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COVID-19 - Has It Ripped Up Parts of the Competition Rule Book…For Now?

The COVID-19 pandemic has caused governments and competition regulators to take unprecedented steps to protect consumers during these extraordinary times. We reflect on the major responses and highlight some issues that may arise on the competition landscape moving forwards.

A new approach

In the UK, the Competition & Market Authority (CMA) released a guidance paper on 25 March 2020 regarding the approach to business cooperation in response to COVID-19. The CMA acknowledged that the current extraordinary situation may trigger the need for companies to cooperate to ensure the supply and fair distribution of scarce products and/or services affected by the crisis to all consumers. In line with the guidance, the CMA advised that it would not take enforcement action where temporary measures to coordinate action taken by businesses:

  1. were appropriate and necessary in order to avoid a shortage, or ensure security of supply
  2. were clearly in the public interest
  3. contribute to the benefit or wellbeing of consumers
  4. deal with critical issues that arise as a result of the COVID-19 pandemic
  5. last no longer than is necessary to deal with these critical issues.

In addition to this guidance, the Competition Act 1998 (Groceries) (Coronavirus) (Public Policy Exclusion) Order 2020 came into force on 30 March 2020. This order excludes certain agreements between suppliers of specified groceries and logistic service providers of those groceries from the application of Chapter 1 of the Competition Act 1998, the legislation which prohibits agreements or concerted practices which restrict competition and mirrors Article 101 of the Treaty on the Functioning of the European Union (Article 101 TFEU).

In Europe, the European Competition Network (ECN), combining the European Commission and the national competition authorities in all EU Member States, released a joint statement on 23 March 2020 regarding the application of competition law during the COVID-19 crisis. The ECN acknowledged the crisis caused by the pandemic may trigger the need for companies to cooperate in order to ensure the supply and fair distribution of scarce products and advised that due to the current circumstances, the ECN would not actively intervene where necessary and temporary measures are put in place in order to avoid a shortage of supply. The ECN stated that, in light of the current circumstances, such measures were unlikely to be problematic, since they would either not amount to a restriction of competition under Article 101 TFEU or generate efficiencies that would most likely outweigh any such restriction.

Regulators are still on the beat

Competition regulators in both the UK and EU have made it clear that they will not accept businesses taking advantage of the COVID-19 crisis by price gouging or abusing their dominant market positions.

In the UK, the CMA advised in its guidance paper that its stance was not a “free pass” to businesses and it would not tolerate conduct which opportunistically seeks to exploit the crisis by colluding to keep prices high, or if companies have a dominant position in the market, by unilaterally exploiting that position. This would especially be the case for products or services considered essential to protect the health of consumers in the current situation (e.g. hand sanitising gel). Backing up its guidance, the CMA has launched an online service “Report a business behaving unfairly during the Coronavirus (COVID-19) outbreak" through which businesses and consumers can report unfair practices related to COVID-19.

The ECN has echoed the CMA’s warning in relation to essential products in a recent statement and EU competition chief Margrethe Vestager advised on 27 March 2020 that "A crisis is not a shield against competition law enforcement".[1]

In the coming months, an interesting issue will be whether companies will face scrutiny for any perceived “crisis cartels” – that is to say horizontal agreements between businesses which seek to exploit consumers or supplies with, for example, agreements to push up prices or carve up markets. To this end, even though the CMA has specified its approach during this period, the CMA’s guidance specifically states that it cannot offer protection against private litigation for perceived breaches of UK competition law. However, the UK Courts may take the CMA’s guidance into account when deciding any related competition law cases.

Who’s responsible for price gouging?

The CMA’s guidance paper includes an interesting section where it states that manufacturers can also take steps themselves to help combat price gouging by setting maximum prices at which retailers may sell their products. This raises the question of who is responsible for stopping price gouging – is it the manufacturer, retailer or even two-sided platforms, such as Amazon?

State aid

The COVID-19 pandemic has resulted in unprecedented levels of spending by governments in the EU to prop up economies and support industries. Much of this will fall within the scope of the EU state aid framework under Article 107(1) TFEU. Article 107 TFEU prohibits member states from granting aid, or using state resources in any other way, which distorts or threatens to distort competition in a way which affects trade between member states. Reacting to the pandemic, the Commission issued a Temporary Framework on 19 March 2020 to enable member states to implement spending measures to protect jobs and to further support the economy during the COVID-19 outbreak.

Even with the Commission’s Framework in place, a contentious issue moving forward is likely to be state backed bailouts of ‘non-essential’ businesses and whether these bailouts infringe Article 107(1).

Where does this leave us?

It is very interesting to consider, in light of all these measures, what the competition landscape will look like once the COVID-19 pandemic comes to an end and when the economy returns to ‘normal’ – whatever the new normal might be. Will governments and competition regulators take a new approach, influenced in any respect by the crisis, or will they immediately go back to something resembling business as usual? Clearly, the exact balance which governments and regulators strike will affect businesses and consumers alike and influence the development of competition policy in the months and years ahead. 

Footnotes

[1] Crofts, L. (2020, March). Covid-19 crisis 'not a shield against competition enforcement,' Vestager warns. Retrieved from MLex Market Insight database.

Related Lawyers: Hugh Tait
Related Practice Areas: Competition Disputes, Competition Counseling and Compliance
Tags: covid-19, coronavirus, cma, competition act

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