Inflation and the risk of antitrust enforcement

European Union

Inflation puts competition authorities under pressure to investigate

Inflation and the risk of antitrust enforcement
June 16, 2023

In evidence given to the EU Parliament’s economic committee on Monday June 5, the President of the European Central Bank, Christine Lagarde, acknowledged the role of increased corporate profits in worsening inflation, and called, amongst other measures, for closer scrutiny from competition authorities. She noted that some sectors “have taken advantage to push costs through entirely without squeezing on margins, and for some of them to push prices higher than just the cost push,” and added that “I think that it’s important that competition authorities could actually look at those behaviours, and I would certainly regard that as perfectly called for”.

Those concerns about inflation are by no means new. In its Report on the situation of the Spanish Economy in 2022, the Spanish Government identified inflation, influenced by the geopolitical situation and its impact on energy prices, as the main challenge, with historically high rates not only in Spain but throughout the European Union and abroad, and while there is no indication that these levels of inflation are a result of antitrust infringements, there is no doubt that they result in pressure on competition authorities from all sides to identify and punish “profiteers” to protect consumers.

In another recent report the OECD points out that high inflation can create incentives for companies to cooperate with competitors to coordinate prices and reduce competition, while the disruption of supply chains and shortages of essential products can also impact the behavior of firms, incentivizing them to set ever higher prices.

Competition authorities, on the other hand, have long been concerned that high levels of inflation also give rise to the perfect conditions for collusive conduct. Since prices change continuously, businesses and consumers expect price increases, and due to this frequent variation in prices, it is harder for consumers to obtain accurate market information required to make informed purchasing decisions. Since price perception is blurred by the high level of inflation, in theory at least firms may be able to capitalize and engage in collusion.

For firms the result is an environment where, in addition to a need to constantly reassess their own pricing and costs, there is an increased risk of investigation, making internal compliance ever more important, and for which specific lessons can be drawn from similar periods of high inflation in the past.

Hightened vigilance by Competition Authorities in Spain and around the world

While distinguishing legitimate from illegitimate pricing practices during inflation, where prices constantly change, represents a substantial challenge for competition authorities, enforcers worldwide have shared their determination to preserve fair competition.

In Spain there have been several manifestations of the pressure on the authorities and their resulting high level of vigilance. First, consumer organizations have complained to the National Commission on Markets and Competition (CNMC) alleging that food manufacturers have engaged in shrinkflation (reducing the size of a product while keeping the price constant) and that supermarkets and others have failed to pass on the benefit of tax reductions to consumers. Second, the Spanish Government has announced that it is cooperating with the CNMC to scrutinize the food retail markets. Third, the CNMC itself has announced that it is reinforcing its surveillance of industries with high inflationary pressure, such as basic products and also energy.

But Spain is far from an isolated example, with the ECB President’s comments only the latest in a growing list of similar declarations.

  • In a recently published report dealing with this topic, the Portuguese Competition Authority (AdC) noted that in times of inflation, firms must set their prices and strategies autonomously, avoiding public price announcements that involve invitations to collude, announcing an intention that the AdC would keep its vigorous enforcement activity in pursuing cartels vis-à-vis public entities and deter firms’ behavior that could otherwise worsen inflation.
  • The French Competition Authority also recommended strengthening the control framework of the electricity market and preserving purchasing power as a priority area of action in its roadmap for 2022-2023, with a focus on sectors such as energy, food, and public procurement, which are particularly affected.
  • Senior officials from the European Commission have publicly stated that battling the cost-of-living crisis generated by rampant inflation across the EU is a priority for EU antitrust enforcers.
  • On 30 November 2022, the OECD Competition Committee held a roundtable to discuss competition and inflation. The topic was again explored during the 2023 OECD Competition Open Day.
  • Further afield in the US, the Department of Justice (DOJ) announced that the Antitrust Division and the FBI had joined forces in fighting illegal conduct in times of supply chain disruption. For this purpose, they are prioritizing existing investigations where competitors may be exploiting supply chain disruptions for profit, undertaking proactive measures to investigate collusion in industries affected by supply chain disruptions, and forming a working group focused on global supply chain cooperation with partner agencies around the globe, through which they are implementing international cooperation tools to develop and share intelligence to detect and combat collusion.

Lessons from history

Inflation at current levels have not been seen in Europe since the early 1980s and there are few comparable periods since the modernization of Spanish antitrust enforcement. Nevertheless, the experience of the early 2000s in Spain provides a pointer to two risks in particular: the risk of price signalling - via industry associations and otherwise-, and that of collusion on “shrinkflation”.

Public announcements

Pricing announcements, via press releases, emails to customer lists, or earnings calls, can help reduce uncertainty in the market and can be considered a form of anticompetitive information exchange between firms, with agencies worldwide imposing significant fines in past cases.

In Spain the antitrust risks of such announcements are particularly pronounced because of the aggressive application of Spanish antitrust rules in information sharing cases in general, and where announcements are made by trade associations or similar the risk is even clearer. This is because in addition to anticompetitive agreements by associations Spanish law also specifically prohibits “collective recommendations”, a prohibition which has been found to cover even general announcements by associations commenting on increases in raw material costs or on general levels of industry profitability – infringements for which firms that are members of the associations can ultimately be found liable. Between 2008 and 2012 the National Competition Commission (“CNC”) imposed fines on a wide range of associations and even individuals for public statements echoing the increases in the costs of raw materials and their implications for consumer prices, in sectors as diverse as beverages, building materials, bakeries, poultry products, hotel rooms and public transport.

As such, firms should take advice analyze before making public statements in relation to prices, costs or price or cost forecasts and should exercise caution before participating in any such announcement by an industry association.  


“Shrinkflation” consists of reducing the size or quantity of a product while keeping the same price and can be considered attractive as a means of passing on price increases since consumers are generally less aware of volume reductions than price reductions. Again, however, caution is necessary. While unilateral acts of “shrinkflation” have not previously been the object of antitrust enforcement, the CNC have historically imposed significant fines in cases of cartels in which companies agreed to reduce the size of their packaging while keeping their prices constant and the CNMC have accounted that this is a practice that they – with their Economic Intelligence Unit – will have under review.

But the risks to firms probably go beyond those inherent in cartel conduct. The Spanish Consumers and Users Organization (OCU) recently filed a complaint before the National Commission on Markets and Competition (CNMC) against several brands alleging conduct of this kind. The complaint is based not on Article 1 of the Law for Defense of Competition (the prohibition of collusive agreements) but on Article 3 LDC, which prohibits acts of “unfair competition that affect the public interest by distorting free competition”. It remains to be seen whether the CNMC would consider shrinkflation, in the absence of collusion, to be a breach of Article 3 LDC, but firms must keep that risk in mind.

Coordination between firms

More generally and beyond the specific risks cited above, the highly pressurized environment created by inflation, on the one hand, and consumer resistance to price increases, on the other, provide a significant temptation for coordination between firms (or between sales people). Again history shows that that coordination can take a wide range of forms – from casual conversations between sales people to detailed information exchanges or even production agreements in the context of trade associations. Whatever the form, firms should be aware of the heightened level of scrutiny, step up compliance efforts to try and minimize the risk of informal contacts and analyze in depth the risks derived from any formal collaboration with competitors.

Key Takeaways

While there is no evidence that antitrust infractions are fuelling the recent issues with inflation, there is significant pressure on competition authorities to be vigilant. That heightened vigilance by the competition authorities in Spain and around the world means increased risk of enforcement for firms. As a result, firms would be well advised to heighten their own internal compliance efforts, and in particular to exercise great caution when making public announcements, when taking part in sector associations and other industry-wide coordination, and when engaging in practices that could be considered “shrinkflation”. 

June 16, 2023