Paying too high a price? The CMA’s investigations into unfair prices for hand sanitiser products

Summary

On 19 June 2020, the Competition and Markets Authority (CMA) announced that it would be investigating four (unnamed) pharmacies and convenience stores for potentially charging excessive and unfair prices for hand sanitiser products during the novel coronavirus pandemic (the COVID-19 pandemic).

On 13 July 2020, the CMA confirmed that it has closed three of the four investigations it launched in June as it considers that the retailers’ prices do not, or are unlikely to, infringe competition law. The fourth investigation remains open.

Background

In March 2020, the CMA established a taskforce to monitor and respond to consumer and competition problems arising from the COVID-19 pandemic. Updates provided by the taskforce in April and May 2020 revealed that it had received numerous complaints about unjustifiable price increases, with the largest price increases (of a median rise of just under 400%) concerning hand sanitiser.

On 19 June 2020, the CMA announced that it was investigating the suspected breaches of the Chapter II prohibition of the UK Competition Act 1998 (CA 1998) by four (unnamed) pharmacies and convenience stores for charging excessive and unfair prices for hand sanitiser products.

Chapter II UK Competition Act 1998

Chapter II of the CA 1998 (“Chapter II”) deals with the abuse of a dominant position by a firm with significant market influence if it may affect trade within the UK. The “prohibition” in Chapter II is closely modelled on Article 102 of the Treaty on the Functioning of the European Union which is aimed at preventing undertakings who hold a dominant position in a market from abusing that position in the European Union.

Broadly, under Chapter II, a business undertaking may be considered to have market dominance if it has a market share of around 40% or more (although this may depend on the relevant market’s particular characteristics). Chapter II does not prohibit a firm from holding a dominant position, but it is an infringement to abuse such dominance. Abusive conduct by a dominant business may include excessive and unfair pricing.

A company who is found to have infringed the prohibition in Chapter II may be ordered to cease or modify its conduct and/ or could be fined up to 10% of its worldwide turnover where such infringement is intentional or negligent.

The investigations

During June and July 2020, the CMA has been conducting its initial investigation, comprising information gathering, information requests and analysing and reviewing information gathered.

On 13 July 2020, the CMA announced that it has closed three of the investigations it launched in June 2020 as it considers that the retailers’ prices do not, or are unlikely to, infringe competition law.

According to the CMA’s Closure Statement, one investigation was closed as the CMA concluded that there are no grounds for action with respect to the relevant party’s pricing of hand sanitiser. After the CMA’s review of the evidence it concluded that the price that the party charged for hand sanitiser was not excessive under competition law.

The CMA has closed two of the investigations having had regard to the CMA’s “Prioritisation Principles” (the set of principles which govern how the CMA will make appropriate decisions about which work to undertake). In these cases, the CMA considers that it is unlikely that the retailers’ prices infringe competition law and that further investigation to reach a definitive view in these two cases would deliver limited, if any, consumer benefits. The decision to close the two cases does not amount to a definitive statement or finding as to whether the respective parties to the investigations have infringed competition law, and the CMA has said that no inference be made to that effect.

The fourth investigation is ongoing. It is at an early stage and the CMA has been clear that no assumptions should be made that competition law has been infringed. The CMA has not reached a view on whether there is sufficient evidence of an infringement of competition law for it to issue a statement of objections to the party under investigation.

Key takeaway

The CMA has been vocal in its response to some of the problems facing consumers as a result of the COVID-19 pandemic. On 20 March it published an open letter for businesses in the pharmaceutical and food and drink industries, warning them not to capitalise on the current situation by charging unjustifiably high prices.

On 25 March 2020, the CMA issued guidance on its approach to cooperation between businesses during the COVID-19 pandemic. As part of the Guidance, the CMA noted that it would not tolerate conduct which opportunistically seeks to exploit the crisis.

Further, from its recent investigative action, it is clear the CMA will not shy away from taking decisive action where it considers that consumers are disadvantaged, and should the fourth investigation result in disciplinary action, such a decision will be another warning to any businesses seeking unfair financial gain from the global crisis.

CMA’s Closure Statement

CMA’s open letter to pharmaceutical and food and drink industries

CMA’s guidance on approach to business cooperation in response to COVID-19