COVID-19 and its implication for antitrust law in Nigeria
Since the Coronavirus (also known as COVID-19) broke out in the Chinese city of Wuhan in November 2019, the world has been in a state of pandemonium. In the last three months alone, the virus has spread to over 157 countries, causing thousands of deaths and other ailments. As a result, the World Health Organization has declared COVID-19 a global pandemic. These foams of event have led most countries to churn out lockdown policies to curtail the spread of the virus. While we hope that the pandemic will abate in the coming months, it is important to enlighten members of the public and firms about some trade practices during the period of the pandemic that would have severe implications for antitrust law.
It is axiomatic that during this period, firms would capitalize on the huge demand of some critical products to make supra-competitive profits that would affect consumer welfare and competitors. While it is not the business of antitrust law to unduly intrude into how firms conduct their businesses, it is the business of the law to ensure that markets work efficiently and that consumers are not exploited. Indeed, antitrust law promotes three efficiencies namely, productive efficiency, allocative efficiency and dynamic efficiency. Under productive efficiency, firms are expected to strive to produce in a manner that the production cost would not be high. This would help to promote competition in the market because a firm that fails to manufacture its product with minimal cost would be driven out of the market by firms that produce at the lowest cost. From the perspective of allocative efficiency, the business of competition law is that goods or resources should be allocated according to consumers’ desire or choice.
Consumers’ desire or choice involves both the quantity of goods and the prices that consumers are willing to pay for the goods. In the words of Brian Facey and Dany Assaf, this kind of efficiency is achieved when there is “optimal allocation of resources in a market.” By implication, competition law frowns at any conduct that would affect allocative efficiency. Monopolization affects this efficiency because if a firm acquires monopoly power, it can raise the price of its product and consumers who desire the product would not access it. It could also limit production of the goods and consumers would be denied the opportunity of using the goods. Lastly, under dynamic efficiency, the role of competition law is to propel companies to be more innovative in the production of their goods. Indeed, if a company feels that there is no competition in the sector where it operates, the company may continue to churn out old products. By contrast, if the company faces competition from other firms, the company would risk exit from the market if other firms innovate and create new products.
On a more fundamental plain, antitrust law seeks to protect consumer welfare. Thus, this branch of law prohibits any market conduct that would affect consumer choice and competitive prices. Recast in another form, antitrust law ensures that sellers or manufacturers do not unduly acquire monopoly power, raise prices or cut the output of their products. These practices would put consumers in a precarious position. It is in this light that this article comments on certain practices that may give rise to liability during the COVID-19 period. From an explanatory angle, competition law is the branch of law that forbids undue monopoly or any business practice that would distort markets and harm consumers. The law prohibits inter alia predatory pricing, price fixing, anti-competitive mergers and acquisitions, bid-rigging, price discrimination, and tying arrangements. Of these practices, the two practices that are most important during the COVID-19 period are price fixing and tying arrangements.
At this point, it is important to promote conceptual clarity of the term ‘price fixing’. Price fixing entails an agreement between two or more firms to fix the price of a product. Price fixing is anti-competitive because it leaves the consumers with no other option than to buy the product at the price of the price-fixers. It could also allow the price-fixers to sell their products at a supra-competitive price. Lastly, price fixing may affect efficiency of a market because firms may fix the price of a product at a low rate. If they succeed in fixing the price at the low rate, other firms that sell according to their cost of production, demand and supply may be squeezed out of the market. Upon their exit from the market, the price fixers will raise the price of the product at a supra-competitive level. Under these circumstances, price fixing will create a dead-weight loss for consumers because resources would not be allocated efficiently and this, in turn, would impose undue cost or burden on the society. It is pertinent to note that the offence is committed once firms meet, conspire or actually fix the price of a product.
During the COVID-19 era, it is possible for firms in the pharmaceutical industry to fix the prices of essential products such as face mask, gloves, hand sanitizers, kits for medical personnel, drugs etc. Also, it is likely that firms or traders will fix the price of consumables due to the rise in demand. Price fixing is prohibited under the Federal Competition and Consumer Protection Act (FCCPA) of 2018. Specifically, section 107(1) (a) of the Act provides that “an undertaking hall not directly or indirectly by agreement, threat, promise or any other means, attempt to influence or conspire or conspire to influence upward or discourage the reduction of the price at which any other undertaking supplies or offers to supply or advertises any goods or service”. Price fixing in most jurisdictions is a strict liability offence. In fact, it is per se illegal. A party’s plea or rationalization of the conduct on the ground it has socio-economic benefits will not exculpate him. For instance, in the seminal case of U.S. v. Socony Vacuum Oil Co. 310 U.S. 150 (1940), a posse of small oil refining firms fixed the prices of oil during the financial crisis in the U.S in the 1930s. The U.S. government instituted an action for price fixing against the firms. The firms argued that they fixed the prices of the product to promote price stability. The Supreme Court of the U.S. vehemently rejected the contention of the firms and held them liable for price fixing.
As noted earlier, tying arrangement is another conduct that may occur during the COVID-19 pandemic. Tying arrangement occurs when a firm refuses to sell a particular product to a purchaser that actually needs it (called the ‘tying product’) unless the purchaser consents to buy a different product that he does not necessarily need (termed the ‘tied product’). It is pertinent to note that tying may be beneficial to a firm in the sense that a firm may sell two independent products as one in order to reduce the cost of producing and distributing them separately. It would also help a firm to ensure that the integrity of its product is not compromised. For instance, a firm that manufactures a car may ask customers to buy the engine oil that it manufactures. The firm may do so on the ground that the engine oil is compatible with the engine of its car. From the consumers’ standpoint, a tying contract may reduce the transaction cost of purchasing and fixing two different products that a consumer needs. Given these advantages of tying, courts often determine the pro-competitive and anti-competitive nature of a tying contract before they hold a defendant liable. Courts do so under the judicial doctrine of rule of reason.
Notwithstanding these advantages, a tying arrangement is anti-competitive because it deprives a purchaser of the freedom of choice of the product he needs. It can also assist a seller who has monopoly power in a particular market (the tying product) to distort competition in another market where he lacks such power (the tied product). In the words of Christopher Sagers, “the predominant theoretical concern was that a seller who already had a monopoly power in one market might use it to leverage increased market share in another, so as to earn monopoly profits too”. During the COVID-19 pandemic, sellers can tie the selling of facemasks to gloves or sanitizers to other liquid contents. This practice would contravene section 59(2) (e) of the FCCPA.
The section prohibits “any act making the conclusion of an agreement subject to acceptance by the other parties of supplementary obligations, which by their nature or according to commercial usage, have no connections with the subject of the agreement. Also, under section 72(2) (d) (iii), a firm would abuse its dominant position if it is “selling goods or services on the condition that the buyer purchases separate goods or services unrelated to the object of the contract, or forcing a buyer to accept a condition unrelated to the object of the contract.”
In view of these legal provisions, firms should avoid these two practices during this CONVID-19 pandemic to avoid legal liability. The Federal Competition and Consumer Protection Commission (FCCPC) should also investigate the activities of firms to protect consumers from these anti-competitive behaviors. Finally, consumers should assist the Commission in this regard to identify and prosecute firms that indulge in these practices. They can do so through supplying of information to the FCCPC about firms that engage in these practices.
The recent activity of the FCCPC in issuing desist orders to firms that were suspected of taking undue advantage of the pandemic to exploit consumers is commendable. Also, the recent reported prosecution of firms, which engaged in price gouging of products such as sanitizers, disinfectants, surgical disposable facemasks, and hand-wash liquids is commendable. Such prosecution would deter firms from engaging in anti-competitive conduct and strike the appropriate balance between the right of firms to ply their trade, the need for markets to work efficiently and the necessity of protecting the welfare of consumers during the COVID-19 pandemic.
Ubochioma, Ph.D, is a law lecturer at the Baze University, Abuja and an Attorney at Blackfriars LLP also in Abuja.