COVID-19: Use of competition law to tackle price gouging in an emergency environment
In crises and emergencies such as COVID-19, storms, disasters and product shortages, there are often discussions about alleged "price gouging". The putting into effect of unjustifiable price increases during the COVID-19 pandemic is under active scrutiny by competition agencies in various jurisdictions, including in France, Italy and the UK. The Irish Competition and Consumer Protection Commission (CCPC), as a member of the European Competition Network (ECN), has also indicated that it will not hesitate to take action against businesses taking advantage of the current situation by cartelising or abusing their dominant position.
What is price gouging?
Price gouging usually involves an unreasonable or excessive increase in the price of products or services, including because of increased demand which cannot easily be met. So, in the aftermath of an event or during a crisis, various goods or services (such as building materials, medicines or plumbing services) could be on sale at a much higher price than was the case beforehand.
What is the position in Irish and EU law regarding pricing gouging?
While EU and Irish law do not have specific "price gouging laws" as such, conduct which amounts to price gouging can fall foul of EU and/or Irish law. It is worth exploring some of the ways in which that can happen:
- Anti-competitive arrangements between competitors
- Resale price maintenance (RPM)
- Excessive pricing by a business having a dominant position
Anti-competitive arrangements between competitors
If a group of competitors agreed (however informally) that they would charge a particular price or impose certain terms, that would ordinarily breach competition law. The price would not have to be excessive or involve a price gouge but if it did, then the penalties would be all the greater. Such an arrangement would be prohibited under section 4 of Ireland's Competition Act 2002 (as amended) (2002 Act) and Article 101 of the Treaty on the Functioning of the European Union (TFEU). So, for example, if two or more retailers agreed that they would not sell a product at less than €10 (when it was ordinarily sold for €8), that would be a breach – even if some of them never intended complying with the agreement. In the absence of any agreement or "concurrence of wills" between competitors, it will be more difficult to pursue unjustifiable price increases under Irish or EU law meaning that competition agencies may need to consider more remote causes of actions which may present greater enforcement challenges, such as price signalling (where unilateral public announcements by businesses of future price increases could potentially enable other competitors to adapt their market conduct accordingly).
RPM
If a supplier were to compel a retailer to sell a product at a particular resale price or not below a certain price then there could also be a breach of section 4 of the 2002 Act and/or Article 101 of the TFEU where there was some agreement (however loose and informal) or concerted practice between the supplier and the retailer. Again, the price would not have to involve a price gouge to breach the rules but if it did, then the penalties for the breach would be even higher. Resale price maintenance can be effected either directly or through indirect means and thus even apparently "recommended" prices, where accompanied by incentives or coercive measures which would effectively convert the recommended price into a fixed price, may be vulnerable to investigation.
Excessive pricing by a business having a dominant position
If a business has a "dominant position" in a market and it abuses the dominant position by engaging in "excessive pricing" then that could be sufficient to constitute a breach of competition law.
A business is in a dominant position when it has the ability to act to an appreciable extent independently of competitors, customers and consumers. This dominance could be demonstrated by, for example, a high market share (e.g., 40%+) or potentially by the ability to raise prices unilaterally without the need to take into account competitors and customers.
There are challenges associated with the use of excessive pricing as an enforcement tool to deal with price increases implemented during the COVID-19 outbreak. In the first instance, it must be shown that the business alleged to have engaged in excessive pricing is in a dominant position in a relevant market(s). Absent the adoption by regulators of a strict approach (e.g., by favouring the adoption of narrower market definitions), it may be difficult for dominance to be readily established, especially where excessive pricing is implemented by local businesses or sole traders. Even if dominance is successfully proven, excessive pricing cases are notoriously complex and require compelling economic evidence as to the unfairness of the prices and their excessiveness relative to the economic value of the product(s) concerned. Even apparently high percentage increases may be considered justifiable, including by reference to sharp increases in input costs (e.g., raw materials or currency exchange rates) or other market developments. Accordingly, excessive pricing may not always be an optimal means of tackling supra-competitive pricing and while raised in two previous Irish enforcement actions, this ground has never previously been successfully invoked by the CCPC in order to establish a breach of competition law.
Irish consumer protection law
Section 61 of the Consumer Protection Act 2007 (2007 Act) allows the declaration, by Government order, of a "state of emergency" in relation to a product if the Government is of the opinion that abnormal circumstances prevail or are likely to prevail in relation to the supply of that product. Any state of emergency declared under section 61 will not be permitted to endure for a period of more than 18 months (i.e., an initial 6 month term followed by a maximum of two further extensions of up to 6 months each). During a state of emergency, the Government may, by order, fix the maximum price at which the relevant product(s) may be supplied by a trader to consumers, which may also involve specifying the manner in which the price is to be calculated, the geographic area in which the price restrictions are to have effect and the types of products/ traders to which they are to apply.
While there is no indication currently that the Government intends to utilise its powers in this area, the imposition of price controls is not unprecedented and has recently been employed in France to cap the maximum permitted price of single-use surgical facemasks.
Possible Future Developments?
It is clear that while certain mechanisms are available under competition law to tackle unjustifiable price increases, there are also considerable gaps in the enforcement tools available to the CCPC (and indeed the European Commission). This is particularly the case where dominance cannot be made out (thereby precluding an action based on excessive pricing) and where the conduct concerned is genuinely unilateral.
One approach open to the Irish Government in seeking to address this issue is to exercise its emergency pricing powers under section 61 of the 2007 Act in respect of categories of consumer products which are particularly susceptible to price increases or to consider enacting alternative legislation to deal specifically with price gouging. However, if it elects to do so, it should learn lessons from other jurisdictions internationally. For example, in some states in the US, the price gouging rules refer to pricing of the product concerned during, say, a reference period (e.g., during the six weeks prior to the relevant trigger event). While this could work for hardware, water and so on, new products could come on stream (e.g., COVID-19 testing kits) for which no equivalent reference period would be available. Equally, many state laws in the US lack specificity as to the precise threshold above which a price will be deemed to be excessive or unfair.
In the absence of any Irish Government intervention, a further option open to businesses might be to take action themselves in order to prevent the reputational damage associated with the downstream sale of their products at excessive prices. In this regard, the ECN (of which the CCPC is a member) has observed in its Joint Statement of 23 March that manufacturers are permitted to set maximum prices for their products under existing rules and has suggested that that reliance on these rules could prove useful to limit unjustified price increases at the distribution level.
In conclusion, while price gouging is often more a term used in the media than under Irish/EU law, unreasonable price increases are likely to remain the focus of scrutiny by agencies such as the CCPC and could be the subject of legal action where there is, for example, an anti-competitive arrangement between competitors, RPM or excessive pricing by a business having a dominant position (with the potential also for the Government to declare a state of emergency under consumer protection laws in respect of a particular product(s)).
For more information on this topic please contact Dr Vincent Power, Lorna McLoughlin or any member of A&L Goodbody's EU, Competition & Procurement team.
Date published: 2 June 2020