Introduction
What is an accelerated sectoral inquiry?
Findings
Comment
The ongoing covid-19 pandemic has disrupted supply chains and the global economy. Supply cannot meet the increasing demand for many products, while legal obstacles pose additional problems across markets. As a result, average consumers are faced with rapidly escalating prices on certain products.
However, suspicion may arise when the price of a product is noticeably different in one country than it is in another. This was the case with rapid tests for covid-19 in Hungary, where prices significantly exceeded those in neighbouring countries. As a result, the Hungarian Competition Authority (HCA) decided to use its recently increased powers and launch an accelerated sectoral inquiry into the market. It published its report on 4 February 2022.
What is an accelerated sectoral inquiry?
An accelerated proceeding differs from a normal sectoral inquiry in several ways (for further details, please see "Competition authority publishes results of the first accelerated sectoral inquiry into the national brick market"). It can also be initiated if there is a justifiable reason for rapid intervention. While the preparation period for a normal sectoral inquiry can take up to a year, the HCA must prepare its draft report for an accelerated inquiry within one month. The HCA can also conduct dawn raids, which are mostly applied in cartel proceedings, to collect evidence. Further, market players must comment on the draft report within eight days, instead of the usual 30 days, after which the HCA publishes the final report. The right to access to the file is also limited until after the investigation.
Otherwise, the goal of an accelerated sectoral inquiry is the same as that of a normal sectoral inquiry: to uncover and analyse market trends if price movements or other market circumstances indicate that competition could be distorted on a specific market.
In the present case, the HCA used almost all the tools at its disposal to conduct the inquiry. During the 30-day preparation period, the HCA:
- conducted dawn raids;
- contacted numerous market players for information;
- contacted other national competition authorities and the European Commission; and
- conducted a market sweep (ie, a rapid online investigation) to obtain a better understanding of the online sales market of rapid covid-19 tests.
The HCA issued its report on 4 February 2022. Its main conclusion was that the price competition was not intensive enough on the assessed market, resulting in higher prices in Hungary compared with other countries.
The law restricts who can sell rapid antigen tests in Hungary. Currently, these tests can only be sold in pharmacies and specialist medical shops (both physical shops and online shops). It is forbidden to sell such products in a general online shop, although the HCA discovered numerous online shops where the tests were being offered for sale illegally.
Further, the value chain for rapid antigen tests for self-monitoring is sometimes long, with products passing through many different actors, from manufacturers to consumers, and with generally high margins. This also means that, at each level of sale, new margins are added to the price of the product, which may ultimately be reflected in the price that the consumer pays. For example, according to the draft report, the margin of importers is already above 100%, and the margins of subsequent distributors are also between 20% and 200%, resulting in prices being five to seven times higher for final consumers compared with import prices.
In order to address this problem, the HCA has proposed legislative changes to allow a broader range of sales outlets to sell the rapid tests (for an initial three-month trial period) and to encourage market players to develop shorter value chains (eg, pharmaceutical wholesalers should purchase directly from manufacturers instead of local importers). If this does not result in decreased prices, the HCA also proposed that the government consider setting statutory maximum prices, which is already the case for polymerase chain reaction tests.
The HCA also informed the online shops that had not complied with the legal requirements regarding the sale of rapid tests to cease their illegal practices by 14 February 2022. The HCA has been monitoring online sales since that date and it will initiate coordinated enforcement actions if it finds persisting violations.
This time, the HCA did not identify collusive practices that would necessitate further antitrust investigations into the conduct of the relevant market players.
However, the government has already acted on the HCA's recommendations and, as of 9 February 2022, has broadened the range of sales outlets allowed to sell covid-19 rapid tests with the pharmacies, petrol stations and retail chains that have authorisation to market pharmaceutical products. This will increase competition, which is likely to result in more favourable prices for customers of rapid test.
Companies should be prepared for future accelerated sectoral inquiries, as the HCA has made it clear that it will continue conducting accelerated investigations where prices on a market seem to be too high; the legislator also tends to intervene quickly in line with the HCA's recommendations.
Finally, replying to a request for information in an accelerated sectoral inquiry is mandatory and failure to provide answers on time can result in significant procedural fines.
For further information on this topic please contact Anna Turi or Márk Kovács at Schoenherr Attorneys at Law by telephone (+36 1 8700 700) or email ([email protected] or [email protected]). The Schoenherr Attorneys at Law website can be accessed at www.schoenherr.eu.