COVID-19 and Competition Law
News    ·   19-03-2020
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AUTHOR: Ron Galea Cavallazzi; Lisa Abela; Kristina Azzopardi

Hand sanitisers, N95 respirators, surgical masks and gowns in particular have reportedly shot up in prices, to such an extent that in some countries hand sanitisers have been listed for sale for more than €1000 on online marketplaces like eBay and Amazon. The practice whereby such an increase in the price of the product is not justified on the basis of a similar increase in the cost of production/distribution of the product, is known as price gouging/hiking - or in competition law parlance “excessive pricing”.

Other potentially anti-competitive practices such as “refusals to supply”, may occur where suppliers may terminate face mask contracts with national health authorities in order to divert the supplies to the public at higher prices – or vice versa.

The World Health Organisation has expressed concern about some misleading Amazon listings, including fake COVID-19 prevention measures/treatments such as nasal sprays and testing kits for pets.

In response to these practices, online marketplaces are implementing several measures in their efforts to prevent the exploitation of public COVID-19 panic; namely, Amazon’s suspension/removal of selling privileges for those traders who break the marketplace’s “fair pricing policy”, Facebook’s newly-introduced ban for listings, adverts and/or sales of surgical face masks, and eBay’s similar ban from U.S. listings.

So how have competition law authorities responded?

  • The Malta Competition and Consumer Affairs Authority has stated that market prices are calculated based on the demand and supply for each product. An increase in demand may justify an increase in price, provided that an anticompetitive agreement has not been entered into between suppliers (or, in the case of a dominant supplier, abusing its position in the market);
  • The Italian Antitrust Authority has requested companies to communicate the measures they have adopted to eliminate misleading adverts and any unjustified/disproportionate price increases;
  • The Polish Competition Authority opened investigations into wholesalers who allegedly terminated contracts with hospitals to sell on the market for disproportionately high prices and launched a dedicated telephone line for hospital directors to inform the Authority immediately of any such behaviour; and
  • The UK’s Competition and Markets Authority (CMA) announced that it would assess whether to advise the UK government to take action to regulate prices.

Enforcement issues faced by competition authorities

In practice, enforcement by competition authorities against price hikes and other exploitative or exclusionary behaviour is not so straightforward.  Where price hikes are genuinely unilateral and a company does not hold a dominant position, it is not clear what competition laws are being infringed. Also, less established competition law concepts such as tacit collusion or price signalling may be extremely difficult to prove especially within the current context.

Creating anti-price gouging laws that automatically go into effect at times of crisis comes with challenges of its own, since the particulars of the laws would vary with each state and therefore businesses trading in multiple states would face a challenge in ensuring compliance with these laws. Interestingly, France has capped the prices of hydroalcoholic gels through price regulation.

Waiving/Relaxation of Rules on Competitor Collaboration

George Eustice (the UK Secretary of State for Environment, Food and Rural Affairs) was recently engaged in discussions to relax or temporarily waive those competition rules that prohibit industry collaboration for the period affected by the COVID-19 outbreak. Presumably, provided there is a good efficiency argument, this would allow competitors to collaborate on logistics so as to ensure the continuity of supplies to those most in need in the event that shops are forced to close down due to the virus.

Should such a plan be approved, it would be the first such measure to be implemented in decades. Nonetheless, the likelihood is that the measure would be limited in scope and closely monitored by the CMA. Ultimately, in the absence of clear guidance on the matter, normal rules would apply.

Merger Notification Delay

On 12th March 2020 the Directorate General for Competition (DG COMP) has encouraged companies to delay merger notifications until further notice as a result of the complexities caused by the COVID-19 outbreak.

Such complexities particularly relate to the difficulties likely to be faced by DG COMP services in collecting information from third parties. In addition, following the remote-working measures implemented by the DG COMP as of 16th March 2020, the European Commission’s services may face limitations in terms of access to information, databases and exchanges.

It is likely that the Office for Competition within the MCCAA, which deals with merger notifications concerning our market will adopt the same approach.

Other Practices Posing a Potential Risk to Competition during COVID-19 Crisis

Competition Authorities are not precluded from carrying out their own market inquiries. The Japanese Fair Trade Commission for example, has warned that it would be ready to launch probes on those businesses that have adopted "tie-in sales" arrangements whereby products, such as face masks, are sold with other products as package deals – when the consumer ultimately wants to purchase just the one product.

Moreover, just as in the Irish Beef crisis, cartel activity may also increase amidst this crisis where industries have to balance the pressures of meeting targets and contractual obligations, as well as maintaining profits and minimising losses - which pressures have previously resulted in competitor collaborations.

As companies seek to survive the COVID-19 they should seek advice as to how they can comply with competition law whether in reviewing their contracts, cooperating with competitors or seeking to achieve government policy objectives which requires collaboration in the industry.

For more information on competition law matters, whether in relation to the COVID-19 outbreak or otherwise, kindly contact us on competition@camilleripreziosi.com.

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