After two and a half years of investigation, the Serbian competition authority has established that the two largest Serbian producers of ground coffee – Atlantic Group and Strauss Adriatic – had colluded when it comes to the pricing of ground coffee in Serbia. What is in the authority’s decision and what can we learn from it?
Who were the investigated undertakings?
Atlantic Group is a corporate group based in Croatia with significant presence in Serbia. Inter alia, the group is the largest producer of ground coffee in Serbia.
Strauss Adriatic is part of a group based in Israel. In Serbia, it is the second largest producer of ground coffee.
Traditionally, ground coffee is the most popular type of coffee among Serbian consumers.
What were the alleged infringements?
According to the Serbian competition authority, Atlantic and Strauss had agreed and coordinated their business strategy by direct or indirect information exchange concerning the pricing policy and future wholesale prices of ground coffee in Serbia.
How did the Serbian competition authority start the investigation?
In 2021, the Serbian competition authority was conducting a sectoral inquiry, during which it looked into the prices of ground coffee between 2015 and 2020. And during that inquiry the authority found some anomalies on the ground coffee market, which made it look into that market deeper and check for possible foul play.
Specifically, the authority established clear and significant correlations between the prices of ground coffee charged by Atlantic and Strauss. At the same time, there was no correlation between the prices of ground coffee charged by the two producers and the prices of raw coffee, despite the fact that the price of raw coffee accounts for 90% of production costs of ground coffee. Also, even though the prices of ground coffee were rising, sales were also rising, which the authority found counterintuitive.
In addition, the Serbian competition authority established that the coffee market in Serbia was highly concentrated, with two leading players (Atlantic and Strauss) having a combined market share of around 80%. Herfindahl-Hirschman Index (HHI) also indicated a highly concentrated market, even for the years when the combined share of the parties was lowest for the observed period.
Finally, the representatives of the two companies were often giving public statements on prices and potential price changes in the media.
All that was enough for the authority to start its investigation in 2021.
What price analysis did the authority perform?
During the investigation, the Serbian competition authority analyzed and compared the prices of leading ground coffee brands in Serbia between 2015 and 2020. It established that in early 2017 there was a simultaneous price increase of Atlantic and Strauss coffee brands, after which their prices were not significantly lowered until the end of the observed period (i.e., until the end of 2020).
The authority also established that there was a high level of price correlation between the two producers. On the other hand, there was no correlation between the price of raw coffee input (the key input) and the price of ground coffee.
Specifically, during in the period 2017-2019, there was a continuous fall in the prices of raw coffee on the world market, after which, following small fluctuations in 2021, the price started to rise in 2021. Considering the high share of the price of raw coffee in the price of ground coffee, the authority presumed that the retail prices of ground coffee and the price of raw coffee move in the same direction. However, the authority’s analysis showed that the price of ground coffee in Serbia during 2018 and 2019 did not fall, despite the low prices of raw coffee on the world market.
What public statements were the investigated companies giving on pricing?
The Serbian competition authority established in the investigation that both companies were during the observed period giving public statements about pricing. The authority found that these statements matched as they would all announce that there would be no change in the price of ground coffee – and indeed as a result there would be no price change (neither up or down).
The authority also singled out the statements the two companies had made on price increases. The last observed statement is a Strauss statement from July 2021, according to which the price of ground coffee was to go up within two months. After this, at the end of July, Atlantic stated that the price of ground coffee will rise and that such price corrections are inevitable.
The authority viewed these statements as a way in which the two companies were communicating about pricing, apart from direct communication, which they also apparently had.
What direct communication between the investigated companies did the authority find?
At the start of the investigation, the Serbian competition authority conducted dawn raids on the premises of both investigated companies. In the raids, the authority gathered a large amount of documentation, in particular emails and other forms of communication, such as WhatsApp messages. And in this documentation the authority found evidence of direct communication between the representatives of Atlantic and Strauss.
Specifically, the authority established that the two companies had communicated, among other things, about price strategies, i.e. their plans for future price changes. In that regard, according to the competition authority, the companies would agree on the exact timing and amount of their price increases, thereby substituting the uncertainties of the market with collusion.
What were the Serbian competition authority’s findings on the infringement?
After analyzing all evidence, the Serbian competition authority established that Atlantic and Strauss had entered into an illegal horizontal agreement, in the following way:
- By direct or indirect exchange of information on the planned price policy and adoption of their own business strategies in accordance with the exchanged information;
- By taking steps to keep the agreement on pricing strategies in place;
- By establishing a mechanism for sending signals through the media and announcing business strategy while taking specific steps regarding pricing policy only after receiving feedback on the competitor’s strategy; and
- By giving up the fight for the market in the conditions of the lowest price of raw materials in the previous decade, and even despite the availability of free production capacities.
What fines did the Serbian competition authority impose on the infringers?
Upon establishing the infringement, the competition authority imposed fines on the investigated undertakings in a combined amount of around EUR 2 million – Atlantic got a fine of around EUR 1.6 million and Strauss of around EUR 400 thousand.
Key takeawaysThis case shows that the Serbian competition authority is ready to pursue horizontal collusion not only where there is direct agreement between competitors but also where competitors collude by signaling and information exchange. It also shows the authority’s extensive use of price analysis and other econometric methods in its investigations. |
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For more information about antitrust in Serbia, please contact Dr. Dragan Gajin, Head of Competition at Doklestic Repic & Gajin.