Christmas in Chinatown: Price gouging or business sense?

By Nicholas Clark


Source: https://unsplash.com/photos/HP19fV63YeY

Between Covid-19, exams, deadlines, and the normal doldrum of being an overseas law student, many of us can relate to the difficult experience of being stuck in the UK, unable to return to Singapore, while our British friends and peers go back home to their families. Naturally, many students may venture with friends to London’s Chinatown on Christmas Day, a day otherwise unusually dark and dreary for those without family in town. Upon arrival in Chinatown, it’s easy to feel the cheer from the crowded streets and bright lights. Walking towards a packed restaurant menu, you’ll be heartened to see familiar favourites from back home, with bak chor mee and char siu pau filling pink Christmas-special menus. Until you look at the price tag in faint print, that is. You may be forgiven for feeling faint at the sight of ordinary London pricing (£9 chicken rice still gives me heart palpitations) - but here, special Christmas menus feature double pricing. After walking up and down a few streets in a daze, a promoter may assure you that “every restaurant here is doing this”. This, however, may open up the possibility of a consumer protection or anti-competitive claim.


As the tone of this piece so far probably indicates, this experience was my very own - and as I write this in late January, it should be evident that I have dwelt on it. As a scorned law student, the natural reaction to a perceived injustice - of course - is to look for recourse (and moral victory) in the UK’s consumer protection regulations. The first port of call, naturally, was price-gouging, where businesses inflate the price of products or services that are in high demand, particularly at a certain period or time of crisis. Unfortunately for those homesick over the holidays, the UK does not have a singular definition of price-gouging, nor is price-gouging entirely captured under the existing consumer protection regulatory regime. Even though ‘price gouging’ does not suffice as a term of art in statutory language, it may still be a worthwhile construct to have in place when exploring the limits of the UK’s current regime.


Generally, in periods of significant demand spikes in times of crisis (think Fairprice in March 2020), there is potential scope for regulatory intervention. Indeed, the UK’s Competition and Markets Authority (CMA) has undergone substantial investigation of price-gouging of essentials during the early stages of the pandemic, where essential personal equipment was scarce and routinely sold for double the price. While s.18(2)(a) of the UK’s Competition Act 1998 (CA 1998) prevents businesses occupying a “dominant position in a market” from “unfair purchase or selling prices or other unfair trading conditions”, it is unlikely that a doubling of price through a seasonal menu would truly suffice as ‘unfair selling prices’. Furthermore, under s.18(2)(a), a “dominant market position” is not defined, nor has the position been comprehensively defined by the English courts, although nevertheless a useful definition from Hoffmann–La Roche v Commission [1] is provided as “the behaviour of an undertaking in dominant position which is such as to influence the structure of a market where, as a result of the very presence of the undertaking in question, the degree of competition is weakened” [2]. However, it is likely that such dominance would require a substantially more monopolised (or oligopolised) market than that of Chinatown, which features more than 100 restaurants, assuming independent operation, in order for a single player to “influence the structure of the market”. [3]


While the CMA may work to prosecute businesses engaged in profiteering behaviour, that have abused their dominant market position (and are working to do so, particularly sellers who raised prices on essentials during the pandemic), the UK’s price gouging legislation lags behind that of other jurisdictions. In Australia, for instance, The Competition and Consumer Act 2010 prevents “unconscionable behaviour”, which was definitionally construed in Australian Securities and Investments Commission v Kobelt [4] as “conduct that is so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience”, where certain price mechanisms could accordingly be construed as ‘unconscionable’ in special circumstances, such as the high-pricing of Covid-19 tests [5]. The UK, by contrast, lacks such statutory language in the enforcement of competition policy.


Closer to home, we may have once looked towards European legislation to assist us. Article 102 of the Treaty on the Function of the European Union may provide recourse - it prevents the abuse of a dominant market position through “directly or indirectly imposing unfair purchase or selling prices” (which the Court of Appeal relied on to prosecute price-gouging in Phenytoin [6]), a pharmaceutical case concerning Pfizer and Flynn). In establishing the ambit of ‘unfair purchase or selling prices’, following United Brands Co v Commission of the European Communities [7], a price can be found to be inappropriately excessive when (a) the difference between the cost of production and the selling price of the product is substantial, and (b) if the price is unfair in itself or when compared to similar products. However, it’s clear that the ambit of this legislation would not apply to a small-scale market without a clear market leader in a ‘dominant position’- like that of Chinatown restaurants. Per AKZO Chemie BV v Commission [8], a ‘dominant position’ in EU competition law is one in which a market player has more than 50% of market share. Even if it were to be revealed that many of these restaurants came under a singular market structure (as hypothesised above), it is unclear whether the pricing differences would truly suffice as ‘substantial’. Needless to say, post-Brexit, this is unlikely to offer us much recourse.


It’s worth speculating, however, about the scope of other provisions of the CA 1998 that may theoretically provide recourse for Chinatown restaurant-goers, for the unusually litigious (and, let’s be honest, hungry). While ‘price gouging’ is not yet defined nor dealt with in statutory language, the concept of ‘price fixing’ is useful, and is enforced through legislation. The CA 1998 also works to prohibit businesses from working together to set prices above market rates. Per S.2(2)(a), “agreements, decisions, or practises” which work to fix prices between businesses are prohibited. Notably, the scope of this includes indirect price fixing - such as prior conversation or tacit agreements to raise prices beyond market levels.


The declarative confidence that many restaurants operating in Chinatown similarly double prices through the use of special seasonal menus could evidence a degree of purposive or collusive anti-competitive behaviour, that could theoretically be prosecuted under the CA 1998. The CMA has prosecuted a number of price-fixing cartels, including agreements to fix prices and collude to undermine competition in cases varying from galvanised steel tank suppliers, Somerset real estate agents, and Amazon marketplace sellers employing automated re-pricing software [9]. Should anti-competitive actions be evinced by the CMA among Chinatown restaurants, it is possible that the CMA may be able to launch enforcement action.


Conclusively, it’s hard to say whether the disgruntled Christmas diner would have much in the way of recourse. But depending on the scope of anti-competitive behaviour in practice, it is entirely possible that a statutory claim could be pursued under the CA 1998. Next Christmas?






References:

[1] Hoffmann–La Roche v Commission Case 85/76 [1979] ECR 461


[2] Souvik Chatterji, ‘Treatment of Abuse of Dominance in Various Countries’ (2015) <http://www.icc.qmul.ac.uk/media/icc/gar/gar2015/Souvik-Chatterji-Treatment-of-Abuse-of-Dominance.pdf> accessed 1 Feb 2022


[3] Joe Lutario, ‘Big trouble in little China?’ (BigHospitality, 11 Jul 2019) <https://www.bighospitality.co.uk/Article/2019/07/11/How-London-s-Chinatown-is-changing> accessed 1 Feb 2022


[4] Australian Securities and Investments Commission v Kobelt [2019] HCA 18


[5] Ayman Guirguis and David Howarth, ‘COVID-19: (Australia) Government Bans Price Gouging, Exploitative Exports of Personal Protective Equipment’ <https://www.natlawreview.com/article/covid-19-australia-government-bans-price-gouging-exploitative-exports-personal> accessed 1 Feb 2022


[6] [2020] EWCA Civ 339


[7] United Brands Co v Commission of the European Communities Case 27/76 [1978] ECR 207


[8] AKZO Chemie BV v Commission Case C-62/86 [1991] ECR I-3359


[9] David Harper, ‘Business cartels: recent cases we've taken action on’ (Competition and Markets Authority Blog, 8 Oct 2018) <https://competitionandmarkets.blog.gov.uk/2018/10/08/business-cartels-recent-cases-weve-taken-action-on/> accessed 1 Feb 2022