Out-Law / Your Daily Need-To-Know

CMA price gouging case a warning for businesses

Out-Law News | 24 Jun 2020 | 12:53 pm |

The decision by the UK's Competition and Markets Authority (CMA) to open a new competition investigation into suspected unfair price increases of hand sanitiser illustrates the authority's determination to protect consumers from harm during the coronavirus crisis, a specialist in competition and consumer law has said

Angelique Bret of Pinsent Masons, the law firm behind Out-Law, was commenting after the CMA announced that it had opened an abuse of dominance investigation under Chapter II of the Competition Act 1998 into the pricing practices of four pharmacies and convenience stores.

The CMA alleges that the retailers have charged excessive and unfair prices for hand sanitiser during the on-going Covid-19 crisis – a practice sometimes referred to as 'price gouging'. However, the CMA has not named the retailers involved and has said that its investigation is at "an early stage and no assumptions should be made that competition law has been infringed".

Bret said: "Current UK consumer protection and competition laws do not prevent companies from increasing prices in response to increases in demand. The main exception to this is if a dominant company – one with a particularly high market share – charges an excessive or unfair price. It may be that in the absence of emergency legislation, the CMA chose to take action in this case, despite the potential difficulties of bringing an abuse of dominance case."

In recent months, the CMA has been lobbying for new powers to tackle price gouging having identified the practice as a gap in its current enforcement regime. Other countries, such as the US and France, have enacted emergency legislation to tackle opportunistic price practices, but so far the UK government has not followed suit. The gap in enforcement was expressly recognised by CMA chief executive Andrea Coscelli in May this year who reportedly said that "consumer and competition law are not really designed for emergencies".  

In March, the CMA published an open letter to the pharmaceutical and food and drinks industries, warning them against unfair pricing practices and to not take advantage of product shortages to unjustifiably increase prices. Since then the CMA has reported that it has received thousands of complaints from consumer relating to the prices of certain retail products, in particular for hand sanitiser. These complaints were second only to complaints about a lack of refunds in the holiday sector. The CMA opened a formal investigation into potential breaches of consumer protection law in the holiday letting sector and recently published undertakings agreed by one operator in the market.   

According to Richard Snape, also of Pinsent Masons, cases involving excessive pricing are relatively uncommon and have proven problematic for competition authorities. For example, the CMA has been engaged in contentiously debated litigation relating to its 2016 finding of excessive pricing in the Pfizer and Flynn Pharma case regarding sale of phenytoin sodium capsules. Following the Court of Appeal judgment of 10 March 2020, elements of the CMA’s decision were remitted to the CMA for further consideration.   

Bret said that the hand sanitiser investigation will draw out a number of interesting issues: "The CMA will first have to establish that the relevant parties hold a dominant position on a relevant market. It is possible that the CMA will need to establish relatively narrow market definitions, looking at local markets and/or specific customer categories, in which the retailers might be considered to be dominant. This is not a straightforward assessment. It is possible that other issues could arise such as whether a degree of temporary dominance was created by the crisis and the impact it had on consumer purchasing behaviours." 

"Second the CMA will need to prove that the pricing behaviour was abusive. In accordance with the ‘excessive pricing test' established in case law, the CMA would need to establish that the price-cost margin is excessive and that the price is unfair either by itself or by reference to a comparable product. This is difficult to establish in practice, with investigations focusing on complex economic evidence and often taking several years to complete. It will be interesting to see if the CMA can achieve a more expedient outcome in the context of protecting consumers during the Covid crisis," she said.   

Bret said that despite the potential challenges ahead, the case should highlight to all companies that the CMA is tackling the problems created from the Covid-crisis head on, and is willing to make difficult decisions where it considers that consumers are losing out.