Competition Conundrum during the Crisis

[Surbhi Lahoti is a fourth year law student at Government Law College, Mumbai]

COVID-19, a health emergency, has taken an unprecedented toll on the world economy. The lockdowns in India have resulted in supply chain disruption and panic buying by the consumers even after multiple assurances from the Government. The Essential Commodities Act, 1955 regulates the prices of the essential goods and services. However, the authorities cannot rule out the possibility of firms exploiting the situation to their advantage. We have already witnessed price gouging, hoarding, and unfair preferencing of essential goods such as sanitizers, ventilators and protective masks. The present economic scenario can offer a leeway for dominant firms to abuse their positions or for the competitors to collude to fix prices, allocate market, limit production, and rig bids.

While the circumstances warrant strict regulations from competition authorities, however, the shortage of essential goods and the ensuing economic constraints have led to the realization that competitors might need to collaborate for production, transportation, storage, distribution, and supply of essential commodities, medicines, and fast-moving consumer goods. These taxing times require authorities to allow firms at the horizontal and vertical level to integrate resources to meet the shortages and maintain the supply chain on the one hand, and to strictly and vigilantly enforce the law on the other. This post analyses the advisory issued by the Competition Commission of India (CCI) whilst taking note of the similar guidelines by other jurisdictions.

Getting out of the way: A flexible approach

Businesses have been adjusting and innovating their response to the crisis. Authorities should exempt amalgamations between producers, manufacturers, and suppliers to get supplies to the market in a timely fashion, and the authorities should also factor in the time-risk and fast-track the approval of these amalgamations. The Antitrust Division of the US Department of Justice and the Federal Trade Commission (FTC) issued guidelines for an expedited antitrust procedure for collaborations of businesses working to protect the health and safety of Americans. Similarly, the European Commission issued a communication that lays out a temporary framework to deal with the antitrust concerns related to business cooperation. The Commission recognises the need for a lenient approach– specifically in health sector – to bridge the gap between demand and supply of medicines and medical equipment. It also provides for the sharing of commercially sensitive information in order to reallocate stocks and to increase production.  

While taking cognizance of the disruption caused in supply chain especially in critical healthcare and essential commodities and services, the CCI’s 19 April advisory acknowledges the need for companies to coordinate activities by way of sharing of commercial data, timing of operations, sharing distribution networks, transport logistics, research and development, and production, to ensure supply and fair distribution of products and services. However, CCI has simply reiterated sections 3(3) and 19(3) of the Competition Act, 2002 as the built-in safeguards without providing for any additional safe-harbour for the companies that might pursue such collaborations, which is unlike the competition jurisdictions on both sides of Atlantic that have issued ancillary ‘comfort-letters’ or the ‘business review letter’. Further, CCI ought to have delineated the sectors which attract such exemptions. These omissions leave the companies to self-assess their concerted actions as to whether they are ‘necessary and proportionate’ to cope with the crisis thus adding vagueness to the already chaotic circumstances.

Staying alert: A strict approach

Along with the flexible approach, the antitrust enforcers should also be vigilant in prohibiting anti-competitive practices. Price inflation, caused by exponentially growing demand which outstrips supply, presents temptation for the companies to indulge in practices that limit competition. In India, the Ministry of Consumer Affairs, Food, and Public Distribution has already declared masks and hand sanitizers to be ‘essential commodities’ and have capped the prices under the Essential Commodities Act. Section 3 of the Competition Act prohibits anti-competitive behaviour, while section 4 keeps a check on the companies in dominant position. The CCI has, as on 13 April, notified the e-filing of information vis-à-vis section 3 and 4.

Several competition authorities have publicly announced the need for actively protecting undertakings and consumers by closely monitoring the market developments which aims to take advantage of the current situation. The US DoJ, European Commission, and UK authorities have cautioned the companies to not exploit the current crisis as a cover for anti-competitive actions. The Italian antitrust authorities opened an investigation against Amazon and eBay for excessive price increase of hand sanitizers, respiratory tract, protective masks, and other health and hygiene products. Similarly, the Polish CA initiated proceedings against wholesalers who allegedly terminated their contracts with hospitals for the supply of PPE. The Chinese authorities have also fined vendors for price gouging of protective masks.

Online platforms have again attracted attention due to concerns like predatory and excessive pricing and unfair preferencing of their own products over third-party products. Amazon has admitted that the tweaking of its algorithm for prioritising essential products has resulted in Amazon’s products being placed over those from other parties. The CCI has not enumerated any explicit guidelines in the advisory for the e-commerce platforms to deal with the price-gouging by sellers or retailers on these platforms.

Conclusion

The unique contemporary circumstances present a dilemma before the competition authorities. The need to protect the consumers from anti-competitive practices is ever so high and so is the need for exempting amalgamations between firms in order to maintain a smooth supply of essentials. Authorities around the globe have faced and dealt with these exigencies by developing frameworks within the bounds of current statutory provisions. Even when we are past this health emergency, the world is likely to face an uncertain path to economic recovery. Many small and medium-sized businesses would require incentives and support from policymakers to stay afloat, lest the market becomes more concentrated in the hands of few which will eventually threaten both – consumer welfare and competition. Therefore, the competition authorities have a greater role to play in reviving the economy.

Surbhi Lahoti

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