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Competition authorities have historically pursued very few cases against excessive pricing. This seems to be changing. In the past 12 months, the rules on abuse of dominance have been invoked to tackle high prices in a range of markets, including pharmaceuticals, musical works, and patents. Together with increased political calls for fairness to consumers, does this mean a revival of excessive pricing in competition law?

Excessive pricing is prohibited under competition law in the EU and most other jurisdictions (apart from the USA), but actual cases have been rare. The European Commission’s guidance on abuse of dominance does not go into any details on the topic.[1] One reason is that prices play an important signalling function in markets: high prices indicate to entrants that there are profitable opportunities to be had. In the words of Advocate General (AG) Wahl, in an Opinion issued in April 2017:

Nevertheless, in its practice, the Commission has been extremely reluctant to make use of that provision against (allegedly) high prices practiced by dominant undertakings. Rightly so, in my view. In particular, there is simply no need to apply that provision in a free and competitive market: with no barriers to entry, high prices should normally attract new entrants. The market would accordingly self-correct.[2]

Yet excessive pricing seems to be back in the spotlight. Several competition authorities have recently tackled ‘rip-off’ price increases by pharmaceutical companies. In October 2016 the Italian competition authority fined Aspen for increasing the price of its cancer drugs by between 300% and 1,500%.[3] In December 2016 the UK Competition and Markets Authority (CMA) fined Pfizer and Flynn for excessive pricing of an epilepsy drug, following price hikes of more than 2,000% that raised the annual expenditure on the drug by the National Health Service from £2m to £37m–£50m.[4] Other investigations into pharmaceutical pricing are ongoing, including one announced by the European Commission in May 2017.[5]

The rules on excessive pricing have also been invoked in other contexts. One example is disputes around the licensing of standard-essential patents (SEPs). Owners of SEPs have usually made a commitment to license their patents on fair, reasonable and non-discriminatory (FRAND) terms in exchange for being included in the standard. A judgment of April 2017 by the High Court in the UK on a dispute between Unwired Planet and Huawei deals extensively with the question of how the competition rules on excessive pricing apply in a situation where there is already a FRAND commitment.[6] Another context is the charging for copyright on musical works. The Opinion by AG Wahl of April 2017 was on an excessive pricing case before the Court of Justice of the EU (CJEU) that dealt with the rates charged to commercial premises by a Latvian collecting society for the remuneration of composers of musical works.

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Oxera – Leading economic thinking in Oxera’s Agenda articles.