As businesses today face this dynamically changing environment brought about the Covid-19 pandemic, there are important implications for competition enforcement, consumer exploitation, and unfair pricing. With the Government facilitating the opening up of more business activity and the focus now shifting to economic recovery, paying attention to business behavior as it relates to abusive pricing should not be ignored.
In normal circumstances, competition amongst companies is healthy and is to be encouraged. It can bring out the best in quality, pricing and technological advancement, to the benefit of consumers. That said, where a company takes unfair advantage over its competitors or consumers, this could potentially pose problems.
In times of price volatility and fluctuating demand for goods and services, companies should be mindful of whether their pricing decisions could create unfair disadvantages (whether real or perceived) for competitors and consumers, which could in turn lead to them being investigated for anti-competitive practices.
Since the start of the pandemic earlier this year, regulators and government agencies, such as the Fair Trading Commission, armed with the recently proclaimed Fair Trading Act, have signaled their intention to place greater scrutiny on commercial activity that might breach consumer protection, price-gouging and anti-competition laws.
The Effect of Price Gouging and Abusive Pricing
Desperate need for certain products during this pandemic, for example medical supplies and equipment, hand-sanitizers, face masks and food items has in some cases caused dramatic and sudden price increases in markets both locally and abroad.
In a lot of circumstances, goods and services are being sold at a price which is much higher than what would be fair or reasonable in normal circumstances. This price-gouging or abusive pricing continues to cause serious problems for consumers. Strictly speaking, it is not an illegal activity and there are consumer protection laws to protect consumers from unfair treatment, but the sale of goods at exorbitant prices could be an indication that a company is in breach of anti-competition laws.
The concern arises where a business with a large market share in a particular industry imposes excessive prices for its goods, either directly or indirectly. Its ability to use its dominance to cripple or restrict other retailers in its industry from operating in that market, while maintaining its own profit margins, is potentially unfair and anti-competitive.
Understanding where your business sits or is placed in the market is useful to be able to navigate whether, as a dominant player, your pricing structures can be said to be exploitative and allow your company to operate independently of any other competitor in that market. Or whether the reverse is true, and your business is one which is hampered by a major player to the extent that it prevents your company from trading.
It is worth thinking seriously about the reasons for sudden price increases at this time, and if they are necessary or justifiable. Increased cost of raw materials for manufacturing or other shipping and operational costs related to the business are examples of valid reasons to increase the price of products. Similarly, if the price of your goods or services when compared to other competitors is not excessive or unfair then it could be argued to be reasonable and not anti-competitive.
Price-gouging or abusive pricing could be found for example where there is:
(a) a company with significant market share implementing an unexpected price increase for a long-standing product.
(b) a sudden price increase which is not related to operational costs or development of a new market or product.
(c) an increase in the price of high demand products which are urgently needed as is the case with some goods during the pandemic e.g. hand sanitizers
In addition to excessive pricing, taking the time to look at all other commercial agreements the company has entered or is about to enter into for potential anti-competitive activity would be prudent, to avoid oversight or possible investigation for anti-competitive conduct.
It is important for companies to keep in mind how best to portray price increases, keeping in mind consumer sensitivity. Finding ways to demonstrate that these adjustments are a response to the volatility or changes in the market in order to continue to supply the market and not a ‘get rich quick’ approach is one to be handled with caution.
Adopt a Proactive Approach
There are a few steps which a company could consider in avoiding the pitfalls of unfair pricing leading to breaches of competition law. Firstly, obtaining legal advice in advance about the competition law landscape would be beneficial. Paying attention to the market in which your company exists and being aware of potential business decisions which could be anti-competitive or abusive would help.
In these times of Covid-19, or even post Covid-19, as businesses start up again in earnest, having a flexible and proactive response to changes, establishing contingency plans and implementing a risk strategy to mitigate against unforeseen changes as far as possible would be useful.
As we all fully appreciate, the road back to recovery is an uncertain and ever changing one, requiring flexibility and adaptation on a continual basis. As it relates to competition, it is advisable not to neglect or dismiss the importance of compliance at this time and avoid any conduct prohibited by competition laws. Continue to be mindful that regulators are watching out for abusive practices, particularly for excessive pricing and monitor carefully both internal business practices and the external environment.