Superior Bargaining Power and the Global Food Value Chain: The WutheringHeights of Holistic Competition Law?

TLDR: In this paper, the authors analyse the role of superior bargaining power in competition law and policy in the agri-food value chain and discuss both positions and set a general theoretical framework, the global value chain approach, to better understand the interactions between suppliers and retailers in the food sector.

Abstract: In this paper we analyse the role of superior bargaining power in competition law and policy in the agri-food value chain. Conventional approaches to competition law based on a neoclassical price theory perspective tend to neglect or to stay opaque on the role of bargaining power in competition law. However, national competition authorities and national legislators seem to be less biased by specific theoretical approaches and have increasingly engaged with the application of the concept of bargaining power in competition law. In this paper we discuss both positions and set a general theoretical framework, the global value chain approach, to better understand the interactions between suppliers and retailers in the food sector. Finally, we observe the framing of new tools of competition law intervention at national level, in order to deal with situations of superior bargaining power in specific settings related to the food value chain.

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Superior Bargaining Power and the Global
Food Value Chain. The Wuthering Heights of
Holistic Competition Law?
Ioannis Lianos and Claudio Lombardi
Centre for Law, Economics and Society
Research Paper Series: 1/2016
Image bugphai © 123RF.com

Centre for Law, Economics and Society
CLES
Faculty of Laws, UCL
Director: Professor Ioannis Lianos
CLES Research Paper Series
1/2016
Superior Bargaining Power and the Global
Food Value Chain. The Wuthering Heights of
Holistic Competition Law?
Ioannis Lianos and Claudio Lombardi
January 2016
Centre for Law, Economics and Society (CLES)
Faculty of Laws, UCL
London, WC1H 0EG
The CLES Research Paper Series can be found at
www.ucl.ac.uk/cles/research-paper-series

All rights reserved.
No part of this paper may be reproduced in any form without permission of the
authors.
Pre-published version of Ioannis Lianos & Claudio Lombardi, Superior Bargaining
Power and the Global Food Value Chain: The Wuthering Heights of Holistic
Competition Law?, Concurrences I-2016, pp. 22-35.
ISBN 978-1-910801-08-6
© Ioannis Lianos and Claudio Lombardi 2016
Centre for Law, Economics and Society
Faculty of Laws, UCL
London, WC1H 0EG
United Kingdom

1
Superior Bargaining Power and the Global Food Value Chain: The Wuthering
Heights of Holistic Competition Law?
Ioannis Lianos & Claudio Lombardi
Abstract
In this paper we analyse the role of superior bargaining power in competition law and
policy in the agri-food value chain. Conventional approaches to competition law
based on a neoclassical price theory perspective tend to neglect or to stay opaque
on the role of bargaining power in competition law. However, national competition
authorities and national legislators seem to be less biased by specific theoretical
approaches and have increasingly engaged with the application of the concept of
bargaining power in competition law. In this paper we discuss both positions and set
a general theoretical framework, the global value chain approach, to better
understand the interactions between suppliers and retailers in the food sector.
Finally, we observe the framing of new tools of competition law intervention at
national level, in order to deal with situations of superior bargaining power in specific
settings related to the food value chain.
Keywords: bargaining power, global food value chain, food retail, joint purchasing
agreements, abuse of economic dependence, mergers, waterbed effects, agricultural
markets
JEL Classification: K10, K21, L4, L40, Q10

2
Superior Bargaining Power and the Global Food Value Chain: The Wuthering Heights of
Holistic Competition Law?
Ioannis Lianos & Claudio Lombardi
1
I. Introduction
The social and economic importance of the food sector has always put in the
spotlight of competition authorities.
2
As Chauve et al. remark “the food supply chain
accounts for 5 per cent of E.U. value added and 7 per cent of employment, bringing
together the agricultural sector, the food processing and manufacturing industry,
wholesale trade, and the distribution sector,” also noting that the “[f]ood spending
represents about 15 per cent of the average EU household budget.”
3
Two
subsequent developments have ensured that food issues have recently gained
prominence in the work of competition authorities. First, the considerable rise of the
price of commodities, including food, in 2008, led to increasing demands for
intervention from public authorities in order to curb the phenomenon of food
inflation.
4
Food inflation trends seem, however, to have since been reversed, the
1
Ioannis Lianos is professor of global competition law and public policy at the Faculty of Laws, UCL,
Director of the Centre for Law, Economics and Society at UCL, Chief Researcher of the Skolkovo
Institute for Law and Development, HSE (Moscow) and Principal Investigator of the Multi-jurisdictional
project “Competition law and policy and the global food value chain”. Claudio Lombardi is postdoctoral
research fellow at the Higher School of Economics, Skolkovo Institute for Law and Development,
Moscow. Many thanks to Florian Wagner von Papp for comments on an earlier draft of the paper and
to Philipp Hacker and Daniel Schlichting for excellent research assistance. Any errors or omissions
are of the sole responsibility of the authors. Ioannis Lianos acknowledges the support of the
Leverhulme Trust. Any errors or omissions are of the sole responsibility of the authors.
2
For a description of antitrust decisions in the agribusiness sector in Europe, see P. Buccirossi, S.
Marette and A. Schiavina, Competition policy and the agribusiness sector in the European Union,
(2002 29(3) European Review of Agricultural Economics 373-397; ECN, Report on Competition Law
Enforcement and Market Monitoring Activities by European Competition Authorities in the Food
Sector (2012), available at http://ec.europa.eu/competition/ecn/food_report_en.pdf, noting that in the
period 2004-2012, European national antitrust authorities have brought in total 180 antitrust cases
and 1,300 merger cases. To this, one may add the market monitoring actions launched by the
national antitrust authorities in the same period, which according to the report amount to 102. A
similar trend may be identified with regard to the competition authorities of emergent economies.
3
P. Chauve, A. Parera and A. Renckens, Agriculture, Food and Competition Law: Moving the
Borders, (2014) 5(5) Journal of European Competition Law & Practice 304-313, 304. See also, L.
Bukeviciute, A. Dierx and F. Ilzkovitz, The functioning of the food supply chain and its effect on food
prices in the European Union, (2009) European Economy, Occasional Papers 47, 6-8.
4
It was reported that inflation from 2005 to 2011 saw food prices increase by around 22% on average
across OECD countries. However, there has been substantial variation: relatively low levels of food

Frequently asked questions

Q1. What are the key determinants of value chain governance patterns?

According to Gereffi et al., there are “three key determinants of value chain governance patterns: complexity of transactions, codifiability of information; and capability of suppliers.” 

Q2. What is the effect of the coordination of the selling practices on the assortments?

74 In addition, the coordination of the selling practices may cause the "homogenization" of the assortments and of the services offered by the undertakings participating to the buying alliance, thus dampening competition. 

Q3. What does the ICA observe that often retailers request modification or additions to dependent suppliers?

In particular, these authorities observe that often retailers request contract modifications or additions to dependent suppliers, threatening to delist the supplier’s product or to impose other forms of retaliation. 

Q4. How many of the items in the sample were considered to be “must-have”?

these so-called “must-have” products accounted only to 6% of the sample adopted by the authority that, according to the same authority, can be reasonably taken as representative of the whole food-retail national market. 

Q5. What is the reason why the CNC found that the acquisition of Kaiser by Edeka would have?

For this reason, the acquisition of Kaiser by Edeka would have created a significant impediment to effective competition (“SIEC”), because it would have significantly lessened the competitive pressure on Edeka in those markets where also Kaiser was present. 

Q6. What is the effect of the expansion of some retail brands across Europe?

The international expansion of some retail brands across Europe, but also in nonEuropean markets, has led to a general decrease in the importance of home markets for top European retailers in terms of the domestic share of European grocery banner sales. 

Q7. What is the role of superior bargaining power in competition law enforcement?

from a normative perspective, the role the concept of superior bargaining power may play in competition law enforcement becomes particularly significant, should one abandon a narrow neoclassical price theory (NPT) efficiency or consumer welfare driven perspective for an approach that would seek to preserve the competitive process or even one that will be inspired by political economy considerations and a “holistic” competition law23European Commission, DG COMP, The Economic Impact of Modern Retail on Choice and Innovation in the EU Food Sector, (2014), available at http://ec.europa.eu/competition/publications/KD0214955ENN.pdf, 218, 304-377. 24 

Q8. What is the econometric study of the Bundeskartellamt?

in its econometric study the Bundeskartellamt states that “private labels are actually considered in the assessment of the “competitive environment” of the branded products,” see Bundeskartellamt, Summary of the Final Report of the Sector Inquiry into the Food Retail Sector, 8. 

Q9. What is the ICA’s opinion on the retaliation of suppliers?

85In this regard, the ICA points out that “[i]t is particularly interesting to note that the majority of respondents (74%) perceive, always or sometimes, these requests for unilateral modification of contract terms as binding for the supplier, which is exposed in the event of rejection, to specific retaliation, such as ‘delisting’ (that is, the exclusion from the list of suppliers), total or only for some products, or an unjustified worsening of the conditions for the following procurement period” (our translation). 

Q10. Why do they have the necessary policy space to implement rules that aim to curtail superior bargaining?

45 Hence, Member States dispose of the necessary policy space to implement rules that aim to curtail superior bargaining power and its distributional consequences, if they judge that this is justified from a political economy perspective (for instance, because of an unbalanced inter-country distribution of the total value chain surplus). 

Q11. What is the effect of the request of the retailer to modify or add contract terms?

84 In several cases, the request of the retailer to modify or add contract terms also regarded discount terms and expenditures, which were already been negotiated, having therefore a retroactive effect.