Croatian association of forestry engineers must align its pricelists with competition rules

Based on the writing received from the Croatian Chamber of Forestry and Wood Technology Engineers the Croatian Competition Agency (CCA) issued its opinion on the proposed Ordinance on pricelists for services and standard of services. The CCA additionally analysed the Statute of the association and the Code of Ethics for Engineers.

A comprehensive analysis indicated that the association in question not only prescribes minimum prices or fixes the prices of the services provided by the licenced engineers, but also sanctions its members if they do not obey these rules and charge lower prices. Namely, the regulations say that … “it is the duty of a licenced engineer to respond to the request of the Chamber and communicate to the Chamber or its bodies the data indicating that he obeys the set minimum prices for the provision of services. If so prescribed checks show that a licenced engineer has entered into or completed a deal below the price set under the Ordinance on pricelists for services and standard of services, competes in the market with lower prices than those prescribed and charges less than the price set under the Ordinance on pricelists for services and standard of services, such behaviour shall be considered a serious breach of duty and shall harm his reputation”.

Without any prejudice to the right of the association in question to adopt an Ordinance on pricelists, in its opinion the CCA particularly noted that such a conduct must not be in contravention with competition rules. When setting the prices for the provision of its services the association should not set minimum prices or fix prices and must allow its members to charge lower prices than those set under the Ordinance on pricelists if this is in their economic interest. If they wish to charge less, they should not be retaliated by the association for their behaviour.

Competition law absolutely bans prescribing minimum prices or fixing prices. Where hourly rates are so defined that they de facto fix the actual price for the provision of the services, such behaviour raises competition concerns beyond any doubt. Instead the price competition between the players, there is restricted or no competition in the market. Such behaviour repeals market mechanisms and competitive constraints that would make the market players focused on more cost related operation and making high-quality, affordable products, while at the same time it excludes the freedom of choice and price for the product concerned and harms the end consumers.

On the other hand, the CCA pointed out that the methodology and calculation of the hourly rates does not per se raise competition concerns given the fact that they involve certain technical and professional standards and therefore have positive effects on the quality of the service defined by the professional association. However, setting the value or the amount of charges of the hourly rate could raise competition concerns if they reflect the actual price for the service offered by an undertaking in the market. This price should be in the first place the result of the supply and demand indicators and effective competition in the market.

On the contrary, setting of the maximum or recommended price in principle has positive effects on competition and thereby protects the consumers – buyers and users of the service given the fact that it prevents the service provider from charging an unrealistically high price with respect to quality of the service. In other words, this enables the service provider to independently set, as a rule, a lower price of the service under the set cap amount, with no fear of retaliation. In this manner competition ranging below the maximum charges for the service is ensured.

Furthermore, the CCA comments that within the meaning of competition rules it is neither desirable nor appropriate to link the quality of the service exclusively to its price, taking into account that the price of the service depends on the cost and expected profit by each undertaking – provider of the service. What is more, the price of the service should reflect the knowledge and the skill, efficient performance and cost of the service provider, and not necessarily be exclusively linked to the value of the work or service. Concretely, every individual undertaking – provider of the service should be free to independently set the price for its services as agreed with its contractor, regardless of its competitors. In this context, it is important to say that the recommended or maximum price may not have the effect of the fixed price. Yet, the price may be based on the information exchange concerning the price trends in the market in a particular period or the historical prices or data published by independent associations or organizations. However, it should never reflect the intention of the professional organisation that has as its object coordination of the behaviour of its members in the market.

Additionally, the CCA draws the attention that the decisions of the European Commission, the EU case-law and the reports of the Member States in the area of liberal professions not only abandon the approach involving price regulation by professional organisations, on the account of the fact that regulation in the sector of professional services, even though it may be justified, for instance to reduce the asymmetry of information between customers and service providers, in certain cases more pro-competitive mechanisms can and should be used. Such behaviour may distort competition and even limit the fall in prices for these services. On that account the EU case-law envisages that the national competition authority may order the disapplication of the national law that contravenes Article 101 of the Treaty on the Functioning of the European Union relating to restrictive agreements entered into between undertakings in the market, as well as Article 102 of the Treaty relating to the ban of any abuse of a dominant position by the undertaking in the market, particularly if the challenged practices involve direct or indirect price fixing.

For the reasons mentioned above, the CCA noted that the above Ordinance on pricelists for services and standard of services proposed by the professional organisation concerned and other ancillary regulations should be brought into compliance with competition rules as soon as possible.