Competition in Times of Crisis – Be Aware of the Competition Rules
Competition rules apply also in times of crisis. When society and business are faced with a crisis, it can give rise to new forms of collaboration between competitors or emergency measures by the public sector, such as state aid or emergency procurement. The measures taken by businesses and the public sector during a crisis must not infringe the competition rules or otherwise weaken competition in the long term. Below is a very brief description of a few areas affected by the crisis we are now living in and which may also be relevant from a competition law perspective.
Shocking Price Increases
The crises of recent years have contributed to raised prices for both intermediate products used in manufacturing and consumer goods. A crisis often disrupts prevailing demand and supply conditions. From a competition law perspective, price increases may be necessary to cover increased costs. However, they may also reflect opportunistic behaviour by companies that take advantage of the crisis to exploit their customers, or even be the result of collusion between competitors seeking to increase their margins. At the same time, sharp price increases signal to producers and distributors to increase supply. This normally stimulates market entry, which is a desirable element of a well-functioning market. In this way, competition can counteract the huge price increases even in times of crisis. Thus, price increases may be lawful in some circumstances and prohibited in others, and this also depends on the market power of the supplier. However, always make sure not to discuss any price increases or other factors that affect prices with competitors, neither directly nor via a third party.
Public vs Private
In times of crisis, the differences in conditions between public and private companies can increase. To give an example, for private companies, a significant loss of revenue resulting from reduced demand or substantially increased costs may entail an imminent risk to the survival of the business. Public companies operate under different conditions in terms of profit requirements and capital raising and can continue to run sales activities during a crisis, without the risk of going bankrupt etc. It is therefore particularly important that the state, municipalities and regions are aware of this and ensure that any sales of goods or services by public actors on competitive markets do not distort competition. Increased competitive pressure leads to more efficient use of society’s resources, to the benefit of consumers, businesses and society.
The Swedish Competition Act contains a specific prohibition on anti-competitive public sales activities. In the event of a crisis, a situation could arise in which private companies are unable to meet the needs of the market for various reasons, i.e. there is a market failure. Under these conditions, public actors could launch new or expand existing sales activities in order to meet market needs in the short term. Public actors considering sales activities to address a market failure with temporary measures must however carefully consider the long-term impact on competition.
The Food Sector
Over the past year, Swedish consumers have faced price increases in the food sector of more than 20 percent, which means a historically high rate of increase. This is partly due to several successive crises, including the pandemic and Russia’s invasion of Ukraine, which has led to increased costs at several stages of the food chain. Another factor is the weak Swedish currency. However, it cannot be ruled out that part of the price increase is also due to poor competition. The Swedish grocery sector is oligopolistic with a few big players in several stages and submarkets. The Swedish Competition Authority is currently conducting a review of the food sector (for which it has received additional funds from the Government) where it will examine whether the sharp increases in food prices are due to a lack of competition in the food chain. Furthermore, it will examine whether the players have increased their profit margins and whether the retailers’ own private label products have had a price-depressing or price-raising effect.
Times of crisis undeniably place new demands on all of us in society. It is, of course, more important that competition is not eliminated and that everyone acts responsibly rather than opportunistically. It is equally important that competition remains undistorted and that unnecessary restraints or unnecessary cooperation risks curbing an already battered economy. Competition rules have an important role to play and companies are recommended to be mindful about which measures they take at an early stage.