Hungary: Competition authority publishes results of the first accelerated sectoral inquiry into the national brick market

The sector inquiry covered all levels of the supply chain from brick manufacturers, procurement undertakings, retailers to final customers. The HCA has not found any reason to conduct an antitrust proceeding in the relevant market. It has, however, made recommendations for both consumers and the state.

HCA's new powers

The HCA has made use of its recently increased powers (conferred upon it by a government decree issued in July 2021) and initiated an accelerated sector inquiry in order to investigate the national brick market in more detail.

An accelerated proceeding differs from a normal sectoral inquiry in several aspects: as an additional condition, it can be initiated if a fast intervention is justified. The HCA must prepare its draft report within one month, whereas a normal sectoral inquiry can take more than a year. Moreover, the HCA can even conduct dawn raids (mostly applied in cartel proceedings) on the relevant market players to collect evidence. Market players may comment on the draft report within eight days instead of the normally available 30 days. The right to access to file is also limited to after the investigation.

Otherwise, the goal of an accelerated sectoral inquiry is the same as that of a normal sectoral inquiry: to uncover and analyse market trends if price movements or other circumstances on the markets indicate that competition could be distorted on a specific market.

In addition to carrying out a series of dawn raids at various places in Hungary, the HCA has issued data requests and approached several market players in and outside of Hungary, including manufacturers and distributors, procurement groups and building yards, to collect information and data for its findings.

The HCA first published a draft report, on which interested and affected parties had eight days to comment. The HCA has then published the final report on its website. It should also publish a summary of the comments, as well as the individual comments of the market players (if they request it).

HCA's findings

The HCA has not found sufficient evidence to support the initiation of a competition supervisory proceeding, which means that there is no evidence that would indicate the existence of a (price) cartel or an abuse of dominance. As a result, there were other reasons behind the price increases (the extent of which was in fact smaller than on other markets in the building material sector).

The sector inquiry has uncovered significant differences between the prices of these building materials based on where exactly they are purchased. The natural recommendation in this respect is that builders and consumers should not rely on only one offer but should request additional offers from different distributors to find a more favourable price.

One of the reasons for the price increase was that certain manufacturers reduced their production due to the uncertainties caused by the covid-19 pandemic, which led to temporary shortages as a result of greater demand. However, this has mostly been remedied.

Higher transport, packaging and logistics costs also contribute to a price increase on the brick market.

Distributors, especially building yards, were also investigated and it was found that they receive large volume discounts from specific manufacturers, which results in them focusing on a few suppliers, thereby strengthening their market position. However, this is offset by the lower prices that they can offer to buyers as a result. Furthermore, procurement groups, especially those which are made up of smaller distributors, are recommended to enhance the larger manufacturers' significant negotiation power.

The HCA has also made recommendations for the state, namely that state measures, eg. by non-repayable grants, to increase capacities, production technology and product development, could enhance competition between the manufacturers in order to support an increase of domestic manufacture of brick products.

Comment

The HCA has signalled that it will conduct further sectoral inquiries in the national building sector as part of the systematic investigation of price increases in the sector. Therefore further proceedings, including the possibility of further dawn-raids, are to be expected.

Companies, including those that are not Hungarian, should remain alert, as a reply to a request for information is mandatory and a failure to provide answers on time can result in significant procedural fines on the undertakings. Commenting on draft reports of the HCA is optional, but market players should pay attention not to miss the short eight-day deadline for such comments in they would like their comments to be considered.

As the building sector is under high scrutiny, the HCA can also initiate an antitrust (cartel or abuse of dominance) proceeding with or without a sector inquiry, as it has done so earlier this year in the case of the cement and the gravel market (where it conducts a proceeding based on a potential abuse of dominance). The HCA has also indicated that it will continue to investigate further market signals and complaints submitted to it.

A version of this article was first published on CEE Legal Matters, 08.09.2021.
authors: Anna Turi