Investigations Into Price Hikes and Other Responses by the Ukrainian Competition Authority to the COVID-19 Crisis
The Ukrainian Competition Authority investigates price hikes for face masks, health protection products and long-life foodstuffs amidst COVID-19 outbreak. Airline tickets, telecoms and misleading claims about fake coronavirus treatments are also in focus.
The Antimonopoly Committee of Ukraine (the “AMC”) has been extremely active since the beginning of the coronavirus outbreak. Starting from the end of February, the AMC has issued recommendations in Kyiv and the Kyiv region (i) to pharmacies to refrain from imposing economically unjustified price increases for face masks, and (ii) to food retail chains to refrain from unreasonable price increases for face masks, disinfectants and long-life food. The AMC has also launched investigations into parallel price increases in the same region (i) by pharmacies and the wholesale suppliers of healthcare products, including face masks, as well as (ii) by food retailers and their wholesale suppliers of vegetables and long-life foodstuffs.
One of the most hotly debated COVID-related cases concerns the spike in prices for airline tickets by Ukraine International Airlines (“UIA”). The competition authority has received numerous complaints from consumers against UIA. According to complaints, the price of an economy flight from London to Kyiv increased to EUR 830 during the last days before suspension of air travel to and from Ukraine, although previously it was less than EUR 350. In mid-March, the AMC announced that it will examine the price increases for UIA airline tickets. The public is keeping a keen eye out for the results of the AMC’s study.
On 26 March, the AMC issued so-called “preventive” recommendations to the three largest mobile phone operators in Ukraine to prevent simultaneous or co-ordinated price increases for tariff plans and/or deterioration in the quality of mobile phone services.
The AMC also conducts day-to-day monitoring of the information and advertisements on TV, in the press and social media to counteract the spread of misleading claims for fake coronavirus treatments or vaccines. On 27 March, the AMC opened the first related case against a Ukrainian pharmaceutical company which made TV advertisements claiming that its antiseptic agent “has an effect on all complex viruses, including coronaviruses”. In this article, more light will be shed on competition cases in Ukraine initiated by the AMC in response to the COVID-19 crisis as well on how the authority operates during these unprecedented quarantine measures.
- Implications on timeframes and merger control reviews
So far, there are no changes to the existing merger control requirements of the AMC and merger review time frames. The AMC is working as usual and accepting merger filings, which have to be delivered in hard copy during normal working hours. The AMC has not made any statements encouraging parties to postpone notifications, and is clearing transactions within its statutory timelines.
No disruptions or delays in merger control reviews have been seen so far. However, since a large part of its staff are working remotely or are absent, there is a potential risk that if the AMC begins to face difficulties in meeting statutory deadlines due to limited human resources, the rejection of merger filings on formalistic grounds, or shifts from the fast-track to the standard procedure, cannot be excluded.
- Investigations into excessive pricing and parallel price increases
• Pharmacies, wholesale suppliers and manufacturers: face masks and anti-virals in focus
At the end of February 2020, the AMC’s regional office in Kyiv issued recommendations to 34 pharmacies urging them to refrain from setting economically unjustified prices for face masks. Seven pharmacies have already reported their fulfilment of the recommendations. Information requests were also sent by the AMC to more than 50 pharmacies to provide data on their purchase and resale prices for anti-virals, painkillers, anti-fever drugs and face masks. The AMC is also monitoring the pricing of face masks by manufacturers and wholesalers.
On 31 March, the AMC’s regional office in Kyiv launched an investigation into parallel price increases by pharmacies in Kyiv and the Kyiv region, as well as wholesale suppliers/manufacturers, of healthcare products, including face masks. According to the AMC, during February/March 2020 a sharp price increase for face masks was seen in pharmacies in Kyiv and Kyiv region. Certain pharmacies reported to the AMC that such retail price increases were caused by an increase in the prices set by their wholesale suppliers, so causing them to increase their retail prices accordingly. However, in the AMC’s view, there were no objective factors that could cause an increase in the costs of production or distribution of such products. The AMC continues to investigate this issue.
In parallel with the above investigation, on 31 March, the AMC issued recommendations to pharmaceutical companies, importers, distributors and pharmacies to prevent competition law violations on the markets for anti-viral drugs and personal health protection products. In particular, the AMC recommended “to refrain from any actions that may lead to price increases for imported medicines and for locally produced medicines containing imported compounds that outpace the growth of the foreign currency exchange rate against the Ukrainian currency”. Starting from 1 January 2020, the value of Ukraine’s currency has been falling, which has resulted in price increases for imported products for end consumers.
• Food retailers and wholesale suppliers: face masks, disinfectants and long-life food in focus
On 13 March 2020, ten retail chains in Kyiv and the Kyiv region received the AMC’s recommendations against unjustified price increases for face masks, disinfectants and long-life food. In its statement the AMC reminded the retailers about a special provision of the Ukrainian competition laws under which a simultaneous price increase for certain products may constitute anti-competitive concerted practices if (і) several companies simultaneously raise prices for certain products which may lead to the prevention, elimination or restriction of competition, and (ii) analysis of the market situation shows that there are no objective reasons for such similar price increases.
This is unlike many European countries, where excessive pricing may be illegal only if either (a) it results from a price fixing agreement amongst undertakings or (b) it constitutes exploitative abuse by a dominant undertaking, in which case it should be proved that (i) the firm charging the prices holds a dominant market position, and (ii) the prices charged are ‘excessive’. In Ukraine, a third scenario for a pricing violation is possible, so-called “anti-competitive parallel behaviour”.
Under the above-mentioned concept of “anti-competitive parallel behaviour”, non-dominant companies may be found liable for excessive pricing by way of anti-competitive concerted practices even in the absence of agreement/co-ordination amongst them. If the companies simultaneously or “almost simultaneously” increase their prices, and such similarities in price increases cannot be explained by objective factors, it can be assumed that the only plausible explanation for such parallel behaviour is concerted practices amongst competitors. Thus, in order to establish a violation, in addition to finding price correlation amongst competitors which increase their prices in parallel, the AMC is also required to examine all the objective factors which could cause such similarity.
The AMC traditionally applies such approach to the retail markets for fuel and liquefied petroleum gas when simultaneous or “almost simultaneous” price increases by gas stations are observed. However, in the previous AMC’s practice, the analysis was often limited to selected factors such as comparison of purchasing prices vs resale prices, inflation and cost structure analysis. However, many other important factors, such as fiscal changes and logistics costs, were often ignored, as was the economic analysis of relevant competition models explaining the similarity in price increases by gas stations. It remains to be seen whether a proper standard of proof will be applied in this case, and whether all the external factors that could cause parallel price rises will be taken into account by the AMC.
The AMC continues regular price monitoring of products in everyday consumption, and requests retail chains to provide information on purchasing prices and resale prices for bread, grains, sugar, flour, most popular types of meat, and vegetables.
On 26 March 2020, the AMC’s Kyiv Regional Office launched an investigation into parallel price increases by food retailers in Kyiv and the Kyiv region and their wholesale suppliers. According to the AMC, during March 2020, a sharp price spike was seen in the retail prices for long-life foodstuffs, such as sugar, buckwheat and rice, and vegetables such as potatoes, onions, carrots, beetroot and cabbage. The recent analysis of the AMC shows that in certain regions the price hikes have been seen in buckwheat (50%), potatoes (60%), and onions and carrots (100%).
According to the food retailers, retail price increases were caused by increases in the prices set by wholesalers supplying food to retailers. Based on the increases in purchase prices, the retailers had to increase their retail prices accordingly. However, according to the AMC’s regional office in Kyiv there are no objective factors that could cause price increases for these products.
Less than a week after publicising the opening of the case on retail price increases for foodstuffs, the Head of the AMC’s regional office in Kyiv announced that certain prices have stabilised or even fallen in response to the imminent investigation. The investigation will continue to establish whether the wholesale suppliers, the retailers, or both, were guilty of unjustified and simultaneous price hikes during the first part of March.
- Preventive recommendations to mobile phone operators
On 26 March, the AMC issued so-called preventive recommendations to the three largest mobile phone operators to prevent concerted practices / parallel behaviour which may lead to the prevention, elimination or restriction of competition by way of simultaneous or co-ordinated:
• price increases for tariff plans;
• closing of social or cheap tariff plans;
• automatic transfer of subscribers to more expensive tariff plans;
• deterioration in the quality of telecommunication services.
Unlike the majority of the above-mentioned recommendations issued by the AMC in the pharmaceutical and food retail sectors, which were based on the facts of price hikes and aimed to discourage price increases, the recommendations for mobile phone operators are of a purely preventive nature. The AMC has not established any facts in the conduct of mobile phone operators which could violate competition laws. Nevertheless, the three largest mobile phone operators in Ukraine are obliged to consider the recommendations and inform the AMC of the results of their deliberations of them and how these will be fulfilled.
The AMC’s recommendations to mobile operators appear to be very broadly worded and ignore certain objective challenges that mobile phone operators may face due to switching to remote working the by majority of businesses, so increasing network congestion. In particular, if too many users try to connect simultaneously to the same mobile phone base station, that station becomes overwhelmed, causing calls to drop and data transfer speeds to slow. As the demands on networks rise, so the more complicated it may become for mobile operators to ensure a proper routine and emergency maintenance of the network, particularly if engineers report sick or are forced to self-isolate due to mandatory stay-at-home orders. While the AMC recommends “not to reduce the quality of mobile services”, it is important to take into account these objective constraints throughout the period of COVID-19 quarantine measures.
Many countries have already taken steps to mitigate such network congestion challenges. The USA has granted its networks additional radio spectrum on a temporary basis, and several other countries are in the process of doing the same; European and other regulators have also asked the big streaming services – Netflix, Amazon, YouTube – to reduce the quality of their videos to free up capacity. Thus, instead of shifting the blame onto mobile phone providers, a better solution to address the new challenges facing network congestion could be by involving other private and government stakeholders as well.
- Misleading claims about fake coronavirus treatments
With public anxiety increasing, the first television advertisements claiming that a drug “has an effect on all complex viruses, including coronaviruses” have already appeared on Ukrainian television, while the World Health Organization and the Ministry of Health of Ukraine officially states that no approved drugs against COVID-19 exist as of today.
The above-mentioned TV commercials concerned Decasanum antiseptic agent (active ingredient – decamethoxin) manufactured by the Ukrainian pharmaceutical company Yuria-Pharm LLC. On 27 March, the AMC opened a case against Yuria-Pharm regarding its misleading claims. Yuria-Pharm subsequently made a statement that it admits liability for incorrect claims made in the commercials, and emphasised that Decasanum does not cure COVID-19 and is only an antiseptic and disinfectant agent.
In Ukraine, unproven claims that certain medicines may prevent or treat coronaviruses in the absence of laboratory / scientific evidence constitute misleading information, a violation of the Law on Protection from Unfair Competition. Such actions may cost the violator a fine of an amount up to 5% of the turnover of the undertaking for the previous financial year. Furthermore, it does not matter where such information is displayed – on packaging, in advertising materials, on websites, in the media or via social networks.
The AMC has issued recommendations to pharmaceutical companies, advertising agencies and TV channels to refrain from advertisements claiming that certain medicines treat and/or prevent coronaviruses, without any confirming evidence, in particular without official recommendations issued by the Ministry of Health of Ukraine. In other words, the pharmaceutical companies, advertising agencies and TV channels are required by the AMC neither to create nor to disseminate advertising that can mislead consumers by claiming that it may prevent or cure COVID-19.
The AMC has also warned manufacturers against communicating misleading, incomplete or inaccurate information about the antiseptic or disinfectant properties of sprays, solutions, gels, wipes and other products, as well as their ability to kill viruses, including COVID-19, in order to attract consumers.
According to the AMC, in particular, the following cases may constitute illegal misleading information:
• inducing consumers to buy products by placing the information using Coronavirus / COVID-related words and/or visual images of viruses without sufficient grounds;
• spreading unproven claims about certain effects of the product on viruses, including COVID-19, or on improving immunity;
• indicating information about the effects of a drug that does not correspond to its technical documentation;
• insufficient quantity of the active ingredient in a drug;
• spreading misleading information about the time course of a drug effect, minimum dose of drug, etc.;
• disseminating unproved information about the drug’s ability to eradicate a certain percentage of bacteria (95%, 99%, 99,9%, etc.); and
• lack of approvals required from and issued by the authorised state bodies.
The AMC conducts day-to-day monitoring of the information and advertisements on TV, in the press and social media to prevent the spread of misleading claims of fake coronavirus treatments or vaccines
Prepared by lawyer Veronika Kedik