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European regulators step up scrutiny of consumer companies over price rises

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European competition authorities are focusing more on companies in the consumer sector as inflation heightens the risk of uncompetitive behaviour.

in 2022, 17 unannounced inspections — dawn raids — were targeted by competition authorities across the UK, EU and Switzerland at companies in the consumer sector, but this had risen to 26 a year later, according to data compiled by law firm White & Case. 

Competition lawyers say this is because of concerns that high inflation has increased the likelihood of companies colluding, or hiding more successfully, any uncompetitive behaviour regarding prices, labour practices or consumer rights.

“It’s easy to hide price increases when there is inflationary pressure,” said Zoë Mernick-Levene, head of competition at Leigh Day. “[There is an impression that] markets are not working so well and [regulators] are looking much more intently at the bargaining power between consumers and firms.”

The European Commission raided fragrance and fashion companies, including Gucci-owner Kering, the energy drink maker Red Bull and more, all on suspicion of having violated EU anti-trust laws. This year the commission also raided tyre companies including Pirelli and Michelin for suspected cartel activity. None of the companies responded to requests for comment.

In the UK, the Competition and Markets Authority accused food producers of contributing to food-price inflation by pushing up prices by more than their costs after launching an inquiry into the groceries sector. 

Consumers in Europe have experienced the worst cost of living crisis in a generation in the wake of Russia’s invasion of Ukraine and the lifting of Covid lockdowns. But while lower energy prices have eased overall inflation, and other raw material costs have fallen, the price of goods has continued to mount.

Globally, the value of retail sales in the consumer products sector rose by an average of 10 per cent year on year in 2023, but three-quarters of the growth was a result of price increases, according to a report by management consultant Bain. In the US and Europe, 95 per cent of sales growth was driven by price rises.

James Killick, competition partner at White & Case said antitrust investigations were increasingly being politicised. Government and regulators, under pressure from consumers, are being compelled to take action.

“It’s the politics apart from everything else,” he said. “Who can fix inflation? You can raise interest rates and make yourself unpopular. Or maybe your competition authority can dawn-raid a few people and make them do more sensible pricing.”

Killick said he anticipated more investigations in the sector as long as prices remained high.  

Mernick-Levene said Covid-19 had a role to play. During the pandemic raiding activity fell away, giving some companies more opportunity to collude, or take part in other exploitative practices. “There’s an uptick now because Covid is passed and they can look more confidently at sectors,” she said.

Last year, European officials promised that its antitrust regulators would specially focus on cases related to the cost of living. While they appear to have honoured this, building a case and charging a company with uncompetitive behaviour is another matter, the lawyers said.

“It’s really difficult to detect collusion,” said Mernick-Levene. “Secret cartels remain secret for many years.”

Companies in the EU and UK with dominant market share — 40 per cent and above — can be charged with “excessive pricing” under antitrust laws, but the bar is very high, Killick said.

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