The Monopolies Commission has submitted its Nineteenth Main Report to the Federal Minister for Economic Affairs and Technology in accordance with Section 44(1) of the Act against Restraints of Competition (GWB). The report is entitled “Strengthening Competition in Trade and Services”. 

The report covers 

• the investigations into business concentration and antitrust decision-making practice required by law.
• In addition, the Monopolies Commission addresses the planned amendment of competition law as well as postal and railway legislation, and discusses the planned establishment of a market transparency body. 
• It also examines the regulated markets for gambling and pilotage. The discussions on these topics are contained in the introductory chapter of the main report.
• In a separate special chapter, the Monopolies Commission analyses the buyer power of retail firms vis-à-vis suppliers in the food industry, based on a recent study of the intensity of competition in the food retail markets. 
• The concluding chapter contains a statement on the influence of public planning law on competition in the retail sector.

Details of the content: 

Competition in the gambling markets 

The gambling market in Germany is strictly regulated, heavily state-dominated and offers little scope for competition. At the same time, however, online gambling options enable many players to switch to illegal offerings from abroad that are not monitored by the gambling regulatory authorities, meaning that the state’s attempt at monopolisation no longer serves to effectively combat gambling addiction. Following numerous legal disputes, the First State Treaty Amending the State Treaty on Gambling, signed in December 2011, is now intended to take these developments into account. The Monopolies Commission has conducted a detailed investigation into whether the social objectives are being achieved efficiently through the amended regulations. This is not the case; rather, the Monopolies Commission considers a fundamental overhaul to be necessary.

Under the new State Treaty, the state monopoly in the sports betting market is being liberalised within narrow limits. The Monopoly Commission does welcome the new experimental clause on the licensing of private sports betting providers, as this can at least partially channel sports betting into legal and state-supervised markets. However, this approach has not been pursued consistently. The chosen betting turnover tax continues to make the market in Germany unattractive and favours providers from abroad. Instead, taxing licensed providers on the basis of gross profit, following the model of Schleswig-Holstein, would be far preferable. Furthermore, the Monopolies Commission opposes the proposed restriction on the number of licences that may be granted. Furthermore, the experimental clause should also be extended to other forms of gambling with growing grey markets, such as online poker and online casino games, and linked to appropriate measures to combat gambling addiction. 

In the lottery sector, commercial gaming agents have, in the past, repeatedly triggered competition between the state lottery companies for the stakes placed by these agents. Through increasing regulation, the state has significantly restricted the business activities of gaming agents and prevented the resulting competition amongst state lottery companies for agency commissions. The Monopolies Commission considers that this competition for the sale of lottery tickets is indeed not socially desirable. However, the Monopolies Commission does not see sufficient grounds to suggest that the distribution of lottery products cannot be carried out in a socially efficient manner through competition within the private sector. State lottery operators should therefore withdraw from distribution; however, private distributors should be regulated by the supervisory authorities through the granting of licences.

The new State Treaty also relaxes the previously restrictive limitations on online sales and certain advertising measures for lottery and sports betting offerings. However, the link between this change of course and addiction prevention measures is not clearly apparent. The requirement for authorisation regarding advertising and online sales for various forms of gambling should therefore be linked to common guidelines that can be adapted in the short term to the findings of robust studies on addiction prevention. The granting of licences in the lottery sector should be preceded by an addiction prevention study which, in particular, examines the effects of playing the lottery on participation in other forms of gambling.

In principle, the regulation of different forms of gambling should be reviewed to determine which specific restrictions on competition are actually necessary, taking into account robust studies on addiction prevention. In doing so, the proportionality of the restrictions on different forms of gambling must also be assessed. For instance, the differential treatment – such as the limited authorisation of commercial slot machines on the one hand and a state monopoly on casinos on the other – cannot be justified on the grounds of curbing gambling addiction.

Competition shortcomings in the German maritime pilotage sector 

The structure of the German maritime pilotage sector is characterised by a wide range of market access and conduct regulations, such as compulsory membership, the obligation to accept pilotage services and price regulation. In the Monopolies Commission’s view, there is no economic justification for this level of regulation. Even on safety grounds, such strict regulation of the German pilotage sector cannot be justified. In the Monopolies Commission’s view, the current regulation is too strict and excessive.

In its recommendations for action, the Monopolies Commission advocates lifting the restrictions on pilot licensing – depending on traffic volumes and the number of pilots. Shipowners should be able to choose their pilots freely, regardless of the so-called ‘order of priority’, in order to foster greater competition. Furthermore, the (primary) language of the pilotage area should be changed from German to English. This would improve market entry opportunities for non-German pilot candidates. This would make it easier for foreign captains to be exempted from the obligation to use a pilot.

The Monopolies Commission has found that the combination of self-regulation and federal supervision has created a non-competitive, self-contained system. It therefore recommends greater transparency in both self-governance and federal oversight, for example through the regular publication of details of pilots’ training programmes and quality assurance measures. Furthermore, the current organisational structure of the pilots’ guilds as bodies governed by public law should be reviewed, and competing pilots’ guilds should be allowed to enter the market.

The Pilotage Tariff Regulation should only apply if nothing else has been agreed upon at the time of concluding a contract. The Monopolies Commission also encourages a discussion on extending the scope of exemptions from the obligation to use pilots and on vertical integration, whereby pilots could also work as employees of shipowners.

Market Transparency Unit 

The Monopolies Commission welcomes, in principle, the plan to establish a Market Transparency Unit (MTS) for the wholesale trade in electricity and gas. Given their opaque price-setting mechanisms, wholesale electricity markets require enhanced regulatory oversight. Such an agency promises significant progress in data collection and analysis, as well as in cooperation with other authorities and supervisory bodies. However, the Monopolies Commission strongly recommends that the planned MTS for the wholesale trade in electricity and gas be organised with a greater degree of institutional independence than currently envisaged, so that the MTS can effectively serve as a platform for cooperation between the relevant state and federal authorities. 

The Monopolies Commission also expressly draws attention to the increasingly international nature of the wholesale electricity market in particular. Should the planned MTS, in the area of wholesale electricity trading, only make data on domestic electricity generators and consumers available, the Monopolkommission considers the MTS’s activities to hold little promise of success. It proposes that the MTS’s activities be reviewed after three years and extended only in the event of a positive assessment. 

The proposed extension of the MTS to monitor the fuel market also appears to hold little promise in its current form. According to the explanatory memorandum, ongoing market monitoring is intended to provide insights that could be utilised, in particular, in proceedings in the event of suspected price-cost spreads and breaches of the ban on selling below cost. The Monopolies Commission has consistently expressed criticism of these two issues in the past, as they are fraught with a number of conceptual problems. Competition issues can only be resolved by involving the refinery level; the Monopolies Commission therefore once again recommends that the Federal Cartel Office conduct a sector inquiry into this highly concentrated market. 

Currently, the government’s draft bill does not provide for making fuel prices collected in real time at petrol stations available to consumers. Yet it is precisely this part of the data that could, in the medium term, deliver real added value for end customers. The Monopolies Commission therefore proposes, for discussion, that petrol station operators be required to feed price changes for premium petrol and diesel into a dedicated database. This would enable consumers in Germany to compare prices in real time, for example using sat-navs or smartphones. The task of data collection could also be undertaken by consumer organisations or private institutions and, in this respect, does not require a dedicated state-run MTS.

Amendment to the GWB 

In February 2012, the Monopolies Commission issued a special report on the draft bill for the 8th GWB Amendment and identified a need for further reform. In particular, it recommends that the Act against Restraints of Competition should, in principle, apply to statutory health insurance funds in their relations with one another and with their insured persons. The Monopolies Commission therefore strongly welcomes the amendments to health insurance law now proposed in the government’s draft as an important step in the right direction.

With regard to sector-specific abuse control in the water sector, it is essential that such regulations cover all water charges – that is, prices and fees – as otherwise there is a risk of a ‘flight to fee law’ at the expense of consumers. The Monopolies Commission once again advocates sector-specific price regulation in the drinking water supply sector.

The Monopolies Commission regrets the planned extension of the special abuse control measures for the energy markets pursuant to Section 29 of the Act against Restraints of Competition (GWB). It has repeatedly highlighted the disadvantages of this provision in the past and called for its abolition. The Monopolies Commission strongly advises against extending the provision to the district heating market. Instead, this market should be subject to sector-specific regulation.

Reorganisation of regulation in the railway sector 

At the beginning of 2012, the Federal Ministry of Transport, Building and Urban Development presented a draft bill on the reorganisation of regulation in the railway sector. The Monopolies Commission has long advocated a fundamental change to the legal framework in the railway sector and, against this background, welcomes the planned reform of regulation in the railway sector. Overall, the present draft bill represents a step in the right direction. However, there is an urgent need for improvements in a number of key areas. The Monopolies Commission urges that this fundamental reorganisation of regulation in the railway sector be used to tackle known shortcomings in the existing regulatory framework ambitiously and with commitment, and to remedy them comprehensively. Only then can effective and undistorted competition – and thus an attractive range of rail transport services – be achieved. 

Amendment to the Postal Services Act

The Monopolies Commission generally welcomes the key points for an amendment to the Postal Act presented by the Federal Ministry of Economics and Technology in March 2012. In some respects, however, the Monopolies Commission recognises a need for further regulation. In particular, an ex-ante authorisation requirement for fees for partial services, as set out in Deutsche Post AG’s General Terms and Conditions, appears to be just as necessary as a clear alignment of fee regulation with the benchmark of the costs of efficient service provision. Furthermore, in order for the Monopolies Commission to effectively fulfil its statutory mandate to provide expert advice, it appears necessary to expressly include the right of access to files in the Postal Services Act.

Competition in the food retail sector and buyer power 

The intensified debate in recent years regarding the existence of buyer power among food retail companies has prompted the Monopolies Commission to revisit this issue. This opinion is based on a current assessment of the intensity of competition in the food retail sector. However, it cannot answer the question of whether, where and to what extent buyer power actually exists in the food retail sector. Instead, the aim is to analyse the causes and effects of buyer power within the framework of recent economic theory, to evaluate existing empirical findings, and to draw conclusions for competition policy and the application of competition law.

Despite increasing concentration and only slim prospects that the remaining smaller retailers will be able to expand their market shares, the Monopolies Commission has not identified any noticeable decline in the intensity of competition on the supply side of the food retail sector. This is supported, for example, by the comparatively low price level for food in Germany, the relatively low margins of retailers and low barriers to market entry, for instance for foreign retailers. Insofar as the increase in concentration is caused by technological advances and efficiency improvements, it is, from an economic perspective, not particularly problematic in any case. 

However, there may be some noticeable competition issues in regional food retail markets. Competition authorities’ merger control prevents the emergence of dominant market positions by often approving mergers only on the condition or subject to the requirement that branches in the affected regions are divested. However, if outlets are sold to other companies in the leading group of the food retail sector, the decentralising effect of such conditions remains limited. 

In the food retail sector’s procurement markets, concentrated demand is pitted against suppliers that are predominantly small and medium-sized enterprises. For certain product groups, leading retail companies hold dominant positions as buyers. The concentration of demand in the procurement markets is further reinforced by the participation of leading retail companies in purchasing cooperatives. This simultaneously increases the bargaining power of these companies. 

The Monopolies Commission notes that, in the German food retail sector, there is a tendency for many factors favouring buyer power to be present, as well as incentives to exercise such power. However, this does not necessarily mean that buyer power is actually exercised, or how it might be exercised. It should also be noted that the bargaining position of many suppliers is strong for a whole range of products, particularly branded goods. Given the existence of countervailing power, it is therefore conceivable that there may be a mutual ‘neutralisation’ of these positions of power, which could lead to market outcomes approximating those of sub-intensive competition. Furthermore, the negative competitive effects of buyer power discussed in economic theory – such as the so-called ‘waterbed’, lock-in and spiral effects, as well as the disincentive effects on investment, innovation and quality, predominantly occur only under specific conditions and are rarely observable in reality.

The Monopolies Commission rejects the extension of the antitrust toolkit to regulate buyer power, particularly in the food retail sector. This applies to the ban on sales below cost price, the enshrinement in the GWB of a general prohibition on certain purchasing practices, and the introduction in Section 33 of the GWB of a far-reaching right of trade associations to obtain information from retail enterprises. It is to be welcomed that the Federal Government intends to allow the extension of the scope of protection under Section 20(3), second sentence, of the GWB (passive discrimination) to large manufacturers to expire at the end of 2012.

The Monopolies Commission also takes a rather critical view of the additional measures under discussion, such as the introduction of a code of conduct, an ombudsman or a transparency body. A code of conduct containing guidelines on the structure of contractual relationships between the retail sector and industry could, in principle, be suitable for reducing the bargaining power of retail firms with market power. However, its success would depend largely on how it were designed and whether it could be enforced. A non-binding code of conduct is likely to remain largely ineffective, whilst a binding code would require effective monitoring and sanction mechanisms. It cannot be ruled out that a code of conduct might encourage collusion amongst retailers in the food retail sector, which would weaken competition at the retail level. 

Any positive effects of establishing an ombudsman or a compliance management system within companies to monitor the code of conduct are difficult to predict. Overall, however, it is reasonable to assume that these effects would remain rather limited, as the distribution of bargaining power between retailers and manufacturers would not be structurally altered. 

Scepticism is also warranted regarding the establishment of a transparency body, currently under discussion at European level, which is intended to monitor and analyse the development of prices and, where applicable, other contractual terms across the entire food value chain. Highly disaggregated, up-to-date and detailed data would provide the most insight. However, collecting such data would involve an enormous bureaucratic burden that would hardly justify the potential benefits. 

Planning law

Public planning law can have a decisive influence on competition in the retail sector at a local level. As part of its analysis of the competitive situation in the food retail sector, the Monopolies Commission is also examining the planning law provisions, procedures and authorisation requirements in force at various regulatory levels, which help determine decisions on the establishment of new outlets or the expansion of food retail businesses. 

An analysis of the current regulatory landscape shows how planning law, through various mechanisms, primarily contributes to a tiered centrality of retail outlets. These and other planning regulations can have very different effects at individual locations, depending on how local authorities exercise their planning discretion and on the specific circumstances of the site. Generally speaking, planning protection for existing food retail sites tends to result in the perpetuation of existing structures. In particular, where a business requires retail space of more than 800 m², planning requirements can make market entry impossible. It should be noted that planning regulations relevant to the retail sector tend to promote concentration within the sector.

However, the objectives pursued through planning law are not necessarily at odds with effective competition. In many planning situations, competition can even be promoted without any significant loss of planning control. Specifically, the Monopolies Commission recommends that the dynamic competitive effects of retail-related planning be given greater weight in planning decisions; in particular, that scope for future developments be taken into account when defining central supply areas; to design urban development contracts and support measures in a competition-neutral manner, and to implement planning objectives in an integrated and incentive-compatible way.

Supervision of abuse of a dominant position and merger control 

The particular circumstances of the economic and financial crisis have not yet affected the substance of the Cartel Office’s decisions; however, an increase in merger control proceedings requiring urgent action has been observed.

The greater flexibility in the enforcement of competition law sought through the 7th Amendment to the Act against Restraints of Competition (GWB) is now firmly established in the Federal Cartel Office’s practice. However, some practical problems and shortcomings remain. In this regard, the Monopolies Commission also addresses the issue of corporate compliance with competition law. Such systematic efforts on the part of a company, which in the field of competition law aim to prevent infringements of competition law, are frequently encouraged by competition authorities in other legal systems; in Germany, however, this approach is not supported by the Federal Cartel Office.

With regard to the development of the application of economic concepts, theories and methods in antitrust practice, the Monopolies Commission distinguishes between the classical economic foundations of antitrust law and the growing importance of quantitative analyses in particular. It suggests that consideration be given to including economic experts when appointing judges to the competition courts.

The Federal Cartel Office’s assessment of competition law enforcement is a key focus of this main report. Following the conceptual distinction between unlawful cartels and efficient cooperation, the institutional framework of competition law enforcement and its practical application are examined. On this basis, the Monopolies Commission currently sees no need for a fundamental change to the antitrust regime, but recognises a need for further research into possible extensions to the range of sanctions. Overall, the Monopolies Commission concludes that, on the one hand, the prohibition of cartels, as shaped by the 7th Amendment to the Act against Restraints of Competition (GWB), appears to be effective; on the other hand, however, its enforcement—particularly in grey areas, such as cooperation harmful to competition—still leaves room for improvement.

The supervision of abusive practices in oligopolistic markets is examined using the fuel market as an example. Its scope appears limited; for instance, coordination between undertakings ‘via the market’ is difficult to detect. Furthermore, there are shortcomings in investigation and enforcement, for example in the refinery sector. The Monopolies Commission is sceptical regarding the imposition of price-setting rules for the fuel market by the state; nevertheless, negative effects on consumers could potentially be avoided if such rules were properly designed. In this regard, competition-enhancing information initiatives are analysed in particular. The supervision of abusive practices, as a form of market oversight akin to regulation, constitutes another key focus of the report.

The number of proposed mergers notified for merger control has stabilised at a low level during the reporting period; in this respect, the introduction of a second domestic turnover threshold in mid-2009 has had a lasting effect. The number of cases examined in the main review procedure has fallen compared with the previous reporting period, as have the number of clearances subject to conditions and the number of prohibitions, which are at their lowest level for decades. The Monopolies Commission welcomes the reinforcement of the prohibition on implementation through its enforcement in fine proceedings as well, and examines the application of merger control rules in an international context.

Market definition is given thorough consideration, both conceptually and in practical terms, as a legal and heuristic tool. The impact of the erosion of the regional monopolies of press wholesalers, brought about by two civil court judgements, on the spatial definition of the market in this sector is examined; here, the Monopolies Commission strongly advises against enshrining the structures of the press wholesale sector in question in law, thereby jeopardising its ability to reform. The criteria for market dominance and the remedial measures accepted by the Cartel Office constitute further focal points of the study.

The European Commission’s decision-making practice under merger control law during the 2010/2011 reporting period was characterised by the further development of the SIEC test, which has been the decisive criterion for prohibitions since the reform of the Merger Regulation in May 2004. In light of the prohibition decisions in the Olympic/Aegean Airways and Deutsche Börse/NYSE Euronext, the European Commission’s tendency appears to have shifted: even where there are significant competition concerns, it now tends to issue clearance decisions – sometimes subject to very extensive conditions and obligations – rather than imposing a prohibition order. 

Under the SIEC test, the European Commission generally attaches less importance to the assessment criteria of market definition and market share than it does under the market dominance test. During the reporting period, market definition and market share were generally determined; in several cases, however, the market definition was left open, a move which the Monopolies Commission welcomes in certain cases. Whilst market shares remain an important indicator in the decision-making practice of the European Commission and in European case law, they were relativised in a number of decisions due to the specific circumstances of the individual case. 

The economic approach, which the European Commission has been pursuing more intensively for several years, has led not only to qualitative assessments but also to quantitative analyses regarding market definition and the effects of mergers. Nevertheless, the European Commission has repeatedly pointed out the inherent limitations of quantitative analytical methods. The Monopolies Commission shares these concerns in principle and considers it sensible to supplement the qualitative assessment, particularly where its results are not very robust or are ambiguous.

One focus of the Monopolies Commission’s investigations is the remedies imposed in merger control proceedings. In addition to divestiture commitments, problematic behavioural commitments have also been accepted in a number of cases. In general, the Monopolies Commission considers behavioural commitments to be problematic where they are highly complex and require long-term and comprehensive monitoring. Furthermore, behavioural commitments only bind companies’ conduct for a certain period; once this period has expired, they are no longer bound by their behavioural commitments. The subsequent waiver of remedies originally imposed in the Hoffmann-La Roche/Boehringer Mannheim case provides grounds for a critical examination of the European Commission’s Notice on Remedies and the corresponding practice. In this regard, a more appropriate standard and greater transparency would be desirable.

In the judgment of the Court of Justice of the European Union in the Ryanair v Aer Lingus case, the European Commission’s prohibition decision was upheld in its entirety. In doing so, the Court expressly rejected the notion that quantitative evidence takes precedence over qualitative assessment. Rather, econometric analyses could only supplement, but not replace, qualitative analysis. When assessing the competitive situation, the European Commission is entitled to a degree of discretion in weighing up individual pieces of evidence. 

 During the reporting period, there were no legislative developments in the area of the Merger Regulation; however, the question of under what circumstances minority shareholdings without the acquisition of control should be brought within the scope of the Merger Regulation was widely discussed and is also examined in this report. In the Monopolies Commission’s view, a cost-benefit analysis should be carried out in this regard. The expected benefits of such an extension lie primarily in the prevention of negative effects on competition, whilst the costs arise chiefly from the additional administrative burden on undertakings and the competition authority, as well as from the risk of over-regulation. In this regard, the various regulatory options are examined in greater detail, placed in an international context and weighed up. 

Merger statistics

In its latest main report, the Monopolies Commission presents the traditional concentration tables for the last time. The main reason for this is that the scope for economic policy interpretation in traditional concentration reporting is severely limited and cannot be easily remedied by additional investment in more extensive data sets or more sophisticated calculation methods. The Monopolies Commission plans to use resources that become available in future to make its analyses more evidence-based. The use of modern empirical methods thus opens up the possibility of validating and quantifying the qualitative arguments relating to the individual topics discussed in the main and special reports.

In its latest main report, the Monopolies Commission has therefore, for the first time, carried out a special analysis of the energy market, examining the factors influencing the distribution margin of universal service providers in the retail electricity market. The analysis clearly shows that increasing competition leads to a decline in the distribution margin of universal service providers. This finding suggests that even customers who are reluctant to switch suppliers benefit from increased competition in the retail markets, as universal service providers also generate lower margins in this scenario, which implies a reduction in prices for the universal service tariff.

The Monopolies Commission’s investigations into the assessment of the current state and development of aggregate concentration and the interdependence of large enterprises are based on the identification of the 100 largest enterprises across all economic sectors according to the criterion of domestic value added. The share of large enterprises in the net value added of all enterprises in the Federal Republic of Germany rose slightly during the reporting period to 16.4 per cent. The proportion of employees accounted for by the ‘100 Largest’ in relation to the economy as a whole remained virtually unchanged at 12.4% in the 2010 reporting year. The gradual dismantling of the network of cross-shareholdings and personnel links amongst the ‘100 Largest’, which has been ongoing since the 1996 reporting year, continued. Similarly, during the reporting period, there was a decrease in both the number and the proportion of mergers involving large enterprises notified to the Federal Cartel Office, as well as in the number of clearance decisions.

As part of its reporting on concentration, the Monopolies Commission has, in addition to its analysis of the concentration and interdependence of large German companies, assessed the status and development of personnel links between the so-called EU15 Member States, plus Norway and Switzerland, via individuals holding multiple directorships. As a result of the ongoing internationalisation of procurement and sales markets, it can be assumed that cross-border personnel links between companies are becoming increasingly significant. Drawing on a comprehensive dataset covering 7,195 listed companies, it has been possible for the first time to record personnel links within and between selected European countries over the period from 2006 to 2010, thereby illustrating their international significance. In summary, the descriptive findings demonstrate the high relevance of individuals holding multiple directorships as a means of establishing inter-company links. Although personnel linkages in the majority of sectors are strongly characterised by national connections, a further increase in international linkages is to be expected in the wake of the ongoing globalisation of the economy. 

On a separate note 

The composition of the Monopolies Commission changed during the reporting period. Commission member Christiane zu Salm stepped down from the Monopolies Commission at her own request on 31 December 2011. In her place, the Federal President, on the recommendation of the Federal Government, appointed the entrepreneur Dagmar Kollmann for the remainder of the term of office until 30 June 2012. She has since been appointed, along with Commission members Dr Angelika Westerwelle and Prof. Dr Daniel Zimmer, for a further term of office until 30 June 2016. The terms of office of Commission members Prof. Dr Justus Haucap and Dr Thomas Nöcker end on 30 June 2014. 

The Chair of the Monopolies Commission, Professor Dr Justus Haucap, will step down from the chairmanship (in accordance with the rotation system) after a four-year term of office. The Monopolies Commission has elected Prof. Dr Daniel Zimmer as its new Chair with effect from 10 July 2012. Prof. Dr Justus Haucap will continue to serve as a member of the Monopolies Commission. Dr Klaus Holthoff-Frank will become Secretary-General of the Monopolies Commission with effect from 1 September 2012. He succeeds Dr Horst Greiffenberg, who is retiring.