Price gouging in Italy: is the Italian Competition Authority overstretching its consumer powers to exercise control over price increases related to the COVID-19 emergency?
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The fact that the Italian Competition Authority (“AGCM”) has taken vigorous action to counteract unfair commercial practices exploiting the COVID-19 pandemic is well known and has already been commented upon. Nonetheless, two specific decisions—Oxystore (PS11732) and Tigershop (PS11736)—highlight a peculiar characteristic of the enforcement stance taken by the AGCM, i.e., its focus on increased prices applied to the sales of COVID-19 related products. Price gouging is also one of the concerns raised by the AGCM in its ongoing investigations of unfair practices against Amazon and eBay in connection with sales of protective medical devices on their marketplaces, as reported by the authority in a press release of March 12.

Notably, the common thread in these investigations is that, apparently, they were launched under the EU framework of consumer protection rules on unfair commercial practices (Directive 2005/29/CE), whose implementation in member States is subject to a principle of “full harmonization”. Further, the AGCM recently announced that it is sending RFIs and launching price monitoring of several clinics offering diagnostic tests for COVID-19 at a price “disproportionately” above the recommended price for such tests in the informational guidelines issued by the Lazio Region. However, it is unclear so far under which law the AGCM is acting to monitor, and possibly sanction, price hikes for unregulated diagnostic tests.

Although at first glance the adoption of interim measures by the AGCM in relation to excessive price increases for essential goods might seem justified in the context of the COVID-19 pandemic, it is worth noting that, under the consumer protection legislative framework, there are no rules in Italy prohibiting price increases per se. Indeed, under Italian law and the constitutional framework, as in most market economy countries, in principle no authority may intervene in a private firm’s decision concerning the prices of goods or services, except: (i) in specific sectors where prices are expressly regulated for overriding public interest reasons (e.g., energy, certain medicines, taxis); (ii) where a firm holds a dominant position in a given market (in which case excessive pricing may be deemed an autonomous abuse under Article 102 TFEU or the national equivalent); (iii) if the price increase is the object or outcome of anticompetitive collusion with competitors (Article 101 TFEU or the national equivalent); or (iv) if it is the result of underlying criminal conduct (fraud, bid-rigging in public tenders, aggiotaggio, and so on)[1].

In any case, differently from the U.S., where several states already have laws expressly designed to curb price gouging on certain essential products, particularly in emergency situations,[2] specific rules restricting price increases for essential items have not been introduced in Italy thus far, not even in the emergency acts approved since the pandemic outbreak.[3]

In light of the above, the following questions arise: Is the AGCM attempting to characterize excessive price increases for essential goods related to the COVID-19 pandemic as per se unfair/aggressive commercial practices in order to catch harmful conduct that would not otherwise fall under its statutory remit? Or is the AGCM merely including price increases as one aggravating element of autonomously unfair practices (such as providing misleading information) that may substantiate interim measures to stop the conduct on an urgent basis?

The first question could be answered in the affirmative, if one were to consider in isolation certain paragraphs of the decisions to impose interim measures against Oxystore and Tigershop. However, a deeper analysis of applicable law and of these decisions reveals that the AGCM is contesting traditional misleading practices, though integrated or aggravated by the circumstance that such practices are aimed at selling at higher prices by exploiting an emergency or crisis situation.

In Oxystore, the AGCM contested, in particular, the sale through the website www.oxystore.it of masks at excessively increased prices (more than 1 EUR as compared to less than 10 cents before the emergency). According to the Authority’s reasoning, “The increase in mask prices is likely to induce consumers, through undue conditioning, to decide to purchase such masks at increased prices, including in light of the state of heightened consumer weakness and concern about the rapid spread of the virus and the difficulty of finding the product.” Therefore, based on this decision, it appears that the AGCM characterizes price increases as an “exploitation by the professional of any tragic event or specific circumstance of such gravity as to impair the consumer’s judgement in order to influence his decision with regard to the product.” Said practice is expressly prohibited under art. 25, para. 1, let. c) of the Consumers Code[4] (Legislative Decree No. 206/2005).

While the AGCM refers generically to “undue conditioning” caused by the increase in mask prices, the preliminary part of the decision (which is a summary reasoning, as it is an interim measure) reports various allegedly misleading or exaggerated claims from the merchant suggesting specific anti-COVID efficacy of the products sold.

Similarly, in Tigershop, the AGCM contested the sale of masks at increased prices, in combination with an indication of the scarce availability of the products in stock. In this case, the merchant was increasing prices and using claims such as “last available pieces” to rush consumers into purchasing its products. In this scenario, the AGCM tied the price increases to an unlawful practice expressly sanctioned by the Consumers Code under art. 23, para. 1, let. t), which consists of “communicating incorrect information on market conditions or on the possibility to obtain a certain product to induce consumers to purchase the products at less favorable conditions than normal market conditions.” Also in this case the AGCM is, thus, using price increases as an additional and integrating or aggravating measure to demonstrate the firm’s breach via a specific form of misleading or aggressive practice.

Hence, if one looks at the overall reasoning of the AGCM in these decisions, the contested infringement seems not to be triggered by the “disproportionate” increase in prices alone (as that alone would be unlikely to be deemed capable of misleading consumers into purchases they would not otherwise make) but rather by the combination of misleading claims with the application of a price significantly above the average price applied before the emergency.

In other words, one may conclude that price gouging alone cannot constitute a misleading or aggressive practice per se under Italian consumer law, even in an emergency and in connection to essential items. However, it may make misleading conduct particularly harmful for consumers and, as a result, raise the standard of diligence required by the AGCM to discharge firms’ obligation to provide correct information to consumers.

Final remarks and what to expect

To wrap up and give a sense of the direction of the AGCM’s enforcement policy with respect to price gouging: Since the AGCM does not have statutory powers to sanction directly unilateral and independent price increases on items essential to overcoming the emergency, it is willing to interpret the traditional notion of “unfair” or “aggressive” practice quite broadly whenever it spots excessive prices for COVID-19 related products. To this end, it may perhaps be tempted to use it to catch practices that might not have been deemed such in normal circumstances. This way, the AGCM may put a certain amount of pressure on sellers of essential products to keep their prices down, as a form of aggressive “moral suasion” policy.

The announced investigations into the Amazon and eBay marketplaces and the price of coronavirus diagnostic tests suggest that the AGCM may be considering going one step further. By pushing the boundaries of what are deemed “misleading” or “aggressive” practices in times of emergency, the AGCM may be tempted to expand its consumer arm to the realm of algorithmic pricing, with a focus on potentially discriminatory or unfair pricing practices caused by the use of algorithms that automatically suggest and adjust prices in online marketplaces (depending on items such as surges in demand or consumers’ willingness to pay).

By way of example, absent specific rules to prohibit price gouging, at least in emergency circumstances, one might expect the AGCM to consider “aggressive” or “misleading” under the Consumer Code any offering of essential items at a price significantly exceeding the price recommended as “fair” by a public entity or independent institution (such as the Lazio Region), unless the merchant warns the public (prominently and “at the first contact” with consumers) that the price indeed exceeds (or may exceed) the benchmark indicated by one or more independent bodies for the item. That could be an effective way for the AGCM to curb price gouging on items essential in the fight against COVID-19 without going beyond the full-harmonization principle on which the EU directive on unfair commercial practices (2005/29/CE) is founded, as well as its statutory powers.

[1] See here and here for previous comments on the intersection between antitrust and criminal law in Italy.

[2] A recent description of this framework in the U.S. was published here by Competition Policy International.

[3] In the wake of COVID-19 emergency legislation, the Italian government attempted to introduce a specific provision that characterized as unfair commercial practice the conduct of profiting, in a context of social alarm or by exploiting any tragic event, from price increases for health products or goods for primary needs or consumer safety if the sale price is increased by more than three times the average price applied in the month preceding the sale. Curiously, while this provision was included in early drafts of the emergency law decree, it failed to make it into the final text.

[4] Article 25, paragraph 1, let. c) of the Consumers Code reads as follows: “In determining whether a commercial practice involves, […], harassment, coercion, including the use of physical force, or undue influence, the following elements shall be taken into account: […] c) the exploitation by the professional of any tragic event or specific circumstance of such gravity as to impair the consumer’s judgement in order to influence his decision with regard to the product.

Articolo inserito in: COVID-19, Regolamentare, Antitrust
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