Invasion Of Europe's Cartel Cops
The European Commission antitrust SWAT teams arrived without warning at dawn. In a coordinated Mar. 22 raid in Italy and the Netherlands, they sealed off exits at offices of some of Europe's leading brewers, including Heineken, Carlsberg, Peroni, and Interbrew, flashed subpoenas, and demanded entry. After two days of rummaging through desks and computers, they carted off thousands of documents. Why? An investigation into charges of price-fixing and market division. "We're looking for evidence of cozy meetings where the CEOs carve up markets and agree not to hurt each other," says EC competition official Michael Tscherny.
The brewery inquiry is the latest sally in Europe's rapidly widening war against cartels. While the 15 countries in the European Union have had a long history of tolerating price-fixing, that attitude is quickly changing. Since early last year, the EU's competition police have cracked down on cartels in the shipping, automobile, steel-pipe, and cement industries, among others (table, page 132).
The shift has been prompted in large part by the move to a single currency and a unified market. Major industries from airlines to telephones have been deregulated and national monopolies privatized. As countries open to free trade, they're stepping up the fight against powerful cartels that have artificially raised prices and limited consumer choice. If a company wants to complain about being shut out of a foreign market, it has recourse in Brussels. "We now have a single market and need a new competition policy," says the EC's antitrust commissioner, Mario Monti, a Yale University-trained economist.
That's welcome news for American antitrust cops, who have long been frustrated by Europe's lax attitude toward price-fixing. Even though the key players in the worldwide vitamin cartel were Germany's BASF, Switzerland's F. Hoffmann-LaRoche, and France's Rhone Poulenc, the job of breaking it up fell primarily on the U.S., which fined the companies $242 million last month.
Europe's trustbusters are fighting tradition. Since the trade guilds of the Middle Ages, cozy cooperation has been the norm. "Industries, particularly in small countries where everyone knew everyone else, banded together," says Stephen Kinsella, a partner at Brussels law firm Herbert Smith. Even governments have supported price-fixing to protect small shops. Germany doesn't let retailers shave more than 3% off manufacturers' suggested prices--and it forbids any discounting of books. In the Netherlands, cartels were legal until 1996.
Indeed, there's little evidence of vigorous competition in the beer industry. In their home markets, Europe's big brewers enjoy huge and growing market shares. Interbrew, owner of the brands Stella Artois and Abbaye de Leffe, makes almost 60% of the beer consumed in Belgium. Heineken's market share in the Netherlands is about the same. Big brewers own large numbers of bars and often strike exclusive deals with them that last up to 10 years, shutting out new entrants. "Most cafes won't even talk to me," complains Jean-Pierre Van Roy, CEO of Cantillon Brewery, a small Brussels producer.
COINCIDENCE? Moreover, price competition is almost nonexistent, even though most European markets suffer overcapacity of up to 25% and big brewers enjoy 13% operating margins. Critics claim brewers have a long history of collusion. "Just by some strange coincidence, when one company announces a rise, the others seem to follow," says Iain Lowe, research manager at Britain's Committee to Maintain Real Ale, a lobbying group that aims to protect traditional brews.
The breweries deny they ever fixed prices, conspired to divide markets, or unlawfully hurt consumers. Heineken spokesman Michael Berssenbrugge says "there is fierce competition in beer in the Netherlands" and notes that there were no price hikes in that country from 1992 to 1998. The companies also say the practice of signing exclusive distribution deals with bars has declined and note that in June, a new EC law takes effect that prevents brewers dominant in their home markets from owning restaurants or cafes. "We are forced to carry all types of beers in our pubs," says Interbrew spokesman Jan Coucke.
Monti is also targeting the telecommunications industry. Mobile phones in Europe work across the entire region, yet charges are high. After receiving numerous complaints, Monti last year opened an investigation into whether mobile-phone companies have been colluding to keep roaming charges high.
Additionally, Monti wants to help consumers take advantage of Europe's new single market, where they can cross borders and buy products in the cheapest markets. Carmakers long have kept domestic prices 30% higher or more than they are abroad. When Volkswagen tried in 1998 to prevent German dealers from importing cheaper cars from Italy, the EC fined it more than $100 million. Now Monti has opened new investigations into the carmaker's exclusive distribution arrangements. Soon, he could order the entire system disbanded.
Unlike American trustbusters, Monti cannot bring criminal charges and threaten cartel offenders with jail, which makes it harder to crack tough cases. But he can fine companies up to 10% of their worldwide sales if they are found guilty of participating in a cartel. And the penalties are getting bigger. Last September, Monti fined a group of shipping companies controlling freight across the Atlantic $314 million--a new record.
The EC has also set up a whistle-blower program that gives a near-amnesty to the first company that rats on fellow conspirators. And it's working. "People are pointing so many fingers that it has become open slaughter," says Peter Alexiadus, an antitrust specialist at Squires, Sanders & Dempsey in Brussels. That's making Europe's remaining cartels squirm. But they've had things too easy for too long.