Categories: Business

Why Brussels cares so much about what we pay for Oreos or Toblerones – Domingo Soriano

Milka, Oreo, Toblerone, Philadelphia, Príncipe, Fontaneda, El Caserío, Trident, uchard… The truth is that the list of brands Mondeles International attracts attention. This is one of those food giants that, unknowingly because we don’t associate every logo with an end company, is in all of our homes. Its revenues (more than $36 billion in 2023) and profits (4.371 million) are at the same level.

Hence the logical thing in these cases: some will say that it is fantastic that a company that creates so much value among its consumers who fill their pantries with its brands has such revenue. There will be others who will warn us about bad practices in the food industry and tell us what’s hidden in the endless ingredient lists on their packaging. The best healthy They will ask us to forget about these sweet products, which taste more or less the same, and pay attention to the small producer-trader we have in our neighborhood.

And then there is Margrethe Vestager, the EU competition commissioner, who this week imposed a million-dollar fine on the company for violating Community competition rules. The charges apparently relate to certain actions by the company aimed at “interfering with cross-border trade in chocolate, biscuits and coffee products between European Union (EU) member states.” He continues: “Mondelez’s goal was to prevent cross-border trade from driving down prices in higher-priced countries. These illegal practices allowed Mondelez to continue to charge higher prices for its products, ultimately harming consumers.” Of course, things don’t end there. According to the community government, the company was committed to “abusing its dominant position in certain national markets to sell chocolate bars.”

From what they tell us, it appears that Mondelez International imposed restrictions on its customers and distributors. That is, he did not allow an intermediary to buy from him in an EU country and then take the chocolate bars or cookies to another country where prices were higher in order to sell them there for a little less. So to speak prevented arbitrage with its own products. And Vestager didn’t like it.

The perfect competition?

First of all: I wouldn’t be surprised if this company and many others went to the limits of community legislation. That is, I am not interfering with the legality of the case or the fine against Mondeles. In fact, the company appears to have accepted some of the charges, cooperated with Brussels, and admitted wrongdoing. And cooperation helped him achieve a 15% reduction in the fine, which was set at 337.5 million euros.

What’s hard for me to understand is there a need for such legislation.

First, let’s look at where we are: the competition department, the one that regulates monopolistic practices and market dominance. And I can think of few products to which the definition of a monopoly is less applicable than those sold by Mondelez. Go to your local store and count how many brands of cookies, chocolate, coffee, baked goods or dairy products you can find. How many biscuit companies are there in the EU? If you count bakeries and pastry shops, you get several hundred thousand. I’m not exaggerating. Are there different types of cookies sold in the regular market? Perhaps there are more than a million of them. Anti-competitive practices in such a market?

Then comes the second point: Mondelez has restricted trade in its own products. Is there a company that doesn’t do this? I don’t know of a single company in the food industry or any other industry that sells products at the same price to all of its customers or doesn’t have agreements with its distributors. Logically, if you have a contract with a wholesaler in Germany, the last thing you want is for someone from France to come and bother you. Because yes, you will make more money that year in the French subsidiary, but you will probably create a mess in the German company from which you will not recover for several years.

competition law in Europe is a perfect summary of everything that is wrong with Brussels. Schemes taken from textbooks (in this case, those absurd models of perfect competition that never existed) and a bureaucrat with a lot of power who wants to squeeze them into an ever-changing economic activity.

For example, in the Commission’s view, Mondelez abused its position when it stopped selling chocolate bars in the Netherlands to prevent their resale in Belgium, where Mondelez sold the products at higher prices. And yes, this has caused consumers in Antwerp to pay more for Milka tablets or CoteD’Or chocolate than in Maastricht. The question is, who should care more than Mondelez and its customers? By restricting the trade of its own products and raising their prices in Belgium, the company risked that people would stop buying them (I lived in this country and I assure you that if there is something missing, it is competition in the chocolate or biscuit market). Did consumers buy Mondelez products even if they were a little more expensive? Nobody should go there anymore.

In fact, the next question is whether these types of penalties benefit us consumers or not. The Commission assumes that the following will happen: Mondelez will begin selling in all countries at the lowest price of all. But the opposite can happen: that is, forced to impose the same conditions in all markets, the company prefers to charge us the entire amount that the Belgians pay.

Monopolies

The worst thing is that This type of brutal interventionism is done in the name of competition. and the market. Nothing could be further from reality. Yes, all companies are trying to take a dominant position. In fact, they all want to be monopolists: in fact, my thesis is that not only are monopolies not bad, but it is the search for such a dominant position that is the greatest incentive to innovation and competition that we can imagine.

Moreover, bankruptcy bureaucrats (by the way, this is a real monopoly, the only legal ones that exist) can be sure: no one has ever achieved that dominant position with which they can force their client to do what you want. . Among other things, because there is always the option not to consume.

In fact, “monopoly” is a term that depends on how you define it. A monopoly can be anything and nothing if you broaden the definition of market enough. In Europe, we have been following the strictest version of this definition for many years. And everything that is not such an unrealistic and artificial perfect competition of textbooks is punished, prosecuted and fined. This is mistake. This week the Commission is happy because it gave a good assessment stick to a multinational company. Everyone is happy. Leftists, because hitting a big company over the head is always nice. Correct Excel and ideal models too.

Moreover, we can be sure that nothing will happen in the short term. In a few years, someone will wonder why Europe remains stagnant. Because productivity drops. Because companies are not investing, innovating, or truly competing on the Old Continent. No one will look at Verstager’s guys. Yes, this is exactly the “Competition Department”. How can it be your fault if the market doesn’t work?