COVID Price Gouging: Competition regulator seeks new powers in the name of consumer justice

June 11, 2020

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3 min read

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What's going on here?

The UK’s competition regulator, the Competition and Markets Authority (CMA), is seeking “emergency time-limited legislation” to respond to price gouging and other exploitative business practices that spiked during the outbreak of COVID-19.

What does this mean?

Price gouging is the practice of increasing prices when there is a surge in demand. A striking example of this has been hand sanitiser which in early March saw its price increase, in certain cases, more than 2000%.

The CMA’s COVID-19 Taskforce recently announced that it received more than 60,000 complaints of businesses exploiting consumers between 10 March and 17 May. The Taskforce was created with the aim of identifying business practices that harmed consumers which had arisen during the COVID-19 crisis. Its investigations initially focused on “holiday accommodation, weddings and events and nurseries”. 

The latest report revealed that 75% of the complaints concerned cancellations and refunds and 27,000 complaints were about holidays and airlines, with over 3,100 complaints about price increases for essential products. The average price increase was 130% across all CMA reports to date for goods mentioned in the complaints.

What's the big picture effect?

The CMA’s request for emergency powers is a response to “deficient” consumer protection legislation that has left the UK with “no legal weaponry” to tackle COVID price gouging. UK competition law is applicable in cases where pricing decisions are made by a dominant player, known as abuse of dominant position. The retailers responsible for COVID price gouging are often small and are not anywhere near a “dominant position” in the market. This means that they are not covered by UK competition law – a legal gap that leaves consumers vulnerable. 

Furthermore, there is little that the CMA can do to quickly remedy this lack of protection for consumers. The CMA can investigate a case, but it will not be a speedy or cheap process, and the final decision may not go in the CMA’s favour. Whilst an investigation allows the competition regulator to find interim measures to prevent any ongoing damage, the CMA lacks powers to effectively enforce its decisions. 

Currently, the only consumer enforcement powers available to the CMA are:

  1. agree a voluntary settlement; 
  2. ask the High Court to pass an injunction to prevent the harmful conduct .

But this is not a new request, the CMA has long rallied for such powers. Last year, the chair of the CMA Andrew Tyrie warned of a crisis of faith in the free market economy in times of radical market changes. Consequently, he wrote to the Secretary of State for Business, Energy and Industrial Strategy, asking for the CMA to be granted new powers to enable quicker enforcement and larger fines. 

The CMA had been promised a White Paper (a policy document that is reviewed before it is proposed in the House of Commons) to enact some of these reforms, but thus far it has failed to materialise. Government delays in granting further powers to the CMA indicate some caution about the regulator’s aspirations as a “consumer champion” and its potential downsides. An overzealous and powerful regulator could be seen as a threat to British businesses. Moreover, many economists vehemently oppose such regulatory interferences that interfere with the free-market laws of supply and demand that determine pricing. 

Whatever the reason behind government hesitation is, many consider the powers requested by the CMA to tackle COVID price gouging will be a test run for the future. It remains to be seen whether the competition regulator can convince the government of the reforms’ value and necessity.

Report written by Will Holmes

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