The ongoing COVID-19 pandemic has seriously disrupted supply chains and turned the global economy on its head. For many products the supply cannot meet increasing demand, while in other cases legal obstacles cause distribution problems. The average consumer is faced with one simple fact: the prices of certain products are increasing at an alarming rate.
However, if the price of a product noticeably differs from that in other countries, it may give rise to suspicion. This is the case with COVID rapid tests in Hungary, where prices significantly exceed those of neighbouring countries. As a result, the Hungarian Competition Authority (HCA) has decided to use its recently increased powers and launch an accelerated sectoral inquiry into the market. It published its report recently, on 4 February 2022.
What is an accelerated sectoral inquiry?
As we reported in a previous article on the national brick market1, an accelerated proceeding differs from a normal sectoral inquiry in several ways. As an additional condition, it can be initiated if rapid 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 (otherwise mostly applied in cartel proceedings) to collect evidence. Market players may comment on the draft report within eight days instead of the usual 30 days, after which the HCA publishes the final report The right to access the file is also limited until 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 market circumstances indicate that competition could be distorted on a specific market.
In the present case, the HCA used almost all the tools available to it to conduct the accelerated sectoral inquiry. It conducted dawn raids and reached out to numerous market players for information. It even contacted other national competition authorities as well as the European Commission and prepared its draft report within 30 days. The HCA also conducted a market sweep (rapid online investigation) to obtain a better understanding of the online sales market of COVID rapid tests.
The HCA's findings
The HCA issued its report on 4 February 2022. Its main conclusion was that the price competition is not intensive enough on the assessed market, hence the higher prices in Hungary compared to other countries.
First, who can sell COVID rapid tests in Hungary is restricted by law. Currently these products can only be sold in pharmacies and in specialist medical accessories shops and in their online shops. It is forbidden to sell these products in a general online shop, although the HCA discovered numerous online shops where COVID rapid tests were illegally offered for sale.
Second, the value chain for rapid antigen tests for self-monitoring is sometimes very long, with products passing through many different actors from manufacturers to consumers, with generally high margins. This also means that at each level of sale, new margins are added to the price of the product, which may ultimately be reflected in the price the consumer pays. For instance, according to the draft report, the margin of importers is already above 100%, and the margins of subsequent distributors are also between 20 and 200 %, resulting in up to five to seven times higher prices for final consumers compared to the import prices.
To address this problem, the HCA has proposed legislative changes to allow a broader range of sales outlets to sell COVID rapid tests (initially for a three-month trial period), and encouraging market players to develop shorter value chains, e.g. pharmaceutical wholesalers should purchase directly from manufacturers instead of local importers. Should this not result in decreased prices, the HCA also proposed that the Government consider setting statutory maximum prices, which are already applied in the case of PCR tests.
The HCA also informed the online shops that did not comply with the legal requirements regarding the sale of COVID rapid tests to cease their illegal practices by 14 February 2022. Following this date, the HCA will monitor online sales and if the problems persist, it will then initiate coordinated enforcement actions.
Comments
This time the HCA has not identified collusive practices that would necessitate further antitrust investigations into the conduct of the relevant market players.
However, the Hungarian Government has already acted on the HCA's recommendations, and as of 9 February 2022 has broadened the range of sales outlets allowed to sell COVID rapid tests with those drogeries, petrol stations and retail chains who have authorisation to market pharmaceutical products. This will increase competition which is likely to result in more favourable prices for customers of COVID rapid tests.
Companies should be on the lookout for future accelerated sectoral inquiries, as the HCA is not shy to use this new tool if prices on a market seem to be too high, and the legislator also tends to intervene quickly in line with the HCA's recommendations. It is also important to highlight that it is mandatory to reply to a request for information in an accelerated sectoral inquiry and failure to provide answers on time can result in significant procedural fines.
By Anna Turi, Counsel, and Márk Kovács, Associate, Schoenherr
