Robert Neruda: The Competition Authority is aiming for a questionable target

It is good that there has been a change, because competition policy, i.e. the fight against cartels or the abuse of a dominant position, are an important component of economic policy that the state should not resign from. Competition brings consumers lower prices, more choice and better quality. In the longer term, it helps the economy as a whole. It is believed that companies that have to face healthy competition at home are eventually able to survive on world markets.

Competition authorities have basically two sets of tools to protect competition: prevention and repression. The area of ​​prevention includes any steps that lead to the prevention of violations of competition law. It is therefore an endless effort to explain to the government, authorities and the public what benefits healthy competition brings, and conversely what the risks are if competition is distorted.

Penalties are mainly fines. And these tend to be legendarily high in the area of ​​antitrust – let’s remember the multi-billion dollar fines – yes, in euros – imposed on giants such as Intel or Google for abusing their dominance.

Harsh penalties for anti-competitive agreements

Even the Czech Competition Authority has now decided to hand out really high fines for anti-competitive behavior. And he focused in particular on two of its forms, which he identified as a priority. These are cartel agreements between competitors during tenders, in English bid rigging, and agreements on determining prices for resale within the distribution, the abbreviation RPM from the English resale price maintenance is used.

Even the selection of priorities deserves attention. No one doubts the harmfulness of bid rigging as agreements between competitors about how a public contract or other tender procedure will turn out. Experts agree that this behavior needs to be combated. It harms both contractors and taxpayers. This is a cartel that eliminates competition between brands and increases the price of goods by an average of ten percent. Therefore, the efforts of the Czech Competition Authority to go after these cartels can only be acknowledged.

It is more complicated in the case of RPM. This action consists in the efforts of suppliers, especially manufacturers and importers of various goods, to influence the pricing policy of distributors by telling them how much to sell goods to end customers. It is therefore not an agreement between competitors that would eliminate competition between brands, but a vertical line of business. This can maximally affect competition between distributors of goods of the same brand.

Hunt for the distribution of strollers and e-cigarettes

Many economists argue that, in most cases, RPM does not harm competition at all, or distorts it very little. They add that it is the manufacturer who knows best at what price the goods supplied by him should be sold on the retail market in order to stand up to competition from other brands. For example, even a hypothetical unification of the prices of a specific type of TV of one brand should therefore not pose a competition problem if there is good competition between brands.

However, ÚOHS clearly does not think so and considers the fight against RPM as one of the two priorities. This corresponds to a large number of investigations and follow-up procedures related to RPM in various sectors, for example in the field of consumer electronics, garden and sewing technology, the distribution of strollers and/or electronic cigarettes.

Fines are already imposed in these proceedings. And a record high, which is due to the new methodology used by the ÚOHS for calculation. Fines for RPM are now up to thirty times higher than before. And this regardless of the fact that a large part of the negotiations took place while the old methodology was still in effect. Punishing actions that took place during the period of validity of earlier milder rules, according to the new stricter methodology, is quite a problematic procedure in law.

The fight against dominance is essential

However, what is most striking is the fact that the ÚOHS in practice punishes RPM much more severely than, for example, price cartels or the aforementioned bid rigging. This absurdity was already pointed out in January by the opinion platform Rozumné právo, which proposed several measures. If the ÚOHS accepted them, this disproportion would disappear from its sanctioning policy. However, nothing has changed in the practice of the Competition Authority since then.

Giving as a norm. The court cut the case of the betting company Fortuna and recognized another form of competitive struggle

And so it is appropriate to ask again – why should the priority of a self-confident competition authority be to fight actions that mostly do not restrict competition between producers and which economists consider to be of little danger? Perhaps this is not only because such cases are simply easy to detect due to the general distribution.

And why does the ÚOHS stubbornly impose high fines for such actions, which limit the business plans and further development of the brands in question? After all, this will negatively affect the competition between brands. Why didn’t the ÚOHS prioritize, for example, the fight against the abuse of monopoly or dominance, the harmfulness of which is beyond doubt? After all, such a struggle is urgently needed in a period of increasing concentration of some markets, general price increases and a lack of key commodities.

Greater focus of the ÚOHS on competition policy is welcome, but it is only the first step on the way to a modern and advanced competition authority. Now he should focus on the most serious competition offences. And on the contrary, to show more conciliatory behavior towards actions, about which there are doubts among experts, whether it is at all harmful to the economy.

The author is a lawyer specializing in competition law

The article is in Czech

Tags: Robert Neruda Competition Authority aiming questionable target

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