Co-authored by Luise Teubner
A few weeks ago, the German Federal Cartel Office (FCO) published its final report on the sector inquiry regarding refining and wholesale of fuels. Shortly after that, proceedings based on Section 32f (3) German Competition Act (GWB) were initiated. While sector inquiries have been conducted more frequently in the past – for example on e-mobility, as we have discussed here – the FCO has never made use of its power to impose certain measures following a sector inquiry before – until now. However, a few days later political discussions started about cutting those powers of the FCO. In the following we provide an overview of the latest developments.
Key Findings of the FCO
In February, the FCO presented the final report on its sector inquiry regarding refining and wholesale of fuels. An interim report on this investigation was already published in 2022, focusing on the refinery business (we blogged about it here). The now published final report looks at the competitive conditions at the wholesale level of the mineral oil industry. Here are the key findings of the FCO:
- The price of mineral oil products is largely based on price assessments. This applies to most of the value chain – from the sale of crude oil to processed products such as diesel fuel or petrol or heating oil. Only at retail level prices are fixed, although price assessments are supposed to have an indirect effect.
- Price assessments are provided on a daily basis by various companies, who collect information from market participants such as information on transactions, bids or offers. The FCO notes that the database for price assessments often is rather poor – sometimes information is based on a small number of reports or, if a larger amount of reports is available, they can only be traced back to just a few market participants.
- The FCO recognizes the general need for price assessments and makes clear that they are not per se harmful to competition. However, in case of price assessments in the mineral oil sector, the FCO recognizes two competitive risks:
- Risk of collusion – According to the FCO’s findings, the mineral oil industry itself provides incentives for collusive behaviour due to various characteristics, such as: a high concentration of companies at almost all market levels, mutual dependencies and interdependencies, high barriers to entry, homogeneous products or high market transparency. The price assessment system further increases transparency in the market, since price assessment providers indirectly cause an exchange of information between competitors on key competitive parameters (such as quantity, price or price components).
- Risk of manipulation due to incentives and ability to influence prices unilaterally – The FCO worries that individual market participants may attempt to influence price assessments and thus prices through selective reporting. This is particularly a concern as the data basis for price assessments often is limited.
- In conclusion the FCO recommends inter alia examining whether price assessments should be subject to stricter legal requirements.
The FCO strikes a new path
Following the sector inquiry, the FCO has initiated proceedings to examine potential competition issues within the fuel wholesale sector, using its newly granted competition tool in Section 32f (3) GWB for the first time. The introduction of this particular tool modelled after the market regime of the United Kingdom divided economic and legal experts for one specific reason: Unlike other competences granted to the FCO, it does not require a infringement of law to intervene.
The new competition tool follows a two-step process: First, following a sector inquiry, the FCO can determine whether a market is experiencing significant and ongoing malfunctioning of competition. This concerns industries where competition might be impaired by structural issues without legal violations by companies. If such a determination is made, the FCO may, in a second step – after hearing the Monopolies Commission on that matter – impose behavioural or structural remedies on the companies contributing to the dysfunction. These remedies could include obligations to grant access to data, requirements for certain types of contracts, or rules concerning business relationships within the affected market.
For the first time, the FCO has now initiated proceedings to assess whether the price assessment providers in Germany create a significant and ongoing competition malfunction in the fuel wholesale sector which could justify an intervention. At this stage, no remedies have yet been imposed as the investigation is still in its early stages.
Outlook
- The competition tool in Section 32f (3) GWB was introduced as part of the latest amendment to the GWB in November 2023. It aimed to strengthen the FCO’s ability to address market distortions proactively while the Minister of Economics at the time famously proclaimed “claws and teeth” for German antitrust law.
- However, while the new legislative period has just begun, there is already talk of potentially abolishing the competence in question, according to the current state of coalition negotiations between the CDU and SPD. As the results of the working group on economic affairs show, it seems the two parties disagree on this issue. Under the leadership of Friedrich Merz, a well-known liberal-conservative and future Chancellor, it is plausible that the CDU calls for the elimination of this competence. In the published results of the working group the CDU insisted that any interventions by the FCO should be based on clear legal violations “in order to restore legal certainty”.
- Tomaso Duso, Chairman of the German Monopolies Commission, criticises the proposal and emphasises the importance of the “new” competition tool, especially regarding the evolvement of the AI-market in the future.
- But, as it is often the case in the ever-unpredictable world of political coalitions, the outcome of the negotiations remains uncertain, not to mention its legal implementation. This is of course also true for the outcome of the investigation itself.
Co-author Luise Teubner studied law in Münster and Paris (and currently works at ROCAN as a trainee lawyer)
Photo by Marcin Jozwiak on Unsplash
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