Sainsbury’s-Asda CMA probe flawed, say economists

The Competition and Markets Authority (CMA) was too reliant on the use of its Gross Upward Pricing Pressure Index (GUPPI) measure, experts from consultancy firm AlixPartners have argued.

GUPPI values below 5% are usually seen as unproblematic by the CMA, but in its Sainsbury’s-Asda probe, the watchdog employed an upward pricing pressure threshold of just 1.5%.

Locations with a GUPPI higher than that were identified as areas where there is a competition risk.

As a result, the CMA said in its provisional findings on the deal that there were 629 locations across the UK where there could be a “substantial lessening of competition”.

It said the merger could lead to increased prices for consumers and warned that it would be “difficult for the companies to address the concerns it had identified”.

But AlixPartners said in its report: “We do not consider that setting upward pricing pressure thresholds at 1.5% for both groceries and fuel is appropriate to identify whether there is a SLC (substantial lessening of competition) in local groceries and fuel.”

Economists from the firm warned that companies “may be deterred” from future mergers following the CMA’s hardline stance.

They added that in “challenging market conditions” for retailers, mergers “may be important to their survival”.

AlixPartners’ report added: “We are not acting for any party in this merger. We have made this submission as we are in favour of predictable decisions where all conclusions are based on sound economics and industry-specific facts.

“Without this, future mergers may be deterred, even if they generate material pro-competitive efficiencies to the benefit of consumers.

“Many retailers are facing challenging market conditions, and merger efficiencies may be important to their survival and their ability to deliver value to consumers.”

Sainsbury’s and Asda have offered to offload up to 150 supermarkets in a bid to force the deal through and pledged to plough £1bn into price within the first three years of the enlarged company coming into existence.

The CMA is due to reveal its final verdict on the deal by April 30.