Price issue – antitrust response

Against the background of sanctions and the current economic situation, the sphere of pricing requires maximum attention. The primary task of the Russian Federal Antimonopoly Service (commonly abbreviated to the ‘FAS Russia’) is to prevent artificially inflated prices. Elena Sokolovskaya, partner at Pepeliaev Group, will review how and with what tools the state authority identifies and clamps down on these violations.

The first step was instructing the FAS Russia and its local bodies to strengthen the constant monitoring of pricing for socially significant foodstuffs in order to ensure the effective functioning of markets and to increase the availability of goods. Monitoring is conducted to identify the facts of abuse of a dominant position, including in the form of unjustified price increases, the presence of cartel collusion or concerted actions of market participants to maintain prices. It affects the entire distribution chain – fr om the manufacturer to retail networks. When illegal actions are detected, the local offices are ordered to take immediate response measures: from warnings to the initiation of antitrust cases.

Example

The FAS Russia issued a warning to the head of DNS, a prominent retailer of electrical and consumer goods, in connection with a public statement posted on the social network Facebook (owned by Meta Platform Inc., whose activities are prohibited in Russia), as well as in the Telegram messenger that a rise in prices for household appliances is possible. From the position of the state authority, such behaviour may lead to a violation of antitrust legislation, including articles 11 and 11.1 of Federal Law No. 135-FZ “On Protecting Competition” dated 26 July 2006 (the “Competition Law”, or the “Law”) (Warning No. MSh/14833/22 dated 25 February 2022).

The focus of the regulator’s attention turned out to be manufacturers, intermediaries, resellers, retail outlets of the most important social goods.

Thus, the state authority’s audit of sugar supply chains affected the largest producers: NPO Union of Sugar Producers of Russia, Rusagro Group of Companies LLC, Rusagro-Center LLC, Prodimex LLC, SC Dominant LLC, Trading House “Dominant” LLC and ChekhovSakhar LLC. In Kemerovo Region, an antitrust case (No. 042/01/11-327/2022) was initiated against wholesale suppliers on the grounds of a violation of article 11(1)(1) of the Law: entry into an anticompetitive agreement by establishing a trade margin from 1 March 2022, which led to an increase in selling prices. In Krasnodar Territory, a case (No. 023/01/11-1091/2022) was initiated on the grounds of a violation of the same provision against two sugar factories in connection with a one-time increase in wholesale selling prices and their establishment at the same level. And in relation to the largest sugar producer in the country, Prodimex LLC, there is a case concerning a suspicion of the illegal coordination of the economic activities of retail chains, which led to an increase in retail prices.

The FAS Russia has also launched an audit of Miratorg trade company, a major meat producer, in order to study the meat supply chain and assess pricing for such products.

The audits also touched on the prices of equipment and children’s goods. In particular, owing to numerous appeals from citizens, the antitrust authority requested information on the validity of the increase in prices for household appliances and electronics in the DNS and Technopark retail networks and on children’s goods in the Detsky Mir retail network. It should be noted that Detsky Mir reported that it was complying with the voluntary self-limitation of margins and setting the cost of certain groups of goods. In particular, it not only reduced margins in the categories of “baby food”, “feeding and care”, “diapers and hygiene” by an average of 16%, but also set the cost of a number of items of clothing and footwear at the level of January 2022 for three months.

At the same time, as the agency itself notes, taking into account the current situation, the tools used cannot fully ensure antimonopoly control over pricing; their improvement and the introduction of new mechanisms are required. For example, a draft order of the FAS Russia is currently being discussed publicly. This order is aimed at reducing the time from ten to two working days for issuing warnings, including for unreasonable public forecasts of price increases.

Warning

The basis for sending a warning to an official of a business entity is a public statement by such a person about planned behaviour on the commodity market, if such behaviour may lead to a violation of antitrust legislation and there are no grounds for initiating and considering a case on violation (article 25.7 of the Competition Law).

In addition, the agency continues to develop initiatives and draft laws aimed at improving the mechanism of antitrust control over pricing. Thus, a draft order has been developed to establish for those occupying a dominant position a minimum volume of products to be sold on the commodities exchange. The proposed sales standard is 10% of the volume of sales in the domestic market. Thirty types of chemical products fall under this lim it. Therefore, the state authority proposes to solve the problem of restraining prices for plastic. But the most discussed initiative was the draft law on the temporary extension of the ban on the abuse of a dominant position to business entities whose share in ordinary conditions does not allow them to be classified as dominant.

The introduction of these provisions, from the position of FAS Russia, would allow it to take prompt measures against bad-faith entrepreneurs, which would help restore the balance of supply and demand, as well as fair pricing in commodity markets. But the draft law did not gain support from entrepreneurs. In particular, this owed to the risk that the number of cases will increase, including in relation to medium-sized and small businesses, with the application of significant turnover penalties of up to 15% of revenue for 2021: in the current conditions, such amounts may be critical for companies.

In general, the vector of FAS Russia’s activity has clearly changed. Control mechanisms are being improved and new, sometimes quite radical, initiatives are being discussed.

We believe that such a response from the state authority is logical and timely, aimed at preventing violations, which, based on the circumstances, may increase in number.

However, some of the response actions of the regulator may be double-edged and do not fully take into account the interests of both the state and business. Moreover, a number of initiatives may run counter to long-standing legal structures and practices. There are great risks that innovations will be dictated only by the need to respond promptly to momentary difficulties and will not take into account the subsequent impact on the activities of business entities.

In our opinion, the current situation should be a catalyst for improving the existing regulatory mechanisms, rather than a reason to abandon them. It is obvious that, although changes in the field of antitrust regulation are inevitable, they should fit into existing legal structures and not run counter to general principles, including those laid down in the Russian Constitution.

It remains to be hoped that, in such a difficult time, the improvement of antimonopoly legislation will be gradual and reasonable, not contradicting the old provisions and established practice, and designed for the possibility of its permanent application.

Source: Competition and Law