Last week’s meeting of the Retail Forum to consider the possible introduction of price caps on grocery goods in Ireland received much attention in the media.  It would have raised eyebrows at the Competition and Consumer Protection Commission (CCPC) (Ireland’s national competition authority).  The Retail Forum was set up in 2014 with the purpose of facilitating discussion between the Government and the retail sector on actions to support the industry.

A basic tenet of competition law/policy is that businesses in a given market set their prices independently of each other. Coordination of pricing is inconsistent with the economic principle of competition and risks breaching competition law.  Generally speaking, the imposition of a price cap represents a form of economic regulation which may be warranted in the event of market failure (i.e. it cannot be corrected by normal market forces).

It is generally accepted that competition is strong in the retail grocery market in Ireland, as witnessed by the number and range of competitors, the growth in the market shares of the discounters, weekly deals etc.  What market failure would be addressed by a price cap?

What about ‘price gouging’ – is there not a law against that?  Examples of price gouging that regularly come up in the media in Ireland include significantly elevated prices for accommodation when there are big events, such as concerts or race meetings.  In grocery retailing, supermarkets compete with each other over thousands of goods – some are priced below cost and others above cost.  Such commercial pricing behaviour is the result of retailers responding to demand and is consistent with the process of competition.

From a competition policy/law perspective, price gouging does not offend against the law so long as it does not involve suppliers coordinating on price or does not represent an abuse of a dominant position.  Generally speaking, a dominant firm is one that faces very little or no competition in a relevant market.  Competition policy/law recognises that firms would like be to dominant in the markets in which they operate (businesses generally have big dreams) but dominant firms or firms that may be dominant are obligated not to abuse dominance (for example, by charging excessively high prices or preventing new entry to their markets).  In short, competition law cares about abuse of dominance and firms who are dominant or may be dominant in a relevant market or markets need to tread carefully.