Chillin'Competition

Supermarkets are often presented as serial competition law offenders. Some commentators simply assume that it is a highly concentrated industry that makes supra-competitive profits. From this perspective, they would be the epitome of the tight (and evil) oligopoly. According to other accounts, however, high prices are not the problem, but excessively low ones. Some see with genuine concern that supermarket chains compete vigorously across some product categories. The exercise of unilateral market power vis-à-vis suppliers has emerged as a third popular topic in recent years. The idea that there is something wrong about retailers favouring their labels and/or with them competing vigorously with manufacturers at the downstream level has become a popular one.

It is hard to believe that these claims can all be true at the same time. The reality of the industry must be far more complex than commonly assumed. I thought of all of this when reading about Tesco’s recent troubles. The consensus among analysts is that a significant part of the company’s problems – currently the leading supermarket chain in the UK with a market share of around 29% – is the consequence of strong competition from hard discounters such as Aldi or Lidl. Incumbents have a hard time meeting the prices of the two German chains, which are relatively recent entrants in the British market.

Why do I say all this? Well, because sometimes there may be a gulf between popular belief and the reality of markets. The problems in the supermarket industry are assumed to be so rampant and fundamental that the European Parliament became involved and – in line with the growing tradition – sector-specific regulation addressing the perceived problems was discussed and contemplated. In such situations, the best competition authorities can do is assess rigorously whether such claims are really justified, even if it means not taking any measures in the end. In fact, I wrote a while ago that a major task of competition authorities is to lead by inaction, which means that sometimes their remit is to explain clearly to the wider public why concerns are not justified, why the market is working in the interest of consumers or why sector-specific regulation could have the perverse effect of stifling competition. This is how I interpret what the Commission did recently in relation to supermarkets.

The groceries sector is also interesting in that it shows that there are necessarily winners and losers when markets evolve. The fact that some companies are driven out of the market does not always mean that it is the consequence of anticompetitive conduct. The exclusion or marginalisation of some players may simply mean that the conditions of competition are changing. In this sense, indicators that rivalry among supermarket chains in the UK is fierce may be interpreted as suggesting that vertical integration is merely a logical reaction to the new conditions of competition, and not an unlawful strategy limiting – enter the buzzwords – choice and innovation.

As I was thinking about the above, I received an email from Caron Beaton-Wells (Professor of Law at the University of Melbourne) informing about the launch of a research project about the industry (Supermarket Project). I wish her and her team the best of luck and I look forward to the findings!

In other news, and to indulge in some self-preferencing: I am delighted to report that my co-blogger has (once again) been the sole non-partner listed in the 2015 edition of Chambers Europe. Congratulations on the richly deserved achievement! Knowing how Spanish law firms work, he should be able to repeat the feat a good number of years… 😉