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Grocery Retailing: Competition, Oligopoly and Tacit Collusion A Report by the Competition Authority of the Basque Country (Spain) Javier Berasategi Torices.

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Presentation on theme: "Grocery Retailing: Competition, Oligopoly and Tacit Collusion A Report by the Competition Authority of the Basque Country (Spain) Javier Berasategi Torices."— Presentation transcript:

1 Grocery Retailing: Competition, Oligopoly and Tacit Collusion A Report by the Competition Authority of the Basque Country (Spain) Javier Berasategi Torices Chairman Basque Competition Authority

2 8/01/04 2 Index  Sources  Relevant Markets  Oligopoly = Collective Dominant Position  Collusive Oligopoly in Spain  Legal barriers and anticompetitive conducts  Remedies  Working Group of Spanish Competition Authorities (State/regions)

3 8/01/04 3 Sources  Spanish – Libre Competencia en los Servicios [urban land restrictions] (TDC, 1993) – Informe sobre las condiciones de competencia en el sector de la Distribución Comercial (TDC, 2003) – Informe preliminar sobre la Investigación de la cadena de distribución de determinadas frutas y hortalizas (SDC, 2004)  International – Buying Power of Multiproduct Retailers (OECD, 1999) – Dobson Report for the European Commission (1999) – FTC Reports on Slotting Allowances and Other Marketing Practices (FTC, 2001 and 2003) – Avis n° 04-A-18 relative aux conditions de la concurrence dans le secteur de la grande distribution non spécialisée (Conseil de la Concurrence, 2004) – Israel Competition Authority Decision on Commercial Arrangements between Food Suppliers and Retail Chains (2005) – Nordic Food Markets, a taste for competition (Nordic Competition Authorities, 2005) – Grocery Market Investigation (Competition Commission, 2000 y 2008) – Land use restrictions as barriers to entry (OECD, 2008) – Grocery enquiry report (Australia Competition Authority, 2008) – Others

4 8/01/04 4 Relevant Markets  Procurement – Categories of daily consumer goods – Self-service retail channel – Geographic area: Spain  Large retail outlets (> 1,000 m2) – Weekly one-stop shopping – Geographic area: minute car ride – Regional/National parameters: marketing, promotions, etc. – Asymmetric competition between large and small outlets

5 8/01/04 5 Oligopoly – Collective Dominant Position  Application of Article 82 to collusive oligopolies?  Answer: preferable than merger control (ex ante uncertainty) but remedies have to promote competition on the merits (Nicolas Petit, Oligopoles, Collusion Tacite Et Droit Communautaire de la Concurrence, 2008).  EC Case law is clearcut now: from Flat Glass to Airtours & Impala  Spanish Case Law: Mobile telephony (2009) – Telecoms Regulator considered mobile telephony market to be oligopolistic and ordered mobile network operators to open up their networks to virtual operators – Court upheld the measure after an “Impala”-type competition analysis

6 8/01/04 6 C3SPANISH REGIONS (17) 45%Castilla y León, Cataluña 45-50%Andalucía, Castilla-La Mancha, Madrid 50-60%Murcia 60-70%Aragón, Asturias, Baleares, Canarias, Cantabria, Extremadura, Galicia, Rioja, Valencia +70%Navarra, País Vasco Source: Alimarket, Spanish Retail: High Concentración

7 8/01/04 7 Spanish Oligopoly: Carrefour, Mercadona and Eroski  Carrefour (5) + Eroski (5) + Mercadona (3) lead 13/17 regions (close to 100% of the population).  Carrefour, Mercadona and Eroski occupy the 3 leading positions in 4 Regions and two of them occupy the 3 leading positions in 14 Regions.  Servicio Defensa de la Competencia rejected cartel complaint against retailers in Valencia town in 2006: oligopolistic market fosters parallelism and supracompetitive prices.  Price and margin studies (e.g., Caixa Catalunya savings bank Study: groceries price index in Spain above the equivalent EC-15 groceries price index in ).

8 8/01/04 8 Legal Barriers  Regional barriers: – Establishment – Opening hours & days  Local barriers: zoning laws and urban agreements.  Below-cost selling: The invoice price automatically becomes a minimum retail price and facilitates RPM and horizontal price collusion.  Warning: The Service Directive will not solve the problem! – Environment/urban planning exceptions – Commercial land is a scarce resource!

9 8/01/04 9 Procurement: anticompetitive collusion COMPETITIVE SCENARIO NON-COMPETITIVE SCENARIO (INFLATION) PURCHASE PRICE10PURCHASE PRICE12 COMMERCIAL PAYMENTS0COMMERCIAL PAYMENTS (-2) RETAIL PRICE +10RETAIL PRICE+12 NON-COMPETITIVE SCENARIO + OWN BRAND (UPSTREAM) MONOPOLY PURCHASE PRICE IND. BRAND 12PURCHASE PRICE OWN BRAND 10 COMMERCIAL PAYMENTS(-2)COMMERCIAL PAYMENTS (0) RETAIL PRICE +12 > RETAIL PRICE +10

10 8/01/04 10 Retail: land preemption and price parallelism  New structuralist approach: if price collusion is likely, then promote a multi-player market structure (sufficient number of players to reduce price collusion incentives and ensure competition on other parameters).  New approach to land & location for large outlets: scarce input = essential facility. Analogy with closed markets (mobile telephony)?  Apply Article 81/82 CE to land rights (merger control?).  Proactive merger control: – Oligopoly assessment of procurement markets – Oligopoly assessment of retail markets – Retail divestitures in overlap/non-overlap areas – Conduct and trustee/ombudsman remedies regarding procurement (Carrefour/Promodès voluntary commitments towards SMEs!)

11 8/01/04 11 Retail mergers: is the FTC more proactive? Source: FTC Horizontal Merger Investigation Data, Fiscal Years , Table 4.2

12 8/01/04 12 Procurement: remedies  Prohibition of commercial payments & abusive terms: competitive downward pressure on purchase prices.  Own v. third brands: Level Playing Field – Light remedy: prohibition of discrimination in Category access & management – Medium remedy: Chinese wall or structural separation of own brand unit & category management unit – Extreme remedy: Prohibition (divestiture) of own brand: long term effects?  Codes of Conduct (manufacturers/retailers) or agreements between manufacturers to enforce prohibition of commercial payments & abusive terms under supervision of independent trustee/ombudsman. Comfort letter from competition authorities?

13 8/01/04 13 Are we ready for a mindset change?  Wrong assumptions: – Competition law designed to address downward abuses (consumer welfare) – Oligopolies are only dealt with under merger control – Traditionally, manufacturers have enjoyed more bargaining power than distributors – Own brands are always cheaper  Case study: What if Unilever purchased Carrefour? Unilever would control competitor brands’ access to and pricing in its establishments. – Would retailers’ response prevent Carrefour from discriminating against other manufacturers? – Would retailers’/manufacturers’ response prevent Unilever from discriminating against other retailers? – Would we impose structural and/or behavioural remedies? – Is this scenario analogous to the scenario where retailers’ own- brand enjoys a high market share? Should the authorities wait until the own brand reaps a high market share or ensure a level playing field upfront?

14 8/01/04 14 Working Group of Spanish Competition Authorities: Proposed Agenda  Hearings: – Suppliers, Retailers, Consumers – Economics, Industry and Agriculture Ministries – Experts  Subgroup A: Regulations – Assist on Services Directive implementation – Uncover and challenge anticompetitive regulations  Subgroup B: Procurement – Report on abusive conducts and remedies  Subgroup C: Retail – Identification of highly concentrated local markets – Report on causes and remedies

15 8/01/04 15 End  The Spanish and English (unofficial) versions of the Study are available at our website (“Estudios de Mercados”):  I can be contacted at: T. (34) F. (34)  Comments welcome!


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