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Wal-Mart prices: too low
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September 11, 2000: 11:27 a.m. ET
German cartel office says retailer competed unfairly, set below-cost prices
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LONDON (CNNfn) - Price warriors in Germany, beware. The country's antitrust regulator has told three retailers, including U.S titan Wal-Mart Stores Inc., that they are competing unfairly by selling basic foods below cost, and must raise prices to ease the pressure on smaller rivals.
In what is likely to amount to a mixed blessing for the companies, the German cartel office has outlawed the low prices that Wal-Mart and German food discounters Aldi Nord and Lidl Stiftung were charging for items including sugar, milk, butter, flour and rice.
"We understand and recognize the decision taken by the cartel office today and will orient our pricing in the line with these recommendations," Wal-Mart (WMT: Research, Estimates), the world's largest retailer, said in a statement released Friday. 
Aldi and Lidl have not responded, a spokesman for the cartel office said, but they have four weeks to do so. The companies, which have the right to challenge the ruling, could face penalties of up to 1 million German marks ($443,000).
"We are not going to draw any fences around small and medium size businesses," said Stefan Siebert, a spokesman for the cartel office, but he adding that the watchdog would not accept unfair competition. Siebert said the office had received "a couple" of complaints about the effect of the price war between the complaints, but he declined to say who complained.
According to German competition law, companies with "superior" market power may not directly or indirectly hinder smaller competitors by selling their products below cost on a regular basis unless there is an "objective justification" for it.
The cartel office challenged the three retailers' pricing strategies because smaller vendors had become casualties in the supermarkets' price war, said Markus Lange, a cartel office spokesman.
"If it had been just a price fight between big retailers ... we would have just let them fight it out." said Lange.
The episode highlights the protection that many continental European countries give to small- to mid-sized businesses, as much as it points to the ascendancy of the consumer in the region. Wal-Mart is a pioneer of "just-in-time" inventory systems that help it offer rock-bottom pricing. Smaller competitors typically struggle to match its prices because of their relative lack of resources.
The cartel office ruled that the three companies enjoy dominant market positions relative to small and middle-sized independent food retailers. The office said the companies have been selling between five and 10 items below cost since June 2000.
According to the cartel office, Wal-Mart started the below-cost pricing. Aldi Nord reacted by first undercutting Wal-Mart's prices then expanding the range of goods that it sold below cost. Lidl then matched Aldi's cuts and applied them in areas of Germany where Aldi wasn't present.
The contraction of competition that can result from the sale of goods below cost can be "long-term and perceptible", said the cartel office, whereas the benefit of the lower prices to consumers is "temporary and marginal".
Wal-Mart, one of the 30 stocks in Wall Street's Dow Jones industrial average, entered the German market 2-1/2 years ago through its takeover of stores from Wertkauf and later Interspar. The Bentonville, Ark.-based company currently has 95 stores in Germany. 
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Wal - Mart record meets 2Q forecasts while Federated tops lowered estimates - Aug. 9, 2000
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