The recovery from the COVID-19 pandemic, the Russia-Ukraine war, disruptions to supply chains and high levels of employment have all contributed to inflation spiking worldwide. Coupled with stagnant wage growth, this has led to increased public and governmental pressure on antitrust agencies to tackle the global “cost-of-living” crisis facing consumers.

Whilst competition policy is certainly not a macroeconomic policy tool, in the wake of a “cost-of-living crisis”, competition agencies around the world are closely scrutinising sectors that directly impact consumers’ costs of living (e.g. groceries, household products, retail supply chains, road fuel and natural gas). Investigations are focusing on whether anticompetitive conduct or, in some jurisdictions, (a lack of) competitive market dynamics are resulting in consumer price increases. Unless macroeconomic inflationary pressures subside soon, such antitrust enforcement in this area – which has not been seen for many years in developed regimes – is likely to continue in the future.

Recently the President of the ECB – Christine Lagarde – told an EU Parliament committee that certain industries had taken advantage of 2022’s economic situation by pushing up prices, calling for antitrust agencies to investigate whether such price increases (in agriculture, construction and certain “service sectors”) were down to normal inflationary market dynamics or were the result of illegitimate concerted practices. After announcing the ECB’s seventh consecutive interest rate rise, Ms Lagarde said that “in some sectors, firms have been able to increase their profit margins on the back of mismatches between supply and demand and the uncertainty created by high and volatile inflation”.

However, many industry participants (e.g. in the consumer goods sector) have strongly denied claims that they are profiteering from the “cost-of-living” crisis, given that they are not passing through the full proportion of cost increases to consumers, and are also having to absorb higher costs from wage and energy inflation. A number of antitrust authorities have also acknowledged that recent inflation has been driven by global macroeconomic factors unrelated to overall levels of competition.

What does competition policy have to do with it?

There is an ongoing debate as to whether competition law should (and can) address inflation. Inflation reflects changes to an economy’s general price level and – in the UK for example – is measured based on the price of a broad basket of over 700 goods and services (i.e. the Consumer Prices Index or CPI). Whereas antitrust enforcement typically seeks to address issues in defined product and geographic markets.

The relationship between the level of competition in a market and inflation in the wider economy is complex, and in some ways counterintuitive. For example, in a perfectly competitive market, firms would be expected to fully pass on increased costs (when firms operate in highly competitive markets they have no choice but to price close to marginal cost or risk competitors stealing sales); whilst a monopoly (charging above marginal cost) would be expected to partly pass on, but also to partly absorb, increased costs in order to benefit from a higher sales volume (and to minimise disruption to overall demand).

More generally, however, profits and prices would be expected to be at a lower level in a competitive market. For this reason, many policymakers believe that acting to stimulate more competition in targeted markets could put downward pressure on prices. US President, Joe Biden, claimed that a “lack of competition costs the median American family household ... $5,000 a year”. There is a particular concern that businesses may be using inflation as a convenient “cover” for price increases.

Competition policy has several tools to address these issues. Agencies can use their enforcement powers to tackle illicit collusion between firms seeking to pass on input price increases to customers. Where dominant firms increase prices, this could at least theoretically be tackled as excessive pricing, although this is likely to prove challenging in practice. Merger control can address market structure, though this depends on – and is limited in its scope to – relevant firms seeking to merge. Finally, some agencies – like the UK’s CMA – have broader “market” powers to assess and ultimately intervene in market structure, though such processes generally run on significantly longer timelines.

While these tools can contribute to reducing prices paid by consumers, competition law enforcement is ultimately unlikely to have a meaningful impact on inflation in the short-term, given the length of investigations and, in the case of market studies, the conventional reluctance of competition agencies to act as price regulators.

Should competition policy seek to address inflation?

Some caution that competition policy, as a microeconomic policy tool, should not drastically change its enforcement focus towards addressing inflation. Concerns relate to the limits of what competition policy can achieve and to the risk of over-enforcement and the introduction of additional regulatory burdens on businesses.

Others argue that competition law is increasingly relevant, given the rising levels of market concentration and profit margins in certain sectors. According to the EC Competition Commissioner, Margrethe Vestager, the current “cost-of-living” crisis could have been even worse for consumers without antitrust enforcement, which reduced the EU’s overall price levels by 0.63% between 2012-2020. In Portugal, the AdC has published a paper emphasising that competition policy can contribute to consumers achieving a more sustainable economic recovery from the “cost-of-living” crisis at a lower cost.

The OECD concluded last year that if antitrust enforcement can have tempering effects on inflation (e.g. by tackling anticompetitive price rises), then this should be pursued carefully, provided that it does not undermine antitrust authorities’ primary objectives of promoting competition in the market. The German FCO President has argued that it is the role of antitrust authorities to prove that consumers are better off in a free-market and competitive economy in times of such economic crisis.

Recent antitrust enforcement seeking to address the “cost-of-living” crisis

Global antitrust authorities have been eager to prevent companies from using inflation or supply chain disruptions to cover up anticompetitive conduct (e.g. price-fixing and information sharing). In February 2022, the antitrust authorities of Canada, the US, Australia, New Zealand and the UK launched a working group focused on sharing information to detect potentially anticompetitive conduct in global supply chains.

The EC stated last year that “while competition enforcement is not as such an anti-inflation tool, the Commission will not hesitate to investigate cases in which price rises might be caused by anticompetitive practices." For example, the EC has been investigating gas suppliers (reportedly including Gazprom) in relation to an alleged agreement to limit supply in wholesale gas markets. The EC is also reportedly investigating three international retail alliances allegedly targeting anticompetitive cooperation between supermarkets.

In June 2022, Sarah Cardell (now CMA Chief Executive) stated that the “cost-of-living” crisis was “of most immediate concern” amongst the CMA’s policy priorities. In response, the CMA has launched:

• a programme of work reviewing the use of unit pricing and labelling practices in the groceries sector in order to investigate whether: (i) consumers possess clear information when comparing product prices; and (ii) any failure in competition is contributing to higher grocery prices. The CMA plans to publish its findings by late July 2023.

Alongside this, the UK Government is reportedly considering entering negotiations with supermarkets and producers of staple food items to implement voluntary price or margin caps (similar to the arrangements agreed in France, Greece and Hungary). It remains to be seen how any antitrust intervention would dovetail with any government intervention in this sector.

• a market study into the supply of road fuel in the UK. The CMA noted in May 2023 that, whilst the majority of fuel price increases are due to global factors, they are also partly due to “some weakening of competition in the road fuel retail market”. The CMA has found evidence of increasing fuel margins across supermarkets and will publish its final report by 7 July 2023.

The Greek Competition Commission is also conducting a market investigation into the petroleum industry following the results of its market “mapping” study which found “asymmetric” pass-through of costs to fuel prices in relation to costs. The Austrian and German antitrust authorities have also undertaken similar initiatives.

Antitrust authorities may also seek to investigate forms of anticompetitive conduct that have a direct impact on price levels – such as price-fixing between competing undertakings and excessive pricing/price gouging where an undertaking is dominant in a market. In Japan, JFTC officials have warned that price signalling/communications of intent is the “main focus of [its] vigilance”.

Labour markets are another enforcement focus (e.g. non-compete restrictions, no-poaching and wage-fixing agreements) in order to protect workers suffering from the “cost-of-living” crisis – following the US FTC’s recent proposal to ban non-competes (excluding for certain M&A transactions). Authorities may also investigate territorial supply/import restrictions – particularly in the EU, where they may fragment the single market and force customers to pay more for the same products in different Member States.

The challenges faced by authorities and “softer” enforcement powers available

In some markets, antitrust authorities face the complex challenge of distinguishing between inflation caused by external macroeconomic factors, and price increases caused by lack of competition and/or anticompetitive conduct. Another challenge includes the inherent asymmetry of information as regards companies’ internal costs and profit data. According to Christine Lagarde, there is a lack of clear data on corporate profits to help understand whether they are contributing to inflation. Authorities may also find it difficult in certain industries to unpick potentially complex supply chains and non-public pricing data in order to find evidence of a competition law infringement.

Additionally, in most jurisdictions, unilateral implementation by a company of excessive pricing/price gouging requires the company to be “dominant” in a market, while in others, it does not exist as an infringement of competition law at all (e.g. under US federal antitrust laws). In response, the US FTC has issued policy guidance in order to broadly reinterpret the definition of “unfair methods of competition” that could be caught by section 5 of the FTC Act (which, according to the FTC, could help address inflation by ensuring competitive markets).

Antitrust authorities may therefore find it difficult to prosecute companies for competition law infringements, forcing them to rely on alternative forms of investigation such as market studies (which consider broader legal questions, including whether the market is working well for consumers) and on their “softer” powers of influence.

In some respects, “softer” tools have thus far produced clearer outcomes than infringement enforcement. In the UK for example, some commentators have drawn a parallel between a decline in retail diesel prices following the CMA’s initial findings in the road fuel market study. As part of its investigation into the excessive prices of hand sanitiser products during COVID-19, the CMA issued data requests and made mystery shopping calls to retailers, as a result of which certain retailers voluntarily agreed to reduce prices to pre-COVID-19 mark-ups without the CMA finding any infringement of competition law. The CMA also sent a joint letter with the pharmacies’ regulator, providing pharmacies with price-setting guidance and conducted advocacy work through symbol groups to try to influence their retailers’ behaviour.

Authorities have also faced calls to permit cooperation that may involve coordination between competitors where industries are stressed by macroeconomic cost shocks. For example, in 2022, the FCO permitted temporary cooperation between sugar producers, including the sharing of production capacities, in order to mitigate the effects of potential gas supply shortages and to avoid excessive prices for sugar affecting the entire value chain. The FCO also found no competition concerns over cooperation between German gas importers and wholesalers to jointly set up and operate certain LNG terminals, as the potentially anticompetitive effects of the exclusive use of import capacities at the terminals were offset by the customer benefits of rapid price-reducing import capacities for gas. The FCO President admitted that in normal times such cooperation may be assessed more critically, arguing that the FCO was merely applying competition law to the competitive and economic circumstances.

Future enforcement - old problems, old tools?

Given these enforcement trends – if inflation does not abate – future enforcement seems likely in markets which most directly affect the standards of living of consumers (in particular, poorer/vulnerable consumers) – such as utilities, basic industries and foodstuffs/consumer goods. Nevertheless, inflation busting and alleviating cost-of-living pressures is being cited across a range of governments and agencies in recent announcements: for example, the US DoJ has faced calls from US Senators to investigate Yieldstar, an algorithmic product which they allege is being used to facilitate rental price-fixing amongst landlords and is “exacerbating rapid inflation”.

Inflationary pressures are likely to reignite debate as to whether antitrust authorities are using the correct enforcement tools – in particular, as regards:

• whether antitrust authorities should regulate prices directly which, outside of utilities, telecoms and pharmaceuticals, has been out of vogue in established competition regimes for decades (e.g. as they may have collateral consequences in deterring investment and, where market-wide, causing smaller competitors to become uncompetitive and to exit the market); and

• the use of market studies as an effective tool to gather evidence and to better understand markets (both in jurisdictions which are able to pursue market studies - e.g. the UK and in Greece – and those that are currently not able to do so).

While existing tools can be used, there have also been calls for reform. The EP’s 2022 annual report on competition policy called on the EC to provide for a “permanent market investigation mechanism” which should be triggered automatically in certain situations such as a specific rise in prices. The EC had previously considered and dropped such a market investigation tool (the “new competition tool”) as part of its Digital Markets Act reform. In Spain, the CNMC has called for the introduction of market investigation powers due to the asymmetric transmission of price decreases following an inflationary period (i.e. “rockets and feathers”). According to the CNMC, such market interventions would allow authorities to intervene in order to facilitate post-inflation price decreases at a faster rate.

Finally, the German government has also proposed to broaden the FCO’s intervention powers which do not require the finding of an antitrust infringement, to increase the effectiveness of its antitrust enforcement by granting it the power to confiscate profits, and to strengthen its sector inquiry powers (e.g. with structural remedies).

Whilst antitrust authorities may be considering how to regulate competition in exceptional (but not unprecedented) economic circumstances, it is likely that they turn to conventional enforcement tools in order to mitigate the effects on consumers of the “cost-of-living” crisis.