Auto Mega-Site Nets FTC Approval

The U.S. Federal Trade Commission (FTC) is ready to give its seal of approval to Covisint, the business-to-business (B2B) Internet marketplace backed by DaimlerChrysler, Ford and General Motors.

Citing sources close to the talks, the Wall Street Journal reported Monday that the FTC will approve the joint venture with no strings attached, but will require close monitoring to assure that no antitrust violations occur.

When it launches, reportedly sometime this fall, Covisint will link more than 30,000 automotive industry suppliers, representing hundreds of thousands of online transactions annually.

A recent report by Forrester Research predicted that sales through B2B e-marketplaces will reach $2.7 billion (US$) by 2004, accounting for 53 percent of all online business trade. Forrester has also reported that 71 percent of U.S. businesses plan to extend their operations to e-marketplaces by 2001.

Cost Efficiencies

The FTC launched its investigation into Covisint in March, believing that the exchange would deter competition by controlling prices and eventually become a monopoly.

Bert Foer, former assistant director of the FTC’s Bureau of Competition, said earlier this year that the FTC was concerned that members of the exchange who were not owners would end up being charged inordinately high prices and commissions that would eventually return to the Big Three as profits.

Instead, the FTC found that the joint venture will provide both buyers and sellers with an efficient way to do business that will create substantial cost savings.

Not a Blanket Approval

More than 60 coalitions involving almost 300 companies have formed online marketplaces over the past year. According to Credit Suisse First Boston, if all the marketplaces evolve as planned, they will control $3 trillion in annual purchasing power, primarily among a relatively tiny number of big companies.

Although the FTC appears likely to give Covisint the green light, the U.S. Department of Justice (DOJ) and the FTC have reportedly told lawyers for companies involved in other B2B e-marketplace ventures that online marketplaces will be judged individually and that they should not draw any conclusions about which ventures will and will not be approved.

The FTC and the DOJ issued joint antitrust guidelines in April for companies thinking about forming multi-party online operations.

“The guidelines will help businesses assess the antitrust implications of collaborations with rivals,” FTC Chairman Robert Pitofsky said, “thereby encouraging pro-competitive collaborations and deterring collaborations likely to harm competition and consumers.”