Recently, we have heard an unusual amount of public discussion about the need for the Competition Authority to intervene and provide remedies. This is particularly true in the context of rising food prices and attempts to point to particular culprits. Politicians and various experts make statements to the effect that cartels are certainly to blame, and if not, then someone in the distribution chain is certainly abusing their position. They turn to the competition authority to do something. The competition authority then starts a sector inquiry. What is the purpose of a sector inquiry, and is it really just a means of responding to political demands, as it might seem?
The Office for the Protection of Competition ("Ofice") will publish the results of its fast-track inquiry into the food sector on Tuesday 23 May at 10:00. On the eve of this event, we'd like to explain what it's all about and how important a tool sector inquiries are in the hands of the competition authority. Lessons learned from previous sector inquiries can help us to anticipate what to expect when the results are published.
What is a sector inquiry?
A sector inquiry is a standard tool used by advanced competition authorities to take a "big picture" view of certain sectors of the economy and to understand how they operate. It is typically used by competition authorities when they believe that the relevant markets are not functioning as they should, possibly due to infringements of competition law.
Sector inquiries are usually conducted by authorities in areas where there are longer-term or persistent problems. The aim is to gain an understanding of the conditions in a particular sector, the state of competition in a particular market, information on pricing or the importance and position of market players. In sector inquiries, competition authorities have broad powers. In practice, they usually send very extensive and detailed requests for information. Respondents are obliged to provide complete and truthful information and may face fines of up to 1% of turnover for failing to cooperate.
In the framework of a sector inquiry, the authority may also conduct local on-site inspections at particular undertakings. The competition authorities always issue a final report summarising the results of a sector inquiry. On the basis of the findings, they may then launch investigations into specific undertakings, make recommendations to regulators or legislators, or launch initiatives aimed at adopting specific systemic measures.
By way of comparison, let's take a look at the sectoral investigations that have been carried out by the European Commission (Commission) and the Office. The date range is roughly from the beginning of the last economic crisis in 2008.
Commission inquiries
In its latest inquiry, the Commission examined the so-called Internet of Things sector (2020-22), focusing on the interoperability of voice assistants, the dependence of downstream services on assistant functionality, pre-installed services and data collection and processing. It also examined the rules on membership of industry standard-setting organisations.
Prior to this inquiry, the Commission inquired into the e-commerce sector (2015-17), focusing on selective distribution models, restrictions on sales in online marketplaces and other online restrictions. This was preceded by a major sector inquiry into the pharmaceutical sector, which was concluded in 2009. The Commission's focus included patent abuse, rebates and methods of delaying the entry of generic alternatives. Between 2005 and 2007, the Commission conducted parallel sector inquiries into business insurance and retail banking sectors. In the case of business insurance, the Commission focused on the role of intermediaries or horizontal cooperation among insurance companies and, in the case of retail banking, on payment cards, current accounts and related services.
Inquiries by the Office
The pharmaceutical sector was also the subject of the Office’s last completed inquiry (2021-22). The Office focused on certain models of distribution of pharmaceuticals and the vertical integration of some distributors with operators of pharmacies. In 2017, the Office looked at the situation in the mobile data market. You may recall that this investigation was triggered by repeated political statements and public discussions about suspicions of possible cartel agreements or abuse of dominant position by mobile operators. Between 2016 and 2018, the Office carried out inquiries into the soft drinks industry, in particular with regard to the structural changes that have taken place in this market as a result of sub-threshold mergers. Between 2013 and 2015, the Office carried out a sector inquiry into petrol stations, which was linked to the much-discussed issue of fuel prices. In addition to these inquiries, the Office conducted three specific inquiries into the grocery market (2010, 2016-19 and 2021-22) in connection with the application of the significant market power regulation.
What followed? While the Commission acts ...
It is clear that the Office is not far behind the European Commission in terms of the number of inquiries it carries out. (It is a national authority with, of course, far fewer resources.) However, in terms of the follow-up to these inquiries, the comparison may be somewhat different.
In the case of the Commission's inquiries, we find that proceedings for possible infringements of the competition rules are often initiated after, and sometimes during, the inquiry. For example, following the last Internet of Things inquiry, the Commission opened proceedings against Alphabet (Google) for abuse of dominance in relation to its voice assistant.
In addition, as a result of the sector inquiry, voice assistants have been included in the new Digital Markets Act (DMA) regulation as a core platform service, subject to stricter gatekeeper rules. This was not the case in the original proposal. A number of separate proceedings have also been initiated as a result of the inquiry into the e-commerce sector. Dozens of competitors have been caught up in the Commission's net. To name but a few: ASUS (€111 million fine), Guess (€40 million), Nike (€12.5 million) and Sanrio (€6.5 million). The legislative consequence has been the creation or amendment of a number of regulations and directives.
Perhaps the most significant of these inquiries is the one in the pharmaceutical sector. It found massive abuse of the patent system by major players in the market and a whole range of other practices that prevented competing manufacturers of generics from entering the market. Among others, Servier and its generics group (€315 million) and Lundbeck and its generic antidepressants group (€146 million) were fined huge amounts for pay-for-delay agreements, followed by dozens of national cases. Among the largest are the cases against Pfizer in Italy and against Sanofi-Aventis in France and the large fine imposed on CD Pharma by the Danish Competition Authority. The results of the inquiry have confirmed that the systemic set-up of the approval and reimbursement mechanisms at the European and national level contributes to the reduction of competition.
... so far no action taken by the Office
It is more difficult to identify concrete steps taken by the Office following a sector inquiry. All inquiries have ended with the conclusion that the Office did not find any infringement of the competition rules. The reason for this situation is probably to be found in the way these inquiries were triggered. As a rule, they have been the result of media attention and the above-mentioned political demands.
It has been difficult to identify any proposals or recommendations for systemic legislative changes in the previous sector inquiries. The recent inquiry into the pharmaceutical sector could herald a shift. The Office has made a number of recommendations to both marketing authorisation holders and regulators. Above all, however, it actively participates in the legislative debates on the regulation of the sector, from precisely the position of the protection of free competition.
It is true that the Office does not have the same powers as the Commission, which, in addition to enforcing the competition rules, decides on the entire European competition strategy and lays down the basic framework of rules, including many conceptual regulations, which are then implemented in the national legislation of the Member States. In this respect, its role is unique and cannot be expected of the Office.
As mentioned above, the Office’s activities in the area of sector inquiries can certainly be beneficial. They can help to reassure the public and dispel suspicions. It seems that the Office has often acted as a saviour for politicians who want to get rid of sensitive issues. This may now change. The final report could also be relevant if there is no flurry of cartel or abuse of a dominance proceedings in the coming months. If, for example, the Office identifies high market shares in a market, this could be an argument against further mergers.
We will continue to monitor this area for you.
