Appointment of Ad-hoc judges to deal with aftermath of COVID-19June 25, 2020
Regulating the Doctrine of Public Policy through Artificial Intelligence in times of COVID-19June 25, 2020
The world is facing the brunt of pandemic and the countries around the globe are trying hard to save the life of the people. The pandemic has led to lockdowns in many countries, as a result of which the business has been disrupted. The pandemic has also affected the supply chain of essential goods such as groceries etc. As the businesses around the world will try to overcome the pressure of this pandemic, there will be certain competition law issues that needs to be kept in mind. Many businesses would try to cooperate or capitalize their products which are essential in order to earn increased profits. Therefore, the Competition law of the country has to balance out the concerns of the businesses and the consumers so as to overcome the problem in the pandemic.
Exploitation and Price Gouging
Considering the fact that the lockdown has been announced for around 50 days, the public has engaged themselves in panic buying. Moreover, the lockdown will result in disrupted supply chains and would cause problems in the supply of essential goods. In such a case, there are high chances that the opportunist companies would try to benefit out of it by exploiting the consumer through the practice of Price gouging. Price gouging is a situation where a business takes advantage of an external crisis to charge excessively for basic necessities.Due to the position of such business in market, they can use that position to impose increasing prices.
Black Marketing and Hoarding
Black Market is an illegal transaction of distribution and production of goods and services. Hoarding refers to the purchase of large quantity of commodity with the intention to sell it in future when it is understock or not available in the market at a higher price. This basically means storage of the products and releasing them in the market when there is a high demand. The main aim for doing hoarding is again to gain profit out of the basic goods by limiting the supply chain of the product.
Cartelization involves an agreement between the competitors with regards to fixation of prices or limits on production chain also known as vertical agreements or limits on supply chains.In this case, the major competitors fix their policies in tune with each other which means that the consumers would effectively not have a choice. This somehow leads to creation of monopoly because all of the major competitors frame their policies in a similar fashion.
During the course of the lockdown, the government has repeatedly assured the public that they will provide essential services. However, it is a fact that the pandemic has led to supply chain disruptions.There have been time and again news of shortage of goods in the market as well as increasing price of the good.
In the present economic environment, the ability of dominant or economically stronger companies and enterprises to dominate the market through anti-competitive practices cannot be ruled out. Hence, the need for a market regulator i.e. Competition Commission of India is of utmost importance as these practices can possibly have worse effect on the consumers when it comes to essential goods.
Implication of Anti-competitive practice on market
Anti-competitive practices cause a negative effect on the economy as it tends to cut down competition and leads to a monopoly. Establishment of monopoly would result in increase in prices on the whims of the monopolist, increase in dead weight loss and loss of welfare. Hence, a monopoly results in exploitative practices by the monopolist to increase the profit of the enterprise.
However, according to the law of demand, when the price of a product increase, its demand decreases. Therefore, ideally the demand for a product should fall when a monopolist tries to increase the prices. But, if the monopoly is created in the field of essential commodities, the price elasticity of demand for such commodity would be low elastic. It means that the goods are so essential to the human existence, there would not be a major change in the demand of commodity even if the prices increase at a considerable rate. Therefore, the consumers would have no option other than to buy the commodity even at higher price.
Competition Act, 2002
The act contains sufficient provisions for dealing with the anti-competitive practices. Section 3 of the Act prohibits anti-competitive practices related to production, pricing, supply etc. Additionally, section 4 deals with the prohibition of anti-competitive activities by enterprises who have dominant position in the market.Therefore, in the present times also, this act is applicable and these activities will be governed and punished in accordance with the mandate of this act.
In the current scenario, the CCI also issued an advisory to the business for them to cooperate for efficiently ensuring a continuous supply chain. It laid down that it would not be considered as a violation if the motive is to ensure that the supply chain does not get disrupted. The advisory also stated that the businesses should not take the benefit of the current situation to exploit the market.
Essential Commodities Act, 1955
The act governs certain essential commodities attached as a schedule to the act which includes food items, petroleum, drugs etc. This act ensures that the anti-competitive activities such as price gauging should not take place in the country. The Ministry of Consumer Affairs, Food and Public Distribution issued an order which added hand-sanitizers and masks as essential commodities in the schedule. Additionally, it laid down the fixed pricing for the masks and sanitizers to ensure availability of the commodities. A violation of the orders in the current times will be punishable as per the act itself.
Prevention of black-marketing and Maintenance of Supplies of Essential Commodities Act, 1980
This act prohibits and lays down the punishment for black marketing activities and to ensure maintenance of supplies of essential commodities to the community.This act is in addition to the essential commodities act to prevent the enterprises to engage in price gauging and black marketing techniques to increase profits.
Impact of the Advisory
The advisory issued by the CCI allows the businesses to share resources including infrastructure, distribution network, logistics etc. to increase efficiency and consumer welfare. The Competition Act prohibits collaborative actions between the competitors, however, this provision would not be applicable if the agreements are for ensuring efficiency in production, supply or distribution.
Therefore, those agreements should be with a motive to ensure that the products are available in the market and not for exploitation of the consumers. Moreover, the advisory also stated that the businesses should not take advantage of the crisis to contravene the Act and laid down that the conduct of the enterprise should be ‘necessary and proportionate’ to combat the present day crisis. However, in the present scenario, determining what is necessity and proportionate can be very challenging especially when regular investigations cannot be taken up. However, on a positive side, it will ensure that the businesses are able to strengthen the production, distribution and supply chains to maintain an equilibrium in the market. Therefore, this advisory relaxes the requirement and allows collaborative agreements in order to ensure business continuity along with the benefit to consumers. However, these relaxations cannot be taken up as defence if it is used in a manner detrimental to the consumers, i.e. anti-competitive activities like cartelization to increase prices or limit supply would not be given the benefit.
A lot of countries have strictly maintained their stance on anti-competitive practices in this unprecedented times to prevent unfair activities during the crisis. For instance, the Polish authorities have initiated proceedings against wholesalers who terminated their contracts with the hospitals in order to sell it to the market at a higher price. The Italian authorities have initiated actions against Amazon and Ebay for excessively increasing the prices of hand sanitizers etc. The US authorities have issued a caution for the businesses to not involve in these anti-competitive practices. Therefore, on a similar vein, Indian authorities have also issued advisories and orders to ensure that the market and the consumers are not exploited.
There is a need for a strong mechanism to deal with the anti-competitive activities taking place in the current pandemic. There have been reports of over-pricing of food items, hoarding sanitizers and masks and selling at higher price, black marketing of tobacco etc.
The Advisory issued by the CCI has therefore been a relief in terms of protecting the public from exploitation. It is in lines with the international practice, i.e. it allows collaboration between the competitors creating a slight deviation from the mandate of the Act. This advisory has provided much needed clarity to address the competition law concerns in the time of the pandemic. It created a balance between the needs of the businesses as well as the consumers.However, it would still be a matter of practice that how the businesses will respond to it.
ABOUT THE AUTHOR
Ayushi Bhutra is a 3rd-year law student pursuing B.A.LL.B. (Hons.) from Maharashtra National Law University Nagpur. She has a keen interest in Arbitration, IPR, and Corporate laws.
In content Picture credits: accountancyage.com