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German watchdog sticks a fork into sausage cartel

Germany's competition watchdog, the Bundeskartellamt, has been cracking down on companies producing some of the country's most iconic food products and fixing their prices in the bargain.

If there was a world cup of cartels, the Germans would be heavy betting favourites. Earlier in the year, sugar producers and brewers felt the wrath of the agency and suffered big fines for their transgressions.

In the latest case, the federal agency knocked the stuffing out of a string of 21 sausage makers and 33 individuals, levying stiff fines totalling €338-million ($493-million). Investigators linked all them to a price-fixing scheme they say stretched back to 2002. Authorities wisely waited until the day after the World Cup to make the announcement, to ensure the media and the public would take sufficient note of their efforts to clear the corruption off the meat counters of Germany.

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"The price-fixing agreements were practised over many years," Andreas Mundt, president of the Bundeskartellamt, said in a statement about the wurst caper. "The overall amount of fines seems high at first glance, but has to be seen in perspective, in view of the large number of companies involved, the duration of the cartel and the billions in turnover achieved in this market."

Bell Ltd., the Swiss parent of large German meat processor Bell Deutschland Holding GmbH, has vowed to fight the subsidiary's hefty €100-million fine.

In February, three large sugar producers were hit with penalties of about €280-million for a combination of price-fixing, market-sharing and quota-setting – otherwise known as the trifecta of anti-competitive behaviour. The offences began in the mid-1990s and continued until investigators launched their probe in 2009.

A month earlier, the watchdog's target was beer. The combined penalty for five breweries and seven executives: €106.5-million. And the agency continued to investigate other players as well, with the notable exception of heavyweight Anheuser-Busch InBev Germany Holding GmbH, which did plenty of talking in exchange for the leniency it was granted.

Price-fixing and other market-sharing arrangements in a wide range of products and services remains a constant problem in most markets. But colluding on prices, market share or sales volumes does much more than harm consumers, distributors and retailers who are unwittingly paying more to the cartel crowd and getting less.

Such arrangements must look attractive to executives eager to avoid destructive price battles with entrenched competitors. Experience shows they are likely going to be able to carry on their illegal activities for years without getting caught – more than a decade in the case of the sausage conspiracy. And there's a high probability that the financial gains will outweigh any eventual penalties.

But it still makes for bad economics.

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Fixing prices, bids or the division of markets fosters inefficiencies, dampens innovation, discourages new entrants and limits the range of competing products and promotions. It's one thing for such behaviour to run rampant in the weak, corrupt countries of Europe and other parts of the world. But it's outrageous that the practice surfaces so often in well-run economies.

Last month, Apple reached a settlement with the U.S. Department of Justice over e-book pricing, although it is still appealing a 2013 verdict that it had violated federal and several state anti-trust laws.

In September, four Canadian chocolate purveyors agreed to fork over $23.2-million to settle a class-action lawsuit over allegations of price-fixing from 2001 to the end of 2008.

In another European beer case pursued by the European Commission, Heineken, Grolsch and Bavaria were hit with hefty fines in 2007 for shafting Dutch drinkers in the late 1990s.

Critics of government intervention in the marketplace like to point out that negative economic fallout is rare because price-fixing conspiracies tend to be unstable and short-lived.

Try telling that to German consumers who overpaid for years for their favourite Oktoberfest indulgence.

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About the Author
Senior Economics Writer and Global Markets Columnist

Brian Milner is a senior economics writer and global markets columnist. In a long career at The Globe and Mail, he has covered diverse business beats, including international trade, the automotive industry, media, debt markets, banking and the business side of sports. More

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