Limited competition is one of several issues in the building materials industry

The report Competition in the building materials industry has been drawn up on assignment from the government. The aim has been to investigate competition in the Swedish building materials industry, as the pricing of building materials in recent years has contributed to a significant increase in the costs for construction of residential buildings.

The Swedish Competition Authority has concluded that several building material markets are characterised by high levels of market concentration. This means that dependence on individual companies is high, price transparency is low and competition is limited. This is the case in the markets for cement, mineral wool, plaster and lock products, among other things. The wholesale market for electrical- and plumbing materials is also highly concentrated.

‘Highly concentrated markets carry a risk of higher prices and low levels of innovation, compared with markets characterised by effective competition’, says Rikard Jermsten, Director General of the Swedish Competition Authority.

As regards construction of new residential buildings, the public sector has an important role. The report shows that some contracting authorities tailor their construction procurements for specific suppliers or goods. This carries a risk of decreasing competition and increasing costs, as it limits the possibilities for suppliers to suggest alternative solutions or products.

Another issue that obstructs effective pricing in the building material industry is the use of certain forms of discounts and remuneration agreements. Primarily, this refers to retroactive discounts, for instance in the form of yearly turnover bonuses, which create issues since they hide the actual costs of building materials. The Swedish Competition Authority also highlights the risk that the indices measuring price development for a number of building materials will not give a fair representation of cost development. They should therefore be used with caution.

In the report, the Swedish Competition Authority presents several suggestions that would serve to decrease the impact of the identified issues and achieve changes that could lead to more well-functioning markets. One suggestion relates to the need for new, flexible tools for competition supervision, to supplement the existing competition rules and make it possible to correct competition issues on markets that cannot be handled with the current legislation. The Swedish Competition Authority also emphasises the importance of designing procurements so they promote competition. The building materials industry is encouraged to use standard contracts that are designed so they clearly decrease the risks that can follow from retroactive remuneration or hidden discounts.

Max Brimberg, Senior Adviser, +46 (0)8 700 16 73, max.brimberg@kkv.se
Åsa Lövström, Communications Officer, +46 (0)8 700 16 36, asa.lovstrom@kkv.se

Read the report Competition in the building materials industry (in Swedish with a Summary in English)