Trust Buster Hits Home

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Competition was a dirty word for decades in Italy, particularly for its entrenched state monopolies, like Alitalia and the electric company ENEL. But the private sector has embraced the same anticompetitive spirit. Automobile insurance rates, for example, jump as much as 20% each year. Some Italians pay the same amount to insure their scooters as other Europeans pay to insure their cars. But this summer it was the insurance firms that were startled by the size of a bill when the Italian Antitrust Authority slapped them with $350 million in fines after determining they had fixed prices.

The Authority, established in 1991, has targeted industries ranging from gorgonzola cheese producers to telecommunications. It has become increasingly effective and decisive in the past two years, however, and the fine on the powerful insurance industry was its biggest to date. Earlier this summer, it imposed $320 million in penalties on eight oil companies for conspiring to fix gasoline prices. Last October it fined the two main cellular phone operators for setting identical prices for fixed-to-mobile calls.

"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.

The Authority, with a staff of only 170, can't follow every complaint it receives, and Tesauro wields considerable power in deciding where the agency will focus its energy. A recent OECD report praised the agency's "seriousness and independence" for taking on well-connected firms, and noted that the talented young staff gets 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.

Mario Libertini, who teaches industrial law at the University of Rome, agrees: "In the past two or three years, the Antitrust Authority has been setting its sights on the traditional big castles, such as oil, insurance and pharmaceuticals, without forgetting about the former state giants, like telecommunications." Libertini says that Tesauro's predecessor, Giuliano Amato, the current Italian Prime Minister, brought prestige to the Authority, but it only came into its own after it started to levy heavy fines. "In the early years there was very little use of this instrument," he says. But in the past two years, the Authority has imposed $700 million in fines, more than in the previous eight years combined.

Tesauro's team has kept a keen eye on the activities of drug manufacturers and the association of pharmacies. "The monopoly of the pharmacies, above all for items that are not medicine, is somewhat medieval," Tesauro says. In 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 used pharmacies as the main point of distribution. As a result, prices were two to three times higher in Italy than abroad. Prices should fall now that supermarkets at last started selling the product this summer.

The pharmacies are not alone in considering themselves an exception to Italian law. The view of every economic sector in Italy that it has special needs which have "nothing to do with competition" amuses Tesauro, but it can be frustrating as well. The producers of prosciutto di Parma claim that agreements 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."

He admits it will take years before the concept of competition takes 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." Tesauro points to telephones: real competition meant a drop in prices and better service. If the same thing happens with auto insurance and other industries, perhaps even Italian businessmen will eventually begin to see that competing can be more profitable than colluding.