NMa Publishes White Paper on Procurement Power

Procurement power may benefit consumers provided there is sufficient competition between the procuring companies. Procurement power benefits customers if the advantages of lower procurement prices are passed on to consumers. This is the conclusion which NMa reaches in its white paper on procurement power, an area which receives attention in NMa's Agenda 2004. This white paper was drawn up after consultation with the private sector on its experience with procurement power. NMa takes action if a procuring party with a dominant position abuses its position.

Procurement power is market power on the procurement side of the market. Market power exists if the buyer can act more or less autonomously of its suppliers. This may result in a situation where the buyer can demand unfair procurement conditions without the supplier's being able to counteract this in any way. Possessing market power need not mean that this power is abused. A party with a powerful position may purchase at very competitive prices and be a tough negotiator.

Small versus large

As a supplier or provider, an entrepreneur may encounter a buyer with a strong position who exercises procurement power. This is experienced as a problem, for instance, in the healthcare sector (healthcare providers in negotiation with healthcare insurers) and the agricultural sector (suppliers versus supermarket organisations as buyers). As long as a dominant position is not abused, the Competition Act will not be infringed. Although small businesses may experience a situation where the supplier is pitted against a large, powerful buyer as 'unfair', this is not prohibited by the Competition Act.

The white paper outlines examples of situations which may be regarded as an abuse of a dominant position. For instance, a business may abuse its dominant position as a buyer by compelling suppliers to except conditions. A buyer with a dominant position may, for example, demand that the supplier only does business with it, denying the supplier the possibility of utilising any alternative sales channels.

Cooperation

By cooperating with each other, small parties can create countervailing power vis-à-vis a party with procurement power. Procurement cooperation between small parties, which are consequently able to obtain the same discounts as their large competitors, may even promote competition. Mergers and joint ventures with the aim of countering procurement power are permitted, provided they fall within the framework of competition rules. NMa may prohibit mergers which result in a dominant position. The position of the merging parties on the various markets (both as buyers and sellers) are taken into account in doing so.

Procurement power of public authorities
In the consultation procedure in preparation of NMa's white paper, several businesses complained about public authorities as powerful buyers. However, in most cases where public authorities act as buyers they do so in the course of their public duty. In this role, public authorities are not subject to the Competition Act, which only applies to companies ('undertakings'). NMa has raised this problem with the Minister of Economic Affairs.