There are five main directions of the antimonopoly policy of the Russian and foreign regulatory authorities that seek to effectively apply the legal tools for regulating innovative entrepreneurship.
5.1. Monopolistically high (low) price
In Russia, the law "On Protection of Competition" defines a monopolistically high (low) price – this is the excess (understatement) of the price over the price of a comparable market, the excess (understatement) of the price over economically justified costs and profits. The concept of a monopolistically high price is the most controversial in the antimonopoly legislation. The objectivity of its comparison with the profit, cost and price of a comparable market is particularly controversial. The price may increase due to increased demand, which is not available in another comparable market, and the amount of profit may be high as a result of the planned investment.
The traditions of direct state regulation of prices are quite strong in Russian society, and the state responds to these expectations. For this reason, the norm on the monopolistically high price is applied in Russia by the antimonopoly authority very actively. While in other countries, there is no significant practice of its application. Russian researchers note that in the United States, which are the founders of antitrust regulation, the opinion has been formed that high prices attract new participants to the market, and therefore are a factor in the development of competition. This fact is also confirmed by Russian practice.
In the context of the pandemic, the demand for certain categories of products is naturally growing around the world: food products, medical devices and equipment, medicines, personal protective equipment and disinfection, as well as other socially important goods. A number of countries conduct daily monitoring of prices by fixing them in online stores, checking the availability of goods on sale. This constant monitoring is due to the fact that cases of unjustified price increases and deliberate creation of shortages for products with high demand have been repeatedly identified in specific markets.
The Federal Antimonopoly Service of Russia conducts daily monitoring of prices for goods from the category of essential and vital nature. In addition, an operational headquarters has been formed to monitor the situation in certain markets. The Government of the Russian Federation has been given the opportunity to set for a certain period of no more than 90 days the maximum allowable retail prices for medicines and medical devices that are not included in the list of vital necessities, but may actually become so.
Similar measures are being taken by the Competition and Markets Authority in the Great Britain. He calls on entrepreneurs and manufacturers to jointly fight against unfair pricing by setting maximum retail prices for products, such as basic medical devices. Moreover, a special task force has been created to identify illegal pricing methods and ensure compliance with the law.
In the European Union, the European Competition Network, in its guidelines, reminded manufacturers that they are allowed to include maximum prices in the terms of contracts. The European Competition Network members in the document "Temporary Framework for assessing antitrust issues related to business cooperation in response to situations of urgency stemming from the current COVID-19 outbreak" expressed extreme concern about the practice of unfair pricing as a result of cartel collusion or abuse of a dominant position. During epidemiological crisis such forms of anti-competitive conduct is widespread, especially in highly innovative pharmaceutical sector (Lead European Competition Regulators Publish Guidance on COVID-19, 2019)
In France, Greece, Spain and China suppliers and distributors of masks, gloves, antiseptics and other medical facilities came under the anti-monopoly control over the market with signs of unjustified price hikes. In China, more than 4,500 companies have been fined for paying too high prices for medical devices and food.
5.2. Expanding the powers of the antimonopoly authorities
According to article 25.1 of the Law "On Protection of Competition", antimonopoly authorities have the right to conduct scheduled and unscheduled inspections of executive authorities at all levels, as well as state extra-budgetary funds, commercial and non-profit organizations, individuals, and individual entrepreneurs. The expansion of the authority of the antimonopoly authority restricts economic freedom and does not comply with the principles of liberalization of the antimonopoly policy. It seems that the Niskanen model of bureaucracy is at work here — the model of public choice theory, which shows that the interests of civil servants generate pressure in favor of increasing the scale of each of the sections of the public sector and, as a result, this sector as a whole (Niskanen's Model of Bureaucracy, 2019)
5.3. Control over misleading consumers and false advertising
Antimonopoly authorities identify exploitative abuses and other unfair practices. Companies using them mislead consumers about the properties and quality of goods and services, seeking to make it more effective to sell and promote their products in the context of the spread of COVID-19.
In Russia, the Antimonopoly Authority is taking measures to combat the unfair behavior of companies that mislead consumers in order to persuade them to purchase goods and services presented as COVID-19 treatments. So, several cases were initiated for false information about the effectiveness of medicines against coronavirus. In addition, cases were opened against veterinary clinics that offered services for the diagnosis, vaccination and treatment of coronavirus in cats and dogs.
In Italy, online trading is gaining momentum as the best way to meet the needs of customers with minimal effort. The Italian antitrust authority (Autorità Garante della Concorrenza e del Mercato) has brought cases against Amazon and eBay on the grounds of not only unjustified price increases for masks and disinfectants, but also false advertising.
In China, online platforms are advised to keep a particularly close eye on price algorithms to prevent unintended price spikes. The State Administration for Market Regulation of the People's Republic of China also announced the strengthening of measures to combat false advertising in the retail sector, including e-commerce. Beijing, Shanghai and other cities have already launched a campaign against such forms of unfair competition.
The competition authorities of Canada, the Netherlands and the United Kingdom have issued a statement to representatives of the retail sector, calling on them to be held accountable for their actions, which may be aimed at misleading consumers about the effectiveness of personal protective equipment and other products in order to extract benefits through unfair marketing policies.
The US Federal Trade Commission issued warnings to companies that made false statements about the effectiveness of certain products for the prevention or treatment of COVID-19 (COVID-19 and Antitrust Law, 2020)
5.4. Identification and suppression of "crisis" cartels and abuse of a dominant position
To determine the dominant position of the company in the market, a quantitative indicator is used – the company's share in the market. Firms that exceed the established threshold of dominance fall under the special control of the antimonopoly authority. It is obvious that the higher the criterion of dominance, the fewer firms are under the special supervision of the antimonopoly authority, which corresponds to the principle of liberalization. The law "On Competition and Restriction of Monopolistic Activity in Commodity Markets" established that firms with a market share of 65% or more are recognized as dominant. In the law "On Protection of Competition", the threshold of dominance is reduced to 50%, that is, the number of dominant firms can increase by the number of firms whose market share is from 50% to 65%. Moreover, firms with a share of less than 50% can be recognized as dominant, if this is established by the antimonopoly authority, based on their share relative to the shares of competitors, the possibility of market access, or based on other criteria that characterize the commodity market.
In Russia, the law "On Protection of Competition", along with the amended concept of an agreement, introduced the concept of coordinated actions, established prohibitions on agreements restricting competition and coordinated actions. Agreements that restrict competition are prohibited and recognized as a cartel. At the same time, coordinated actions are not recognized as cartel collusion, the very fact of agreements is already considered a violation of the law. This allows the antimonopoly authorities to consider any synchronous increase in prices on the market as unjustified and apply penalties. Thus, the application of this article prohibits such a form of economically justified behavior as price leadership. According to paragraph 4 of part 1 of article 10 of the Federal law "On protection of competition" in Russia, the abuse of a dominant position, is considered to be economically or technologically unjustified reduction or cessation of production of the goods, if this item has a demand or orders are subject to availability, its cost-effective production, if it is not stipulated regulations.
Analyzing the above articles, taking into account the expanded powers of the antimonopoly authorities and the established practice of application, it is difficult to recognize the liberalization of the antimonopoly legislation as having taken place. Restrictions for entrepreneurs in terms of setting prices, output volumes, contracts, and contracts remain quite active Today, unstable market conditions have become a catalyst for anti-competitive agreements. In various jurisdictions, the Supervisory authorities shall take measures to combat the crisis cartels.
In Russia, there has long been a tendency to strengthen anti-cartel policies, including tougher responsibility for collusion. Currently, the antimonopoly agency is particularly active in monitoring the food and pharmaceutical markets, which are potentially the most susceptible to monopolization. The FAS (Federal Antimonopoly Service) of Russia, after monitoring and unscheduled inspections, has already identified several cartels that set high prices for such scarce goods as protective masks and buckwheat. In addition, special attention is paid to the behavior of natural monopolies in imposing unfavorable conditions and services, as well as refusing to conclude contracts, unjustifiably inflating prices in the context of a pandemic.
In the United States of America, the Justice Department expects a surge in cartel cases. To support the business, entrepreneurs begin to cooperate with competitors. For example, they may agree not to cut prices or how to reduce excess capacity when faced with falling demand. As stated by United States of America Attorney General William Barr, the Department of Justice will take measures to prevent illegal actions in the production, distribution and sale of medical products in ways that violate antitrust laws, such as setting prices or colluding in auctions (COVID-19 and Antitrust Law, 2020).
The European Union is reluctant to grant exemptions from competition law in connection with COVID-19. The antimonopoly authorities of the European Union member states issued a joint statement dated 23.03.2020 (Impact of COVID-19 Coronavirus Pandemic on European Antitrust Enforcement, 2020), in which they noted that they will not actively interfere with necessary and temporary business measures taken to avoid product shortages or difficulties in the transport and logistics field. In other words, anti-cartel rules will not apply when cooperation is aimed at the benefit of society. However, the actions of companies seeking to misuse their market power through a cartel or abuse of a dominant position will be stopped, even if these are only temporary measures due to an emergency situation.
In addition, the EU (European Union) emphasizes that the cartel reporting exemption program continues to apply regardless of the emergency situation (Impact of COVID-19 Coronavirus Pandemic on European Antitrust Enforcement, 2020)
In the UK (United Kingdom), the Competition and Markets Authority has indicated that competitors are allowed to provide information about inventory, price and delivery conditions. But he stressed that further harmonization of prices charged to suppliers or end-users is still strictly prohibited.
The flexibility shown in antitrust regulation does not give companies the right to participate in collusions that can harm consumers. As noted by the Competition and Markets Authority, it is not allowed to: exchange between competitors commercially important information about pricing policies or business strategies used without urgent need; refuse to cooperate with small competitors to ensure the security of supply; collusion between enterprises aimed at mitigating the adverse commercial consequences of falling demand by artificially maintaining high prices to the detriment of consumers; coordination between enterprises that is actually unnecessary and unjustified, for example, in terms of the distribution of goods or services in areas not affected by the pandemic.
Price manipulation is typical not only for cartels, but also for the abuse of a dominant position. Therefore, the Competition and Markets Authority warned that unfair practices of enterprises that occupy a dominant position (even if it is due to the circumstances of the crisis) will be stopped if they lead to artificially inflated prices for goods and services that are vital for consumers (Competition and Markets Authority approach to business cooperation in response to COVID-19, 2020)
In Poland Antimonopoly service initiated an investigation of alleged abuse of dominance suppliers of medical equipment, which terminated the contracts for the supply medical mask hospitals, to renew, but setting higher prices of goods are controlled by the competition authorities.
5.5. Special "preferential" conditions for innovative firms
Theoretical and empirical studies of scientists and economists confirm that innovations develop more actively in a competitive environment. This is probably what the legislators were guided by when introducing special provisions for innovative firms, believing that the introduced "benefits" would promote competition as a driving force for innovation.
What mechanisms for the development of competition are laid down in these provisions?
1) The creation of special conditions for individual innovative firms violates the basic principle of competition – ensuring equal access to the market for all participants in the market process.
2) These provisions exclude the motivation of the company to introduce qualitatively new products due to the desire for competitive advantage, and therefore reduce the intensity of competition.
Thus, they contain, in fact, anti-competitive mechanisms.
The creation of special privileged conditions for individual innovative firms in the market does not contribute to the achievement of the goal of antimonopoly policy-the protection of competition. In this case, there is a potential conflict between the goal of antitrust policy and the goal of economic policy – to achieve economic growth through innovative development. Achieving this goal of economic policy is possible through the use of other instruments (tax, financial). As for the antimonopoly policy, the creation of competitive conditions that are equal for all economic entities would be its contribution to innovative development.
According to scientists, the release of any of the competitors from compliance with the general rules means not only a deviation from the principle of equality, but also an obstacle to progressive changes in the economic system (Taranukha Yu.V., 2019).
The slowdown in the pace of innovative development in Russia is the best proof of this. It should be noted that in countries with developed competition law, such as the United States and the European Union, there are no such exceptions (except for partial exceptions for technology transfer agreements in the European Union). However, this does not prevent them from taking a leading position in the international rankings of innovation development
5.6. Easing antitrust regulation to deal with the consequences of the pandemic
However, against the background of a severe epidemiological situation in a number of countries, antitrust regulation is being relaxed for some cases of horizontal cooperation aimed at combating the consequences of COVID-19. Exceptional measures (exemptions) are applied restrictively to specific business sectors that are particularly affected by the crisis, since their joint activities contribute to the restoration of supply chain gaps and more effectively meet consumer demand. The rest of the competition law continues to apply in full.
In the United Kingdom, competing retailers (food stores) are allowed to coordinate joint actions in order to improve the distribution of goods and ensure access to them (Coronavirus and the Competition Act, 2020). Coordination is possible if such measures are: appropriate and necessary to prevent shortages or ensure the security of supply; are in the public interest; benefit consumers; address key issues raised by the pandemic; and do not last longer than is necessary to address critical issues.
In the United States, the Federal Trade Commission and the Department of Justice have approved acceptable forms of joint activities aimed at improving the health and safety response. Such cooperation includes the following activities: integration of production, distribution or service networks to facilitate the production and distribution of supplies related to the pandemic; joint research in the field of treatment methods or the development of a vaccine against COVID-19; development of the best order of patient care in medical institutions; joint agreements on the procurement of personal protective equipment to improve their effectiveness; exchange of information on experience and best practices in solving problems related to COVID-19.
At the same time, organizations that use these forms of joint activity must comply with the established procedure and certain requirements. Companies need to assess the admissibility of cooperation on an individual basis from the point of view of antitrust legislation and then contact the competent authorities for advice. An accelerated procedure has been introduced to review the proposal to organize such an enterprise.
Successful examples of innovation implementation
In March, the United States of America Department of Justice supported the joint efforts of distributors (McKesson Corporation, Owens & Minor Inc., Cardinal Health Inc., Medline Industries Inc., and Henry Schein Inc.) to implement the Airbridge project, aimed at accelerating the pace and expansion of production, improving the supply and distribution of personal protective equipment in the context of the pandemic. The Department of Justice Is Issuing A Business Review Letter to Medical Supplies Distributors supporting the Airbridge Project as part of the Accelerated COVID-19 Pandemic Response.
Another example is the joint research of pharmaceutical companies Pfizer and BioNTech to develop a vaccine against COVID-19.
In the European Union, the Eurocommerce Association has spoken out about a possible relaxation of antitrust regulation in order to allow retail businesses to interact freely with each other. In response, the European Commission indicated that there would be no suspension of the legislation, but this did not preclude joint activities if they were effective, useful and did not eliminate competition.
The European Commission is ready, in exceptional cases, to provide companies with a letter of recommendation (letter) regarding specific cooperation projects that need to be implemented quickly to combat COVID-19, especially if it is not clear at all whether such initiatives are compatible with European Union competition law.
Other examples, the competition authority of Iceland temporarily released representatives of the tourism sector (travel agents, hotels and tour operators) from the application of anti-cartel norms to them. Companies are allowed to cooperate in finding ways to reduce the number of canceled flights and increase the demand for Icelandic tourism, but they are not allowed to discuss pricing and business conditions together (Antitrust authorities are fighting coronavirus, 2020).
The Norwegian government has temporarily exempted rival airlines SAS and Norwegian Airlines, as well as rail and water transport, from the rules on the prohibition of cartels. This was done so that the companies could cooperate and ensure minimal air transport of people and goods across countries (COVID-19-Antitrust regulators in Europe began taking action, 2020).