 4 — Establish transmission

Did the information actually pass between competitors through the hub?

Step 5 — Establish knowledge

Did the parties know, or should the evidence establish that they understood, the information-exchange mechanism?

Step 6 — Establish coordination

Did the arrangement reduce competitive uncertainty or facilitate common conduct?

Step 7 — Establish anti-competitive object/effect

Was the purpose or effect:

• price fixing;
• output restriction;
• market allocation;
• bid coordination;
• elimination of discounts;
• restriction of competition?

13. Mere Parallel Conduct Is Not Enough

An important limitation is that parallel pricing does not automatically establish a cartel.

Suppose three supermarkets independently increase prices because their costs increased.

That alone does not demonstrate:

A → Hub → B → Hub → C.

Similarly, the fact that three businesses use the same software or pricing algorithm does not automatically establish a cartel.

This point is especially important in algorithmic markets.

The evidence must distinguish between:

Independent adaptation to market conditions

and

coordinated conduct facilitated by a common intermediary.

The reasoning in Samir Agrawal is particularly relevant to this distinction.

14. Algorithmic Hub-and-Spoke Cartels

Modern technology has created a new form of the problem.

The hub may now be:

• pricing software;
• marketplace platform;
• hotel-booking platform;
• revenue-management system;
• AI pricing provider;
• common data provider.

The structure may look like:

Retailer A → Algorithm

Retailer B → Algorithm

Retailer C → Algorithm

If the algorithm merely independently processes publicly available market data, that is fundamentally different from an arrangement where competitors intentionally provide confidential information to a common system that coordinates their prices.

The UK CMA has recently highlighted this issue, noting that algorithms or common data hubs can facilitate indirect exchanges of commercially sensitive information.

15. Hub-and-Spoke vs Facilitated Information Exchange

The distinction can be expressed as follows:

16. Liability of the Hub

The hub's liability depends on the jurisdiction and facts.

A hub may be exposed where it:

• knowingly facilitates cartel conduct;
• communicates confidential information;
• organises coordinated pricing;
• monitors compliance;
• pressures competitors to participate;
• provides assurances about competitors' conduct;
• intentionally creates a mechanism for coordination.

The fact that the hub is not itself a horizontal competitor is not necessarily a complete defence.

The modern approach increasingly looks at the hub's actual role in facilitating the anti-competitive arrangement.

17. Liability of the Spokes

A spoke may also face liability even where:

• it never directly contacted another spoke;
• there is no written horizontal agreement;
• communications occurred only through the hub.

However, liability generally requires sufficient evidence connecting the spoke to the coordinated arrangement.

This is why cases such as Tesco and Eturas are important: they demonstrate that proof and inference matter substantially.

18. Key Legal Distinction: Rimmed Wheel vs Rimless Wheel

A useful concept is the difference between a rimmed wheel and a rimless wheel.

Rimmed wheel

A — Hub — B — Hub — C

with sufficient evidence connecting the spokes through the hub.

This may constitute a cartel.

Rimless wheel

A — Hub

B — Hub

C — Hub

but no evidence that A, B and C knew about or participated in a common coordination mechanism.

This may consist only of separate vertical agreements.

Therefore:

The existence of several contracts with the same intermediary does not by itself prove a hub-and-spoke cartel.

The horizontal "rim" must be established through evidence.

19. Economic Effects

Hub-and-spoke cartels can harm competition by:

1. Increasing prices

Competitors may eliminate price competition.

2. Reducing discounts

Retailers may stop competing through promotional discounts.

3. Reducing output

Competitors may coordinate supply.

4. Increasing margins

Reduced competitive pressure can increase margins.

5. Facilitating market allocation

The hub may communicate customer or territory information.

6. Suppressing innovation

Coordination may reduce incentives to compete through new products or services.

7. Entrenching platforms

Digital hubs may make coordinated behaviour easier because numerous businesses interact through one technological infrastructure.

20. Important Case-Law Principles — Summary

The UK literature expressly identifies the Replica Kit, Toys, Tobacco and Dairy cases as part of the development of hub-and-spoke information-exchange jurisprudence.

21. Practical Competition-Law Compliance

Businesses should therefore avoid:

• providing competitors' future pricing information to other competitors;
• asking suppliers to communicate competitors' confidential pricing intentions;
• using a common intermediary to coordinate prices;
• agreeing to follow prices communicated by a supplier;
• asking a platform to punish competitors that deviate from a common price;
• exchanging confidential information through trade associations;
• instructing algorithm providers to coordinate competitor pricing;
• creating contractual mechanisms designed to achieve indirect horizontal coordination.

Safer practice

Where commercially sensitive information must be exchanged with an intermediary:

1. limit the information to what is genuinely necessary;
2. avoid identifiable competitor information;
3. use aggregation where appropriate;
4. establish information barriers;
5. document legitimate commercial purposes;
6. prohibit onward disclosure;
7. obtain competition-law advice for sensitive arrangements.

22. Examination-Oriented Conclusion

A hub-and-spoke cartel represents a sophisticated form of collusion in which competing undertakings coordinate indirectly through a common intermediary. The absence of direct communication between competitors does not necessarily prevent a finding of cartel conduct.

The central legal inquiry is whether the evidence demonstrates a common coordination mechanism, rather than merely independent vertical relationships.

The leading cases—Interstate Circuit, Toys “R” Us, Argos/Littlewoods, JJB Sports, Tesco, United States v Apple, Eturas and Samir Agrawal—illustrate the evolution of the doctrine from traditional supplier-mediated price coordination to modern digital-platform and algorithmic environments. The cases also demonstrate the importance of distinguishing a genuine horizontal understanding from mere parallel conduct, independent vertical contracts, or unilateral algorithmic pricing.

For India, the issue has acquired additional significance following the Competition (Amendment) Act, 2023, which expressly addresses participation by intermediaries or facilitators in anti-competitive arrangements. Accordingly, a company cannot necessarily avoid scrutiny merely because it occupies a different level of the supply chain from the competing businesses whose conduct it facilitates.

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