Excessive pricing of personal protective equipment as an abuse of a dominant position
The global spread of SARS-CoV-2 is disrupting regular supply chains and has sharply increased demand for personal protective equipment. WHO reported on 3 March 2020 that since the start of the outbreak, prices of personal protective equipment had surged. The prices of surgical masks had increased six times, the prices of N95 respirators three times and the prices of gowns two times. These price increases were unlikely justified by similar increases in the cost of production and distribution.
It will be interesting to see if any competition authorities will investigate the price increases, price discrimination or refusals to supply under competition law. The temporal quality of markets is usually not taken into account when defining relevant markets. Similarly, a finding of a dominant position usually requires the ability to act independently of competitors and customers for a significant period of time which, according to the European Commission, is normally a period of two years.
However, there have been cases where the unique circumstances of a temporary but significant imbalance between demand and supply were taken into account when defining markets and establishing dominance. In a decision made in 1977 concerning the supply of motor spirit in the Netherlands during the period November 1973 to March 1974, the European Commission found each of the large international oil companies refining or having oil refined in the Netherlands to be dominant in the supply of motor spirit in the Netherlands between November 1973 and March 1974. The extracts from the 19 April 1977 decision in case IV/28.841 show that it could be possible to use similar argumentation also with respect to the sudden shortages created by SARS-CoV-2:
"The crisis originated in the limitation of production which occurred in November 1973 in many producing countries. This limitation was the cause of much confusion in the international oil market.
The equilibrium between the supply of and demand for petroleum products collapsed at that time.
The supply crisis in the Netherlands was mastered fairly quickly, but the fear of a scarcity of petroleum products led to a veritable shortage-scare.
Economic restrictions such as existed in the Netherlands during the oil crisis can substantially alter existing commercial relations between suppliers who have a substantial share of the market and quantities available and their customers. For reasons completely outside the control of the normal suppliers, their customers can become completely dependent on them for the supply of scarce products. Thus, while the situation continues, the suppliers are placed in a dominant position in respect of their normal customers.
With the general shortage of supplies all the oil companies were faced with the same problem, that of maintaining supplies to their regular customers. Thus they were not able to make up the deficiencies of the other companies with substantial market shares and they were in no way in competition with each other to supply each others customers.
In the prevailing circumstances each of these companies found itself in a dominant position relative to its customers.”
The Court of Justice annulled the decision of the Commission but not on the definition of the relevant market or the finding of a dominant position.
There is room to argue that producers of certain products, the demand for which has sharply increased due to the spread of SARS-CoV-2, are dominant while the sudden shortage of these products lasts. Consequently, although a certain increase in prices may be reasonably justified by the increase in the perceived economic value of the product, excessive price increases that are not related to costs could potentially be abusive under competition law.
For more reading on the temporal quality of markets see S. Pype. Dominance in Peak-Term Electricity Markets. ECLR, 2011, Issue 2, pp. 99-105.