Stop that price gouging

The Financial Express, October 12, 2010

By Pradeep S Mehta

While the benefits of competition enforcement to consumers and the economy can be easily understood from a theoretical standpoint, such benefits are difficult to see since they are not easily isolated from other government policy interventions. One type of anti-competitive practice whose eradication brings immediate benefits to consumers is excessive pricing.

Many competition authorities rarely take action against excessive pricing, which is actually prohibited in competition law, because it is difficult to prove the ‘excessive price’. It is, therefore, not surprising that the number of cases of excessive pricing are smaller than other competition law violations. From consumers’ points of view, excessive pricing (just like a price-fixing cartel) directly affects their purchasing power. When competition authorities take action against excessive pricing, particularly in sectors in which consumers spend a significant chunk of their budget, consumers are able to appreciate the extent to which competition enforcement can benefit them.

Early this year, an interesting story from Spain emerged, in which ONO, a Spanish broadband communication and entertainment company, won a landmark case. ONO filed for damages in the Spanish Commercial Court against Sogecable—a cable TV broadcaster that controls the broadcasting rights of the Spanish Premier Football League—for abuse of its dominant position via excessive pricing of broadcasting rights. The landmark case used avenues outside the normal competition enforcement court channels. Sogecable based the price of the broadcast on a two-part tariff that included minimum guaranteed payments (MGP), which ONO argued were excessive and against which it claimed damages for payments made during the relevant period. On March 4, 2010, the court ruled that Sogecable’s conduct constituted an abuse of its dominant position and the judge also awarded damages. One can imagine how many other broadband communication and entertainment companies and soccer-loving consumers benefited directly from this ruling.

Similarly in 2000, the Competition Board of Turkey took action against Belko, an undertaking controlled by Ankara Metropolitan Municipality. In Ankara, the right to import and sell coal was granted to Belko and other coal traders were prohibited from similar activities, leading to a monopoly in the coal market. Following an investigation, the Competition Board decided that in the “market for imported fragmented coal for heating purposes in the centre of the city of Ankara and its neighbouring areas”, Belko abused the privilege of monopoly granted to it through excessive pricing. The impact of the ruling was felt immediately by consumers. The Ankara Governor’s Office Board of Hygiene, which had granted Belko the monopoly right to sell coal resolved, in 2001, to abolish the monopoly right granted to Belko, in compliance with the order of the Competition Board. This resulted in more options and reduced prices for consumers.

In 2008, the German Federal Cartel Office (FCO) initiated more than 30 proceedings against gas suppliers from all regions of Germany against charging excessive prices to households and small commercial customers. In most proceedings, the gas suppliers involved offered to reduce their prices voluntarily, and the FCO accepted their commitments. According to a 2006 online report by EON Ruhrgas AG, an energy giant, the number of dwellings with a gas-fired space-heating system were 18.2 million (equivalent to 48% of the total number of dwellings in Germany). It is not difficult to imagine the benefits that accrued to these households due to the intervention of the FCO.

Consumers are not getting the best out of competition enforcement due to the reluctance by competition authorities to take action on excessive pricing. Under the US law, excessive pricing is effectively not an offence. In several instances, the US Supreme Court has held that US antitrust law does not encompass the charge of high prices per se as an offence. In South Africa, the first case involving excessive pricing in the flat steel sector was handled after close to a decade of operation of the Competition Commission, which was unsuccessful as the accused won an appeal at the Competition Appeal Court.

In India, many cases of abusing a dominant position, which include cases of excessive pricing, have been reported to the Competition Commission of India (CCI). But one has not yet come across any definitive order, save one or two interim stay orders. These complaints require thorough investigation by the CCI, which is armed with powers of discovery, as the informant/complainant can only allege an abuse based upon the consequence of such an action by a seller. Quite often, it is impossible for informants to be able to lay out complete evidence of a violation because they do not have the legal powers to garner the evidence.

It is, therefore, important for the CCI to ensure that it keeps dominant companies operating in key sectors of the economy under its lens, to monitor potential abuse through excessive pricing. Successful prosecution will help drive home how competition enforcement in India is beneficial to consumers.

The author is secretary general, CUTS International

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