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Liberalization of the Fuel Market in Slovenia – Evaluation of the impact of Price Transparency

Liberalization of the Fuel Market in Slovenia – Evaluation of the impact of Price Transparency

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When in September 2020 the Slovenian government decided that price control measures in the fuel products market were no longer necessary and fully liberalized the market, one of the expected benefits was a positive impact on the price competition.

What Used to Be Transparent, No Longer Is

Fuel vendors immediately reacted by announcing that liberalization would lead to a rise in fuel prices due to an increase in margins. Although no in-depth analysis on the price movements of fuels on the Slovenian market is yet available, consumers observed a surprising decrease in price transparency. What used to be transparent and easily identifiable, with prices displayed on signs right next to the petrol stations, can now only be found on online price information sources.

Slovenian Competition Protection Agency Not the Right Address

The public outrage and press coverage even triggered a statement of the notoriously silent Slovenian Competition Protection Agency. I fully agree with the Agency’s statement that they are not a “security mechanism” for transparent pricing. In such a dynamic market, which is highly dependent on international fuel industry trends, price fluctuations on the Slovenian market do not in themselves directly generate competition law concerns. As long as the price of motor fuels is freely determined on the market and does not result from any restrictions, distortions, or hindrance to competition, there should be no reason for any raised eyebrows. However, the obvious question of whether this non-transparency fosters or hinders price competition remains open.

In general, the world of perfect competition is one in which the consumer has all the information necessary to make a decision. No doubt, consumers can use the internet to compare prices and other factors and make informed decisions based on them. But, in concentrated markets, information exchange and increased price transparency can also bring about anticompetitive effects. Information exchange can constitute a concerted practice if it reduces strategic uncertainty in the market and hence facilitates collusion – assuming the data exchanged is strategic. Competitors are better able to understand the dealings and tactics of rivals and adapt to each other’s behavior. Therefore, when assessing the competition risks of information exchanges, two points have to be considered: a) the information itself or rather the benefits of such information to the enterprise, the competitor, and consumers; and b) the likelihood that disseminating information facilitates tacit collusion.

Why Would Publishing Prices on Signs Next to Slovenian Gas Stations Ensure Fair Competition?

The legal theory view that open access to information promotes efficiency in the marketplace and is unlikely to facilitate tacit collusion promotes the notion that the public dissemination is pro-competitive. However, such a scenario is only possible in a market filled with competitors, low entry barriers, and other aspects that make tacit collusions unlikely – in other words, not the Slovenian fuel market. There is an inherent risk that in tight markets with fewer competitors the risk of common understanding and coordination between competitors is high and might easily result in simpler monitoring of deviations. That is, the increased transparency and exchange of information is more likely to cause restrictive effects on competition than in looser markets.

It is fair to say that publishing prices and thereby sharing and keeping information transparent is generally valuable to customers, but, while it may promote marketplace efficiencies, it may also facilitate tacit collusion.

The dissemination of information entails both pro- and anti-competitive elements. Keeping in mind that in the past the agency raised concerns about market activities, it is likely there will be future inquiries. However, what the benefit for the consumer will be is yet to be seen.

Regardless of what the theoretical prevailing opinion is, the fact that the agency was forced to react to the call of consumers should make the fuel vendors think about their next steps. Companies active in the field should take measures to ensure their internal procedures are in line with competition law and that their upcoming price decisions are based on competitiveness alone.

By Ales Lunder, Partner, and Robert Kordic, Associate, CMS

This Article was originally published in Issue 8.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.