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COVID-19: Price strategies and cooperation with competitors

The outbreak of COVID-19 implies a number of commercial considerations, including future price strategies and potential cooperation in the sector in order to reduce the effects of COVID-19. However, undertakings must be aware that the competition rules also apply during a pandemic.
13. March 2020

Cooperation with competitors

At a time when the number of infected persons increases every day, countries are closing down and the Prime Minister encourages Danes to close ranks, it may seem obvious to reach out to competitors in order to ensure that the effects of COVID-19 are reduced. However, even with the best intentions, undertakings must be aware that the competition rules also apply during a pandemic.

Section 6 of the Danish Competition Act and Article 101(1) TFEU prohibits undertakings from entering into agreements that have restriction of competition as their direct or indirect object or effect. This prohibition also applies to agreements within an association of undertakings and concerted practices between undertakings, for instance if undertakings wish to enter into a cooperation concerning purchases or wish to exchange strategies for handling COVID-19.

The prohibition also implies that undertakings are not allowed to exchange information, if such exchange of information may have restriction of competition as its object or effect.

In certain circumstances, the exchange of information between undertakings, including discussions concerning the undertakings’ best practice for handling e.g. the reduced need for staff capacity and the restrictive measures in respect of COVID-19 in and between undertakings, may be justified in order to ensure a well-functioning supply chain in accordance with the changes in the authorities’ recommendations and measures.

The exchange of information can, however, not imply a risk of coordination of e.g. the undertakings’ prices and production.

Discussions with competing undertakings should only be initiated following a prior competition law assessment.

Price increases due to COVID-19

Several national competition authorities in and outside the EU have announced that they in connection with the outbreak of COVID-19 will monitor the undertakings’ pricing. This is the case in for instance the UK, where the competition authorities have announced that they are monitoring the undertakings’ pricing. In Italy, the Italian competition authorities are currently examining the pricing of hand sanitizers and face masks, and in China, the authorities have already issued fines for significant price increases on face masks.

In Denmark and in the EU in general, there is a prohibition against undertakings holding a dominant position abusing this position.

A dominant position normally exists, if an undertaking has a market share of at least 50%, but it may also exist for undertakings with lower market shares. In the current situation, market shares may suddenly change, for instance if undertakings in a market are no longer able to deliver the services in question. This may affect the assessment of whether an undertaking is holding a dominant position.

Abuse may be in the form of a dominant undertaking forcing unreasonable purchase or sales prices on others. This may be unreasonably high prices, if the prices are not commensurate with the economic value of the goods/services in question. An assessment of whether this is the case will be based on a specific assessment, including typically an examination of the profit margin in question and a comparison of e.g. historic prices, prices in other countries, etc.

If an undertaking experiences price increases this may be reflected in the undertaking’s resale prices. Significant price increases due to shortage of supplies or increased demand may, however, be contrary to the prohibition against the abuse of a dominant position.

Violation of the prohibition against abuse of a dominant position may involve large fines and liability for damages.

Therefore, undertakings should carefully consider their pricing strategy in connection with COVID-19 in Denmark and abroad.

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