New antitrust law with “claws and teeth”?

The attempt to provide citizens with financial relief in the form of a fuel rebate appears to have failed. This is because only about half of the mineral oil tax that was lowered at the beginning of June reaches the fuel pumps. There are accusations that the oil companies are not lowering their prices in proportion to the tax relief granted to them.

Now, the Federal Ministry of Economics and Climate Protection (“BMWK”) has announced an early reform of antitrust law (BMWK article). Three new instruments are to be introduced into antitrust law: An unbundling without a preceding antitrust violation, an extended profit absorption in case of antitrust violations and a linking of direct measures with a sector inquiry.

The changes outlined will come too late for the current tank rebate. It is also questionable whether these instruments could have any price-dampening effects at all, particularly in the fuel markets. In any case, a reform of antitrust law on this scale would be of far-reaching significance for antitrust practice.

Fuel markets in sight of the Federal Cartel Office

The German fuel markets do not have competitive market structures. The leading five companies BP/Aral, Shell, Total, Esso and Jet are active at all market levels and, throughout Germany, form a dominant oligopoly in the respective regionally defined markets for the sale of fuels via service stations. This oligopoly has existed for more than 12 years (see Federal Cartel Office, Sector Inquiry on Fuels, May 2011; most recent decision of February 10, 2022, p. 53 et seq.).

The Federal Cartel Office had already taken a close look at the development of fuel prices at the beginning of the year. Prices at service stations, which had previously risen sharply as a result of Russia’s attack on Ukraine, did not fall in the same proportion as crude oil prices. The Federal Cartel Office consequently extended its view to the upstream markets (refinery and wholesale level). At the same time, it pointed out that it lacked information on the volumes sold for a comprehensive market overview (see press release dated March 16, 2022). The Market Transparency Unit for Fuels, through which the Bundeskartellamt monitors service station prices and makes them publicly accessible, only receives price information from the mineral oil companies.

At the beginning of June, following a reduction in the mineral oil tax, the Federal Cartel Office then observed a drop in prices and – shortly afterwards – a renewed rise in prices (press release of 07.06.2022). The gap between the price of crude oil and the selling price at gas stations had increased from no more than 40 cents before the start of the war in Ukraine to 40 to 50 cents and, since the beginning of June, even to about 60 cents (press release of 06/10/2022).

A conclusive finding of collusion between the oil companies (violation of the ban on cartels) or abusive behavior by individual companies (abuse of market dominance in the form of excessive fuel prices) is still pending. If such violations cannot be proven in the final analysis, antitrust law offers no further recourse against a mineral oil tax withheld in whole or in part by the mineral oil companies.

Unbundling in the event of market failure

The BMWK proposes to allow the Federal Cartel Office to unbundle – independently of proving violations of antitrust law – if markets with few suppliers are highly entrenched and exhibit competitive problems.

This proposal is not new. The introduction of unbundling under antitrust law to stimulate competition in the fuel markets was already discussed in 2010 but rejected in the end (cf. 58th Special Report of the Monopolies Commission). Concerns of a fundamental nature exist from a constitutional perspective. There are also/ specific concerns with regard to suitable unbundling measures in the oligopolistic fuel markets. This is because, unlike in a monopoly, where any unbundling can stimulate competition, in the case of an oligopoly it is precisely the cooperation of all members that dampens competition. A decision on unbundling would therefore have to specify which oligopoly member or members should be unbundled and to what extent, and who would have to move into the vacated market position to trigger the intended intensification of competition. A court-approved unbundling decision is therefore unlikely to be any less open to challenge than an abuse ruling, even in the case of comprehensive statutory regulation.

The question arises as to whether the difficulties of proof addressed could not also be overcome by other means. In particular, lowered thresholds for investigations by the antitrust authorities in particularly problematic markets and simplified evidence in the area of abuse control could be considered (e.g. the introduction of a presumption of “significant abuse” in the case of too large a gap between raw material and end customer prices; clarification that the companies bear the burden of proof for factual justifications). The suggestion of the Federal Cartel Office could also be taken up to require companies to report not only prices but also volumes sold to the Market Transparency Unit for Fuels.

Lowering the hurdles for absorbing profits from infringements

Furthermore, the BMWK would like to strengthen the application of an antitrust instrument that has never been used by the Federal Cartel Office, namely the skimming off of advantages received from violations of antitrust law (Section 34 of the Act against Restraints of Competition, “ARC”).

The difficulty in proving a violation of antitrust law also triggered this proposal given that an infringement is a prerequisite for absorbing profits. However, if – as suggested above – the proof of a violation of antitrust law were to be made easier in general, access to absorbing profits would also be indirectly improved.

In any case, from the point of view of the Federal Cartel Office there remains the no less deterrent effort and the considerable enforcement risk of having to quantify the additional profits from an infringement in a court-proof manner. Economically, this task is comparable to the quantification of cartel damages, and in any case no less complex. For these reasons, the legislator of the 7th amendment to the ARC deliberately omitted the additional proceeds requirement, at least for the purpose of determining the range of fines. Without corresponding legislative relief on the legal consequences side, the skimming of benefits is therefore likely to remain a blunt sword.

Powerful sector inquiry

Sector inquires provide an in-depth understanding of what is happening in the market. However, even if competition deficits are identified, they do not provide a direct basis for intervention in the market by the antitrust authorities.

What kind of concrete measures the BMWK would like to link directly to a sector inquiry has not yet been specified further. It would be conceivable to have a regulation based on the system of Section 19a of the ARC, i.e., concrete obligations of the market players would be derived from an identified structural weakness of the market. It remains to be seen whether the parties concerned would then also be granted the right to take legal action against a sector inquiry before specific obligations or requirements are imposed.

Temporary conclusion

From an antitrust perspective, the starting mistake of the tank rebate lies in the fact that the fuel markets – not a secret –were and are unsuitable for passing on a tax cut to consumers without regulatory intervention. This is an effect of the oligopolistic market structures that lead to a lack of sufficient competition between the tax-privileged mineral oil companies from the outset and, thus, of incentives to pass on cost savings. Maximizing profit is not prohibited by antitrust law, even for a company with market dominance.

As much as a sharpening of the antitrust tools for prosecuting antitrust violations is to be welcomed, if every business success achieved in compliance with antitrust law were to be made subject to unbundling, this would dampen innovation and investment to a considerable extent. The damage from such a regulation would likely be greater than the failed efforts to achieve financial relief for private households via the tank rebate.

(14 June 2022)