Wherever you live in Europe, you are likely currently experiencing a cost-of-living crisis fuelled by inflation. For the most vulnerable among us, the situation is extremely critical – in some cases, consumers are having to choose whether to eat properly or heat their homes. But there is growing evidence that corporate profiteering – instead of competing fairly – is driving some of this inflation. Some call it ‘greedflation’.
A Europe-wide issue
Consumer organisations have raised concerns on food price rises around Europe. In Spain, research from our member OCU showed that in 2022 food prices rose by more than at any time in the last 34 years. Our member Testachats/Testaankoop illustrated the problem with the typically Belgian speciality of chips and mayonnaise. The prices for fries increased by almost 50% in 2022 alone, while the price of the sauce went up by 30%. There are similar patterns across a wide range of other surveyed foodstuffs.
The prices for fries increased by almost 50% in 2022 alone, while the price of the sauce went up by 30%
In Portugal, consumer organisation Deco Pro Teste found that in 2022, average prices of the vast majority of the products rose well above the general rate of inflation with own-brand products from retailers seeing higher price increases than their branded counterparts – of up to 100%. This shows that it’s not just suppliers, but also retailers pushing on heavy price rises to consumers.
Shrinkflation, where packages shrink but not prices, is another inflation-related problem for consumers, as our Dutch member Consumentenbond and our Swedish member Sveriges Konsumenter have reported.
Profiteering pushing up prices
Clearly, increasing energy, and commodity prices, among other things due to the Russian invasion of Ukraine, have caused in part the recent inflation spike.
But experts, including UBS Chief Economist Paul Donovan, are concerned that some companies may have taken unfair advantage of rising inflation to boost profit margins, pushing up retail prices by more than any increase in their own costs, perhaps exploiting consumers’ expectations that prices are going up.
Indeed, just last month the International Monetary Fund published data confirming that rising corporate profits were the biggest contributing factor to inflation over the past two years, with companies pushing up prices by more than the rising costs of energy.
European Central Bank President Christine Lagarde echoed this in recent remarks to the European Parliament. Lagarde noted that during 2022, some sectors, notably agriculture, construction and some services, took advantage to pass on costs without squeezing margins, and for some of them to push up prices higher than inflation-driven cost increases.
Experts are concerned that some companies may have taken unfair advantage of rising inflation to boost profit margins
To counter such behaviour, Lagarde suggested that it was important for competition authorities to look into these practices to fully understand what is happening.
Competition authorities must step in
At BEUC, we certainly agree that competition authorities must step in if competition issues are at least in part driving inflation.
In the short term, competition authorities must prioritise investigating and tackling cartels that would be the most directly harmful to consumers (pricing) in sectors of greatest concern (essential basic products).
Competition authorities must also investigate whether some companies might be exploiting a dominant market position to impose excessive prices. Such cases are not always easy to bring, but high inflation may give companies additional opportunities and incentives for such exploitative abuses.
Competition authorities must prioritise investigating and tackling cartels that would be the most directly harmful to consumers
In the medium to longer term, to prevent market concentration fuelling profit-driven inflation, competition authorities must ensure merger control actually works, so that mergers and takeovers do not reduce effective competition. Given rising concentration levels across several sectors, merger control may not have been entirely effective in the past.
Finally, BEUC has consistently encouraged competition authorities to introduce a market investigation tool, similar to that in the UK, to assess whether companies are failing to compete effectively with each other on a given market.
This may, for example, be due to the market’s characteristics or because companies are tacitly colluding to impose unjustified high prices on consumers. In such cases, remedies can then be imposed to address any failures identified (such as imposing price transparency so that consumers can more easily shop around for the best prices).
This market investigation tool would enable authorities to pinpoint problems potentially fuelling inflation but also give them additional means to remedy structural market problems or tacit collusion. Such problems are not easily caught by existing prohibitions on active collusion or abuse of dominance but can still be detrimental to consumers.
In fact, it was the UK’s Competition and Markets Authority’s market investigation tool that revealed how competition is not working well in the UK road fuel market, enabling it to recommend greater pricing transparency to improve consumer confidence and lower prices.
Competition law needs to work for consumers
In these difficult times, competition authorities need to step in to investigate whether companies and markets are really delivering for consumers or stoking inflation. Specifically, they must stamp out anti-competitive practices be they collusion, abuse of market dominance or the result of structural market problems. Such investigations may take a while but publicising them is liable to deter companies from profiteering under the cover of high inflation. This deterrence would benefit consumers.
After all, competition law must ultimately be to the benefit of consumers.