The Serbian Commission for Protection of Competition ("CPC") has recently published a report on its sector inquiry in the cement and concrete markets in Serbia, conducted from 2018 to 2021 ("Sector Inquiry"). The CPC aimed to determine the relationships between competitors on both markets, assess their market shares and relative strength, analyse their commercial policies and contractual relations with suppliers and customers, as well as the effects such relations may have on competition.
What did the CPC conclude?
The main conclusions of the Sector Inquiry are:
- Due to the presence of only three market players on the cement market, this market is highly concentrated with characteristics of a classic oligopolistic market. Such market structure may make collusion between market participants easier to achieve and/or sustain.
- Commercial policies of cement producers and importers are complex and insufficiently clear and transparent for the existing and potential customers and different commercial terms are applied by the same supplier. This may lead to potentially discriminatory outcomes.
- Geographic market is somewhat segmented between cement producers, which is largely determined by the location of the plant.
- Vertically integrated cement producers have a privileged position on the concrete market, compared to independent concrete producers. This is because they acquire cement under more favourable conditions, which allows them to sell concrete at lower prices compared to their competitors, while their vertical integration enables them a stable and continuous cement supply.
What does the CPC recommend?
Based on the Sector Inquiry conclusions, the CPC gave the following recommendations to the market participants:
- Concrete producers and importers should make their commercial policies as precise and clear as possible. Commercial policies based on quantity or customer’s location that are made and applied regardless of the customer’s identity, may encourage competition between cement buyers, which would positively impact the construction sector.
- Vertically integrated market participants, active as both cement producers/importers and concrete producers, should set transfer prices on a cost basis, considering the gross margin they achieve in transactions with unrelated parties.
- Given the high concentration of the cement market, participants on this market should avoid behaviours that may influence independent decision-making of other market participants, and especially practices that could lead to the exchange of business sensitive information with other market participants.
Our takes
High market shares and oligopolistic market structures are signals of weakened competition. Although this is not a problem per se, caution should be exercised on such markets for at least two reasons: (unintentional) collusive outcomes are more likely than on other markets and different dominance abuse theories, including the one of discrimination, apply. It is highly recommended in such cases to review and if necessary, structure commercial policies in accordance with applicable competition law standards, while due care should be exercised with how the management and employees communicate externally with competitors.
This is of particular importance as it is not uncommon for competition authorities, including the CPC, to follow-up on sector inquiries with formal investigations. The fact that the CPC deemed the Sector Inquiry called for and that potential issues have in fact been recognized could suggest formal investigations should not come as a surprise.
