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Business

Euro Launch Kicks Off Price War

Germany’s competition authority took C&A to court on Thursday morning for refusing to stop a discount campaign which threatened to price smaller competitors out of the market.

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Getting more for your euro

"Hidden price rises" were the biggest worry of Germany's sceptic public when the euro was launched three days ago. And while prices have gone up on certain products, a price war is heating up in Germany’s retail market.

Aldi and Plus, the German food discount retailers, took out full page newspaper advertisements Wednesday to highlight their policy of rounding down prices upon conversion from D-Marks into euro.

Clothing retailer C&A followed suit and said it would offer a 20 percent discount to shoppers paying with charge cards or credit cards until January 5.

The clothing retailer said the discount arose out of the special circumstances surrounding the introduction of the euro. The consumer, said the company, should be rewarded for paying by card and avoiding long queues at the tills.

But the strategy, intended to calm consumer fears over rising prices following the introduction of the new currency, appears to have backfired.

"By offering a discount on their entire range of products, C&A is breaching competition policy", a spokesman for Germany’s Centre for Combating Unfair Competition said.

Germany’s competition authority took the Düsseldorf-based retailer to court Thursday morning after it refused to stop the discount campaign. Lawyers for the authority argued that C&A's discount campaign might actually be pricing smaller independent retailers out of the market.

A judge ruled in their favor early Thursday afternoon and C&A was forced to stop the campaign.

The price war highlights the intense competition in the retail sector in the first days of the new currency. By offering the 20 percent discount to customers paying by credit card C&A increased trade by 20 percent in a single day.

Effectively, it is the retailers, not the banks, which bear the brunt of injecting euro coins into the economy and withdrawing the 12 legacy currencies.

And small retailers shoulder the burden of running a business with two currencies. So while the consumers are relieved, the smaller players in Germany's retail sector are worried. The industry is notorious for its razor-thin profit margins. A price war would put many of them out of business.

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