Excessive pricing

What is excessive pricing?

Excessive pricing is a form of anti-competitive abuse of dominance contrary to Section 5 of the Competition Act 2002, as amended and Article 102 of the Treaty on the Functioning of the European Union (TFEU).

Excessive pricing occurs where a dominant undertaking, without objective justification, charges prices that are unreasonably high relative to the economic value of the product or service provided, typically far exceeding the level that would exist in a competitive market.

Excessive pricing can harm consumers and the wider economy. Consumers may pay more than they should for goods or services, while businesses may face inflated costs where they rely on a dominant supplier. Over time, excessive pricing can reduce consumer choice and discourage innovation.

Are all high prices excessive and against competition law?

No. High prices alone do not automatically breach competition law. Businesses are generally free to set and change their own prices and the CCPC does not have a role in reviewing or approving individual price increases.

Competition concerns only arise in limited circumstances, where a dominant undertaking uses its market power to impose prices that are both excessive and unfair, because effective competition is weak or absent.

In some sectors, such as telecommunications or energy networks, certain undertakings may be subject to sector‑specific price regulation imposed by regulators. Outside those sectors, competition law concerning excessive pricing applies only in exceptional cases.

In most markets, undertakings that charge high prices will lose customers to competitors offering better value. It is this competitive pressure - rather than regulation or enforcement - that normally keeps prices in check.

When do high prices breach competition law?

It is not enough that a price appears high or unfair. Excessive pricing cases are rare across the European Union.

To establish unlawful excessive pricing under competition law, the CCPC must assess:

(a)    Whether the difference between the price charged and the economic value of the product or service is excessive; and

(b)    Whether the price is unfair, either in itself or by comparison with other prices.

Both elements must be satisfied for a high price to constitute unlawful excessive pricing.

When is the difference between price and economic value excessive?

The first step is to assess whether the price charged bears a reasonable relation to the economic value of the product or service.

In practice, the CCPC may consider:

• The difference between price and cost (often reflected in profit margins); and
• Whether that difference is significant and persistent.

However, costs alone are not sufficient to determine economic value. Economic value may reflect factors beyond production costs, and the CCPC may also consider:

• comparisons between price and cost of production plus a reasonable return;
• historical prices charged by the same undertaking;
• prices charged for comparable products or services in other geographic markets or by other suppliers;
• the nature and characteristics of the product or service, including quality, features, and differentiation;
• the level of investment, innovation, or commercial risk borne by the undertaking; and
• the conditions of demand, including customer willingness to pay.

There is no fixed margin or percentage that automatically makes a price excessive.

When are prices considered “unfair” under competition law?

If a price is found to be excessive, the next question is whether it is unfair. Unfairness may be established in one of two ways:

(a) Unfair in itself

This involves assessing whether the price is:

• inherently unfair given the economic value of the product or service; or
• incapable of objective justification, such as by reference to cost increases, innovation, or risk.

(b) Unfair by comparison

This involves comparing the price charged with:

• prices charged by competitors (where such comparisons are possible);
• prices charged by the same undertaking in other markets; or
• prices charged before market conditions or competitive constraints changed.

A significant and unjustified divergence may indicate unfairness.

If you believe you have evidence of an undertaking engaging in excessive pricing, you can contact the CCPC to make a complaint.