Trustbuster With Teeth

  • Competition has been a dirty word for decades in Italy, particularly for entrenched state monopolies like Alitalia and the electric company ENEL. But the private sector hasn't liked the word much either. If the country's suddenly energized Antitrust Authority has its way, however, businesses may have to get used to it. Last July Italy's insurance firms got a rude awakening when the Authority slapped them with $350 million in fines after determining they had fixed prices for many forms of vehicle insurance.

    The Authority, established in 1991, has gone on a tear over the past couple of years, thanks to a strong-willed new President and a public that is fed up with rigged markets and insider deals. The insurance crackdown was its biggest to date, but earlier in the summer, the Authority slapped $320 million in penalties on eight oil companies for conspiring to fix gasoline prices. Even earlier, it fined the country's two main cellular-phone operators for setting identical prices for fixed-to-mobile calls. The Authority has even taken on Gorgonzola-cheese producers, forbidding them to set production ceilings for individual producers.

    "In theory, at least, the consumer should be the one who benefits from competition, but in fact, the entire system benefits," says Giuseppe Tesauro, president of the Authority and the man behind its newfound rigor. "Competition is democracy in economic relations. The very companies that do things to block competition end up hurting themselves."

    Tesauro, a law professor and former advocate general at the European Court of Justice, was named to his post in 1998 and quickly set about giving the Authority real teeth. It helps that the country's current Prime Minister, Giuliano Amato, was Tesauro's predecessor. In the past two years, the Authority has imposed more fines than in the previous eight years combined. Mario Libertini, who teaches industrial law at the University of Rome, says Amato brought tremendous prestige to the Authority, but he notes that the body took on greater force after it started to levy heavy fines. "In the early years, there was very little use of this instrument," he says. "In the beginning, there was normally just an injunction, as if everything were a venial sin."

    The Authority, with a staff of 170, can't follow up on every complaint it receives, and Tesauro wields considerable power in choosing where the agency will focus its energy. He has decided to take on high- profile cases that offer a big payoff in public support. In July the Authority opened an investigation into the National Association of Pharmacy Owners for prohibiting individual pharmacies from offering discounts on products whose prices are not regulated. "The monopoly of the pharmacies, above all for items that are not medicine, is somewhat medieval," Tesauro says.

    Tesauro's team has kept a keen eye on the sale of a wide variety of nonmedical products sold by pharmacies and taken action as well. Last March the Authority dissolved a cartel of six producers of powdered milk for babies, which for years had denied supermarkets the chance to sell their product and instead used pharmacies as the main means of distribution. As a result, according to the Authority, powdered- milk prices were two to three times higher in Italy than abroad. Supermarkets at last started selling the product this summer.

    The pharmacies are not alone in their alleged transgressions. The view of every Italian economic sector that it has special needs that have "nothing to do with competition" amuses Tesauro, but it can be frustrating as well. The producers of prosciutto di Parma, for example, claim that agreements among themselves to keep production down--and prices high--are really aimed at maintaining their lofty standards. "It's not true that limited quantity means higher quality," Tesauro counters. "They have to do checks on quality, not quantity."

    Tesauro says it will take years before the concept of competition takes a firm hold in Italy. "Maybe 10 years have not been enough to shake up a system that was so encrusted with state control. You can do a lot with the Antitrust Authority, and you can do a lot with laws, but in the end, you have to transform a culture of protection to one of competition," he says. He points to telephones: real competition meant a drop in prices and better service.

    Meanwhile, a recent report by the 29-nation Organization for Economic Cooperation and Development praised Tesauro's Authority for its "seriousness and independence" in taking on well-connected firms, and noted that the talented young staff members get paid enough to stay, and work at a pace not often seen in state institutions. "The transparency and speed of the Authority's procedures have demonstrated a commitment to business 'not as usual,'" the report said. If Tesauro stays on the job, maybe business itself will get the hint.