Tackling the COVID-19 challenge—a perspective from the CMA

According to the definition, a crisis is an intermediate stage where things get worse before they go back to normal. The COVID-19 pandemic is unlikely to fit this description. The ramifications of the crisis will be with us for a long time, and the prospects of going back to normal any time soon are slim. Competition and consumer agencies around the world need to provide swift answers to emergency situations, but also think about the long-term consequences of the crisis for their analytical frameworks, tools, and values.

Coronavirus, and the actions taken to suppress its spread, is creating an extraordinary range of challenges for competition policy and consumer protection. Routine activities that would not normally engage competition and consumer agencies—let alone the government—are now throwing up multiple, complex issues that need tackling.

Let us take just one basic example: households doing their usual shopping. Millions of households around the world have, over the last couple of months, faced supply shortages and perhaps inflated prices when buying their essentials. What makes this situation so unusual is not just the fact it has arisen, but that competition authorities need such a wide range of tools to respond to it.

Shortages have been caused by a simultaneous supply and demand shock. COVID-19 has disrupted global supply chains and stopped production in many factories across the world. At the same time, demand for a number of products has skyrocketed. This has largely been a rational response to the crisis by consumers. For example, everyone needs hand sanitiser now. And, aware of the risk that they may need to self-isolate, households have sought to increase their stocks of essentials to last them over a period of isolation.

So, what should competition authorities do when supermarkets and others approach them wanting to coordinate supply and ration products? Competition authorities need to remain alert to businesses coming together, under the cover of the crisis, to fix prices or enter into other anticompetitive agreements. The Competition and Markets Authority (CMA) will not tolerate firms seeking to exploit the crisis. But competition law should not stand in the way of beneficial cooperation between businesses wanting to respond together in the public interest.

The CMA has, therefore, clarified its approach to case prioritisation and the exemption criteria in the Competition Act 1998 through guidance published on 25 March. The guidance is clear that where cooperation between businesses is ‘undertaken solely to address concerns arising from the current crisis and does not go further or last longer than what is necessary, the CMA will not take action against it’. In certain sectors, the government has gone further, by bringing forward exclusion orders. These exclude certain forms of cooperation from the prohibition against anticompetitive agreements, where there are exceptional and compelling reasons of public policy for doing so. For example, an exclusion order in respect of groceries made on 27 March by the Secretary of State for Business permits retailers and suppliers to cooperate in a number of ways to ensure continuity of supply of essential products to consumers during the pandemic.

What about the issue of inflated prices? When should competition authorities or the governments they advise step into the territory of price controls? Even during crises, moving away from prices determined by the market remains controversial. In 2012, the University of Chicago surveyed 32 eminent economists about legislation banning price-gouging during weather-related emergencies. Only three supported bans. Non-intervention carries the hope of the market self-correcting.

However, we have seen governments and competition authorities across the globe deploying a range of tools to tackle suspected price-gouging. Most countries are using existing emergency or anti-profiteering legislation, not their competition law frameworks. Greece, US states, and Canadian provinces have drawn on existing price-gouging legislation to impose fines on businesses that are taking advantage of the crisis. In other territories, governments have stepped in to control prices: the French, Indian, and Japanese administrations have taken the path of setting maximum retail prices for a range of products. And in Germany, the reaction did not come from the government or the competition authority, but from a non-governmental organisation acting as an umbrella for 41 German consumer associations: cease and desist letters were issued against four traders who sold overpriced sanitary face masks.

So, we have seen an assortment of solutions around the world to respond to unjustifiable price increases, but the responses are all guided by one common principle: the interests of consumers.

The same principle guides the CMA’s response to coronavirus. To tackle all aspects of the crisis within the CMA’s remit, we have assembled a Taskforce that brings together people of all specialisms from right across the organisation: data scientists, economists, behavioural experts, lawyers, competition and consumer policy professionals, and communications advisers. We are using all of our tools to their fullest extent, and we are innovating in the way we use soft power and moral suasion too.

Another benefit of the Taskforce is in being able to provide a ‘one-stop shop’ for advice and support to the government. As John Fingleton, then CEO of the Office of Fair Trading, one of the CMA’s predecessors, said in 2009, competition agencies in times of crisis need more than ever to engage in advocacy. The agility and effectiveness that comes from pooling professional skills and experiences together in a Taskforce structure, with advocacy and advisory functions hard-wired in, might well be a model for how antitrust and consumer agencies tackle other big challenges such as climate change and sustainability or societal changes such as an ageing population. The Taskforce approach is one we are also bringing to bear in providing advice to the government in relation to digital platform markets.

The work of the Taskforce and the wider CMA in response to the crisis is likely to be informative in many ways. We will learn a lot about agency effectiveness and the respective merits and drawbacks of different national frameworks and approaches. We will be stronger for the experience. In the meantime, the CMA sends its best wishes to agencies and partner bodies worldwide delivering in the consumer interest during this unprecedented time.

Acknowledgement

The author would like to thank Federico Mor and Yohann Ralle of the CMA’s Policy and International team for their assistance and input.