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Dear clients and cooperation partners,
Preparations for the changeover to the euro on 1 January 2014 are presently one of the most important topicalities affecting all market participants. In that respect the Consumer Rights Protection Centre and the Competition Council are monitoring whether product and service prices are not artificially raised. The Competition Council is in charge of assessing whether a rise in prices results from restrictive agreements among market participants.
In this context, it is interesting to look back whether experience of European Union Member States in 20021 discloses price rises resulting from infringements of competition law.
Although certain industries showed a rise in prices for some time after introduction of the euro, this was explained by processes in the particular market industry. For example, a rise in prices for oil products on the international market was caused by fuel retail prices, but bad weather conditions affected fruit and vegetable prices. Many consumers associated this increase directly with the transfer to the euro2.
The most visible competition case in relation to introduction of the euro is a 2001 decision of the European Commission fining five banks in Germany for a restrictive agreement3. Under the agreement, concluded in 1997, the parties had agreed to apply a 3% commission fee to transactions of purchase and sale of euro banknotes for three years after introduction of the euro on 1 January 2002. In this agreement the parties tried to recover approximately 90% of their income from the “exchange difference” after abolition of the national currencies.
Below, we illustrate the most typical situations where a risk of restrictive agreements might occur by taking into account the prohibition in the Competition Law imposed on market participants to agree on setting direct or indirect prices, tariffs or conditions for their formation. Likewise, market participants are prohibited from exchanging information that relates to prices or sales conditions. This prohibition covers not only situations when market participants mutually agree, but sometimes also cases when they unilaterally disclose information about future prices, thus decreasing uncertainty in relation to their operations on the market. In relation to the transfer to the euro, companies must take into consideration the costs related to adapting their operations to the new currency, for example, costs related to re-programming cash registers, adapting IT and accounting systems. Thus each market participant must independently determine their own issues on costs and for including these in the final price of a product or service, refraining from exchanging this information or coordinating their decisions with other market participants or publicly disclosing this information.
Disclosing commercially sensitive information in the mass media
Announcements in the mass media can amount to an infringement of competition law by taking into account the contents of the information and the structure of the particular market. Disclosure of commercially sensitive information revealing a market participant's plans is a serious signal for the Competition Council to become interested in the consequences of disclosing this information. Announcements that not only disclose commercially strategic future plans but also openly invite other members of the industry to act similarly or consecutive announcements from competing companies would not be considered to be simple unilateral public announcements.
For this reason, the Competition Council paid attention to an interview with a representative from currency exchange point Marika. By predicting the effect of euro introduction on the operations of currency exchange points, the interview mentioned that companies operating in the industry could agree on higher commissions on other services to compensate for loss of business previously generated from lat/euro currency exchanges in order to secure their own existence. This comment earned an admonition from the Competition Council4. In a situation where competing companies coordinated their operations as mentioned in the interview, there would be grounds for the Competition Council to impose a penalty which in theory could amount to 10% of the previous year's net turnover of each offender.
The case mentioned illustrates how disclosure of specific information decreases or excludes uncertainty about a market participant's operations, thus delaying efficient competition. Competition supervisors are certainly worried whether this behaviour would not result in artificially increased product or service prices in the respective market.
Exchange of information within an association
In associations or unions, red lines should be observed when discussing or exchanging information concerning issues of euro introduction. Taking into account that the transfer to the euro affects all market participants operating in an industry, it is especially important to assess what issues are included in the agenda of the association’s meeting, what is discussed or what information is provided by the company. In this situation it is important that members participating in an association’s meetings are informed about competition law requirements, as well as to know how to react if restrictive discussions are started by accident during a meeting with competitors. The association should also be aware that its public announcements could indicate potential exchange of prohibited information and coordination of operations between industry participants. Competition law specifies that restrictive agreements by an association of market participants (for example, association, union, society, foundation) could attract a penalty imposed on members of the association that participated in the infringement or on the association itself. In its practice, the Competition Council has encountered several cases when associations of market participants were fined for failure to observe prohibitions set in Competition Law.
Taking into account that available practice of violations of competition law in relation to euro implementation is minimal, the samples indicated illustrate typical situations where discussion of these issues could be seen as an infringement of competition law. Having timely identified these potentially risky situations, market participants should not face competition law problems during the changeover to the euro.
1 In 2002, twelve European Union Member States (Belgium, Germany, Ireland, Spain, France, Italy, Luxembourg, the Netherlands, Austria, Portugal, Finland and Greece) introduced the euro for payment settlements in cash.
2 https://www.ecb.int/ecb/educational/facts/euint/html/ei_008.en.html
3 The total fine amounted to EUR 100.8 million.
4 http://www.kp.gov.lv/lv/aktualitates/142-konkurences-padome-bridina-valutas-mainas-punktu (in Latvian) |
