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UK & Covid-19: An overview of the competition policy and leading cases

Introduction

An outbreak of COVID-19 pneumonia was detected in Wuhan, China and reported to the World Health Organisation on 31 December 2019 and characterised as a pandemic on 11 March 2020. In the absence of either a treatment or a vaccine, Government advice on social distancing, concerns about disruption that would result if the widespread closure of borders was to prove necessary and anticipation and implementation of stay-at-home protocols resulted in rapid and substantial changes in patterns of consumer demand. [1] There were shortages of essential equipment needed to prevent the spread of COVID-19—masks, hand sanitiser and other PPE. There were also widespread media reports of shelves depleted of items like toilet roll, pasta and flour as the goods and services people need when they stay at home differs from when they are out and about. [2] In addition, there was a change in the way goods were demanded (less frequently but in greater quantity). Further, people no longer travelling, eating out, meeting friends for drinks or coffee, or shopping for non-essential items resulted in an excess supply of certain items.

How the supply side adjusts to these changes in demand and how competition law ought to regulate these adjustments are topics of great debate. Two broad issues arise in relation to COVID-19 induced shortages. The first is how to boost supply and maintain the resilience of the supply chain. The second is how to ensure the situation is not exploited—particularly by increasing prices. A third issue, in relation to COVID-19 induced surplus, is how to prevent capacity from being decommissioned in the short run when recommissioning that capacity is costly and it is anticipated that the capacity will be required under normal conditions. The UK competition law treatment of these three issues will be addressed in turn.

The maintenance of supply

In relation to the maintenance of supply problem, a thought-provoking working paper by Maarten Pieter Schinkel and Abed d’Ailly argues the first question is whether allowing firms to go beyond what is permissible under a settled understanding of competition law, even temporarily, will produce a better outcome than if the firms continue to adhere to the rules. [3] In the United Kingdom the clearest articulation of the argument that adherence to competition law will not produce the best outcome was given in relation to the supply of groceries. Instead, to “keep shelves stocked and supply chains resilient” grocery chain suppliers lobbied government to allow them to “work together on their contingency plans and share the resources they need with each other during these unprecedented circumstances.” [4] In response to this plea the UK government adopted legislation that excludes from the scope of the Competition Act 1998 specific action taken to prevent or mitigate disruption to the supply of groceries to consumers in any part of the United Kingdom by a reason relating to coronavirus. [5] The exclusion from the Chapter I prohibition provided by the Competition Act 1998 (Groceries) (Coronavirus) (Public Policy Exclusion Order) 2020 is very tightly drawn.  [6] Agreements benefit from the exclusion only if the Secretary of State is notified of the nature of the agreement, the groceries to which it relates, the parties to the agreement and the date on which it was entered into. [7] The Secretary of State must maintain and publish a register of notified agreements. [8]

At Food Resilience Forums hosted by the Department for the Environment, Food and Rural Affairs, a number of groceries retailers relied on the exclusion to exchange information on the day-to-day stock position and shortages of groceries. Exchanging such information was deemed necessary, inter alia, in the determination of possible limits on the number of items a customer may purchase. [9] The exclusion was then relied on to enable groceries retailers to agree purchase limits on the items most in demand such as toilet rolls, UHT milk, rice, pasta and soap and also to agree on reduced trading hours. Purchase limits were deemed necessary to ensure that items stay on shelves for longer and could be bought by a larger number of customers and a reduction in trading hours was deemed necessary, inter alia, to allow additional time to unpack and restock the shelves. [10]

Two groceries wholesalers have also relied on the exclusion to enter into agreements to deliver essential food and other items to the most clinically deprived and socially isolated groups on behalf of government. According to the notification, to provide for resilience the task of providing and delivering the 160,000 parcels was to be divided 50/50 between the wholesalers, which required the wholesalers to exchange delivery addresses so that duplication of recipients was avoided. [11] Similarly, the Government Digital Service provided to each grocery retailer a list of residents identified by the NHS or DEFRA as clinically and socially isolated. Each grocery retailer made a commitment to contact those listed to ensure they have access to groceries during the coronavirus crisis, for example by offering prioritised access to grocery home shopping delivery. The exclusion was relied on to enable the groceries retailers to exchange information so as to coordinate the offers of prioritised delivery services. [12]

All told, the arrangements entered into as a result of the exclusion do seem to meet the challenge set by Maarten Pieter Schinkel and Abed d’Ailly and it is important that the challenge is met. During the 2008 financial crisis, the response to lobbying for a relaxed approach was rejected on the basis that an economy takes longer to adapt and recover from a crisis when competition and competition law are suspended than would otherwise be the case. [13] John Fingleton, as Chairman of the International Competition Network Steering Group, set out “The case for competition policy in difficult economic times” and Commissioner Kroes crafted a response based on the “belief that competition policy was part of the solution to the crisis, not part of the problem.” [14] Competition law was not to be cast aside lightly and this remains the case today. The notifications make clear, notwithstanding the existence of the exclusion, there were situations in which competing retailers concluded that independent rather than collective action was more suited to ensuring continuity of supply during the coronavirus crisis. [15] As purchasing patterns stabilised, some of the agreements facilitated by the exclusion have ceased to operate. [16] Finally, it is of note that the notified and thus excluded cooperation has been facilitated, encouraged, promoted and overseen by government. The discussions have been at the level of chief executives at forums that are chaired or overseen by the Prime Minister or the Secretary of State for the Environment, Food and Rural Affairs. [17] The imprimatur of government is also a feature of collaboration approved or exempted in other jurisdictions. [18]

Exploitation

A second concern that arises with shortages is the risk of profiteering. The prospect of shortages being exploited has been the subject of some Parliamentary discussion. [19] The emerging view is that competition law provides weak tools to address such behaviour. [20] As Jenny points out however, the inability of competition authorities to deal with profiteering calls into question the credibility of a competition authorities’ claims to protect consumer welfare. [21] If competition law cannot deal with profiteering, stakeholders will begin to look elsewhere. There is thus a need to at least be perceived as doing something. [22] On 5 March 2020 the Competition and Markets Authority announced that it was monitoring prices and “will assess whether it should advise Government to consider taking direct action to regulate prices.” [23] On 20 March 2020 the Competition and Markets Authority launched a COVID-19 taskforce, with harmful pricing practices being a key area of focus. [24]

The COVID-19 Taskforce “marks a fundamentally different way of working for the CMA that reflects the need for a swifter and more flexible approach during times of crisis.” [25] In April the COVID-19 taskforce reported it had received around 2,500 complaints relating to unjustified price increases, mainly relating to chicken, lamb, beef, hand sanitiser, toilet paper and rice. [26] The COVID-19 Taskforce responded by engaging with industry and trade bodies, publishing an open letter to the pharmaceutical and food and drink industries, [27] and encouraging eBay and Amazon to suspend or terminate the accounts of unscrupulous sellers. Further, information was requested from 187 individual businesses asking for more information. 70 business responded, many attributing higher resale prices to increased costs. In May 2020 the Taskforce provided a further update. [28] This update emphasised that whilst “The CMA will use its powers to their fullest extent”…. “it has also advised government on legislative changes that would enable a faster and more robust response to unjustifiable price rises.” In July 2020 the taskforce provided a further update. [29] The CMA had by now written to 277 traders and received 184 responses, mainly attributing the increased prices to increased costs. On 29 June the taskforce issued a joint letter with the General Pharmaceutical Council (GPhC) and on 3 July issued a joint statement with trade associations to highlight the impact of profiteering on consumers. [30] By now the number of pricing complaints had grown to over 14,000, but had fallen to an average of 11 per day in June, down from 76 per day in April. Based on its data “the CMA judges that this problem is now less widespread. Nonetheless, it remains vigilant to the risks of unjustifiable price rises”.

On 18 June the CMA began investigating whether the prices charged for hand sanitiser by four pharmacies and convenience stores were unfair and excessive and so in breach of Chapter II of the Competition Act 1998. [31] On 13 July the CMA announced it had closed one of the investigations after concluding that there are no grounds for action with respect to the relevant party’s pricing of hand sanitiser as the price that the party charged for hand sanitiser was not excessive under competition law. Two further investigations were closed on administrative priority grounds, it being so unlikely that the prices infringe competition law that devoting resources to reach a definitive view is unwarranted. The fourth investigation is ongoing. [32] Whether the investigation makes use of the concept of small traders with “a high degree of market power in local markets” which the CMA refers to when setting out its approach to complaints of price hikes during the pandemic in the July 2020 COVID-19 Taskforce update will be interesting to see. [33]

Excess Supply

A third concern is excess supply. This is the issue being addressed by measures adopted in relation to the dairy industry. Much dairy is consumed in the hospitality sector and as businesses in the hospitality sector were ordered to close there was a sharp reduction in demand for dairy products and so a significant oversupply of raw milk. [34] On 17 April 2020, in recognition that the “dairy industry plays a crucial role in feeding the nation”, the Secretary of State announced that the government would temporarily relax elements of UK competition law to support the dairy industry, enabling the industry to work together to address current market challenges. [35] The primary problem addressed by the Dairy exclusion is the environmental damage caused by the disposal of surplus milk. [36] The exclusion aims to minimise the amount of raw milk needing to be disposed of by maximising the ability to process raw milk and enabling agreements on reduced production. The action would “ordinarily breach UK competition law.” [37] At the same time, acknowledging the serious nature of the excluded behaviour, the Dairy exclusion has a sunset clause—expiring three months after it comes into force. As a secondary matter, it is noted that the contemplated arrangements will “help ensure dairy producers can continue to operate on a viable basis as they will not have incurred the cost of wasting significant quantities of raw milk.” [38] It is thus aimed in part at ensuring businesses are preserved so that healthy competition can be reintroduced once the crisis is averted. [39]

A trade association and its members have relied on the exclusion to enable the collection and dissemination of information about surplus milk quantities and the matching of that surplus with capacity to process and store surplus milk. [40] As with the arrangements notified under the Groceries exclusion, the operation of the notified scheme has the imprimatur of government, as Annex II of the 22 May notification makes clear. [41] Analysis of the data collected and summarised in Annex V of the 22 May notification revealed that there was capacity to process surplus milk so that few disposals would occur (the main impact on producers is instead identified as falling prices). No parties have sought the benefit of the exclusion to allow collective agreements on reduced capacity and the notification of 29 May 2020 reports that the Dairy exclusion is designed to address have abated and the exclusion can now be withdrawn. [42]

The challenge ahead

The UK experience to date is that the exclusions have not been called on to do much heavy lifting and that little if any deviation from established competition law norms has proven necessary. As is clear from the 22 May 2020 Dairy notification, a culture of compliance exists and industry is prepared to deviate from established norms only with explicit “support from Government for the exercise and legal clearance to do so.” On the flip-side, competition law has yet to produce a sharp tool to address perceived problems with short term price spikes.

A question raised by Ormosi and Stephan is how can we ensure the temporary measures put in place during the pandemic “will stop once the crisis is over?” [43] The Chair of the ACCC, Rod Sims, raised a concern that whilst the market would configure itself in a way that enables it to respond to issues arising from the pandemic, it would be unfortunate if it did so “in ways that will be hard to reverse.” [44] Rather than how we return to the normal of the past, the questions we now face revolve around the extent to which competition law has been found wanting and the extent to which a return to the old ways is desirable. What is to be the role of competition and competition law as economic life emerges from hibernation and we are greeted with an economy in which the State holds a significant equity stake in major industries; in which there is greater market concentration; in which there is distrust of competition and international trade; and in which firms have been encouraged to cooperate rather than compete in order to provide resilience during COVID-19. [45] How does competition law remain relevant, credible and coherent in the face of diagnoses that we have suffered a “competition overdose” and that “competition is killing us”? [46]

Note from the Editors: although the e-Competitions editors are doing their best to build a comprehensive set of the leading EU and national antitrust cases, the completeness of the database cannot be guaranteed. The present foreword seeks to provide readers with a view of the existing trends based primarily on cases reported in e-Competitions. Readers are welcome to bring any other relevant cases to the attention of the editors.

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Author

  • University of Cambridge

Quotation

Okeoghene Odudu, UK & Covid-19: An overview of the competition policy and leading cases, 24 September 2020, e-Competitions UK & Covid-19, Art. N° 96054

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