GVH: Brick production in Hungary dominated by a few large firms; big differences found in retail prices

The competition authority, using its extended toolkit to curb the rise in construction prices, launched a fast track inquiry into the domestic market of ceramic masonry units at the end of July.

As part of the comprehensive investigation, GVH carried out nationwide raids on domestic brick manufacturers and distributors, as well as a general contractor that actually builds in brick products. The competition authority also contacted a number of other market players (e.g. purchasing associations, major contractors and foreign brick factories) in order to identify possible problems in the sector. 

Based on the findings, GVH came to important conclusions, and made several proposals for both the government and the various players in the sector (including builders and retailers). 

However, the inquiry found no justification for competition supervision procedures on the domestic market of ceramic masonry units.

From the point of view of consumers, the GVH inquiry revealed that

there were large differences between the prices of building material suppliers, so some retailers may have adopted significant price increases.

Therefore, GVH warns customers not to satisfy themselves with a single quote before making their decision, as they may find more favourable prices at other retailers. 

With regard to manufacturers, the investigation revealed that, in view of the uncertainty caused by the coronavirus epidemic, some companies had reduced their production, which could have led to temporary shortages because of the increasing demand. This problem has largely been sorted out by now; however, as individual building material retailers are free to decide about the range of products they sell, it may occur that that not all products are available all the time at all retailers. Given that the raw material for brick production is available in Hungary, therefore, based on the facts revealed by GVH, market concentration at producer level (only a small number of significant market players) can be offset and competition between manufacturers can be increased with state incentives to expand domestic production. 

Consumers are also directly affected by the fact that due to rising freight, packaging and logistics fees, they face higher costs even if the product prices by themselves do not justify the increase.

This means that the increase in related costs has an impact on the prices of construction materials and, through this, on the costs of consumers. 

Building materials, such as brick products, typically reach builders and customers through traders (retailers) and the purchasing associations that they belong to, so examining this segment of the market was crucial. The investigation found that retailers or purchasing associations are offered more favourable prices by manufacturers when ordering in larger volumes. Therefore, traders are encouraged to buy from one supplier or only a few of them. Although the discounts offered for large orders strengthen the market position of the major players (Wienerberger, Leier), it can also lead to consumer price advantages – i.e. brick products will become available for buyers at lower prices.

GVH therefore points out that purchasing associations of small building material retailers can best offset the greater bargaining power of major manufacturers.

Based on the findings of the investigation, GVH prepared a draft report, which has been published on its website for public consultation. Under the special rules of the fast track inquiry, market players have until 6 September 2021 to comment in writing on the content of the report. After that, GVH will publish the report on the findings of the inquiry, a summary of the comments received and, if requested, substantive comments from businesses in the sector.