CMA seeks emergency powers to fight coronavirus ‘price gouging’

Written on 22 May 2020

The Competition and Markets Authority (CMA) announced on 20 May 2020 that it had received over 60,000 complaints between 10 March and 17 May over exploitative Covid-19 business practices. In response, it has opened antitrust or consumer-law enforcement cases against companies across the holiday accommodation, weddings and events and nursery sectors.

The CMA is reportedly also seeking emergency legislation to allow it to take more effective enforcement action against non-dominant businesses that are engaging in exploitative practices – such as “price gouging” – during the Covid-19 outbreak.

It is a move that not only reveals the CMA’s view that its current enforcement powers are not adequate to deal with exploitative practices emerging during the Covid-19 crisis, but also reflects an ongoing push by the regulator to strengthen its enforcement hand more generally.

Over the last 18 months, the UK competition watchdog has become increasingly vocal that its existing consumer enforcement powers are not adequate to protect consumers in increasingly fast-moving modern markets. Although a White Paper has been promised, it has yet to appear.

If these emergency powers are granted, it may provide a foretaste of what enforcement action might look like once the CMA’s consumer enforcement powers are brought into alignment with its competition powers.

What happened?

The CMA has reportedly been lobbying the government for emergency powers to enable it to take more effective enforcement action against exploitative pricing practices by suppliers and retailers of products that have seen increased demand since the outbreak of Covid-19, such as hand sanitisers and facemasks.
The Financial Times – which initially reported the story – revealed that the CMA’s chief executive, Andrea Coscelli, has been in communication with the Department for Business, Energy and Industrial Strategy (BEIS), informing it that “consumer and competition law are not really designed for emergencies”.

The practice of excessively hiking prices in response to increased demand – known as price gouging – has attracted the attention of regulators, with both the CMA and Trading Standards reportedly receiving a high proportion of complaints about the practice. The FT noted that the prices complained about have gone up on average by 130% since the Covid-19 outbreak and prices for hand sanitisers, have risen by an average of 367%.

Why the request?

The request for emergency powers has arisen out of the work of the CMA’s Covid-19 Taskforce, which has been tasked with identifying and addressing harmful practices arising out of the pandemic.

One of the Taskforce’s duties is to advise the government where it believes that additional enforcement tools are necessary to enable the CMA to take effective remedial action to protect consumers during the emergency.

Clearly, the CMA feels that it does not currently have the right set of tools to tackle price gouging in this context. The problem is that the UK regulator has very limited powers to enforce consumer protection legislation, while competition law only applies in specific situations.

In the case of price gouging, competition law can only be applied to unilateral pricing decisions if the undertaking concerned has a dominant position in the relevant product market, which is frequently not the case in the unusual conditions provoked by the Covid-19 outbreak. In addition, pursuing an abuse-of-dominance case is a highly complicated, lengthy and expensive process – and it is not a tool that the CMA can use to impose a quick-fix remedy.

While the regulator does have the power to seek interim measures to address ongoing harm pending the outcome of an investigation, there are very few examples of such applications having been made. The reality is that such applications are typically contentions, while also binding the CMA to undertake a lengthy investigation that may not result in a successful infringement decision.

Nor is the CMA’s consumer enforcement toolkit of any real help: its existing powers are limited to seeking a voluntary settlement or applying to the High Court to obtain an injunction to put an end to the conduct.

Greater integration

We have previously reported on the CMA’s push for greater integration of its consumer and competition functions, with the regulator being vocal in its view that the “analogue” system of consumer and competition is not effectively protecting consumers in modern markets.

The Covid-19 Taskforce can be viewed as a “dry run” of what the regulator may be working towards in the future: a specialist unit with equivalent consumer and competition enforcement powers, enabling it to use the most effective enforcement tool for the given situation, be it under consumer or competition law powers. The request also shows that the CMA is not afraid to seek enhanced powers where it perceives its existing toolkit is lacking.

What next?

A BEIS spokesperson noted, “the CMA deals directly with firms to address any complaints and we continue to keep the issue under review“. In other words, for the time being, BEIS expects the Covid-19 Taskforce to make do with the limited powers and believes that the Taskforce’s current approach of warning companies that they have been reported for an exploitative practice will act as a sufficient deterrent. It is questionable whether this will be sufficient to address the problem.

Osborne Clarke view

The CMA’s Covid-19 Taskforce has previously announced – as we reported in April – that it is investigating cancellation policy concerns in connection with Covid-19. Its latest announcement that it has received over 60,000 complaints about exploitative behaviour and is now actively investigating cases across multiple sectors is to be welcomed.

However, we commented at the time that it would not be surprising if the CMA sought enhanced emergency powers to tackle these concerns, given the weakness of its consumer enforcement teeth. That the CMA is now reportedly seeking these powers in relation to price gouging suggests that it may well push for further powers in relation to other concerns raised by the Covid Taskforce.

More broadly, the CMA is seeking to strengthen its enforcement toolkit so that it is able to take swift and effective action – whether under consumer or competition law – to address behaviour that harms consumers, and the Taskforce’s request should be seen in this context. The CMA last year proposed a package of reforms to BEIS that would help it tackle consumer detriment more quickly. This included greater investigatory powers, increased ability to use interim measures, and, crucially, enhanced consumer enforcement powers that avoided the need to pursue court action.

This makes the government’s reported response to the Taskforce’s request for emergency powers particularly interesting. While BEIS may still be amenable to the CMA’s request for greater consumer-based enforcement powers generally, it appears – whether for ideological reasons or otherwise – unwilling to grant powers enabling the regulator to impose pricing controls on non-dominant companies. It is also possible that the government does not fully share – contrary to previous indications – the CMA’s vision of its future as a strong consumer-enforcing regulator.

That said, the activities of the Covid-19 Taskforce are clearly important, particularly for consumer-facing companies, and its enforcement activity may provide an insight into what joined-up enforcement might look like in if the CMA is given the powers it is seeking.