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28/02/17
 

Final Public Statement Regarding
Enforcement against Unfair High Prices

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Date of Publication:
28/02/2017

 

28 February 2017

2 Adar 5777

PRESS RELEASE

 

FINAL PUBLIC STATEMENT REGARDING

ENFORCEMENT AGAINST UNFAIR HIGH PRICES

*Enforcement of the prohibition will be made in cases where there is no competitive alternative and where there is no designated regulator engaged directly in price regulation
*The "safe harbor" defense from the previous public statement, whereby no enforcement action will be taken against the monopoly holder as long as the difference between the price of the product and the cost of its production is less than 20%, has been repealed.

 

Today (Tuesday) the Antitrust Authority published the final public statement regarding its considerations in the enforcement of the prohibition on charging an unfair high price. This public statement replaces the previous public statement that dealt with the subject and presents the Authority's updated policy regarding the subject. The new public statement is the result of the Authority's insights from the implementation of the previous public statement and it has been written following a variety of opinions and different positions that were brought before it during the course of the past ten months, during which the Authority held a wide-scale public hearing on the issue.

 

Within the framework of the hearing process several positions were received from the public that were published on the Authority's website and an opinion was provided by Professor Frיdיric Jenny, an international expert in the field of competition law and Chairman of the OECD Competition Committee. Likewise, on 6 September 2016 a public symposium was held with experts in the field of antitrust and regulation and on 21 September 2016 a draft public statement was published for public comments.

 

In his opinion, Prof. Jenny noted that direct enforcement against the price charged by a monopoly holder is comparable to treating the symptoms of a disease without addressing the underlying causes of the disease. Therefore, acts dealing with rectifying the market structure are preferable to the direct enforcement of high prices. Likewise, Prof. Jenny noted that the enforcement of an unfair high price involves significant risks and is liable to harm the economy in the long term. In a similar fashion, in the majority of places in the world where there is a statutory prohibition on charging high prices by a monopoly holder, the enforcement is carried out cautiously and while paying attention to its influence on the incentives to innovation.

 

According to the new public statement, the considerations to be taken into account by the Antitrust Authority in relation to enforcement will be similar to those acceptable worldwide. When the Authority considers enforcement in relation to a particular product in a monopoly, the Authority will take into account the specific characteristics of the examined market and inter alia the characteristics arising from the unique dynamics of the product's market in Israel. The Authority will take enforcement measures against a monopoly holder for charging unfair high prices, in cases where no other competitive solution is available in order to deal with the underlying problem of the examined market, whose symptoms are manifested in charging a high price from the consumers.

 

Insofar as no competitive relief is available, the Authority will examine whether the price charged is significantly and clearly higher than the price that would have been charged under conditions of competition and whether the high price charged is also unfair. The question of unfairness would be derived from the balance of powers between the monopoly holder and the consumer and would be considered against the background of the relevant circumstances, such as the characteristics of the product and the demand for it, the monopoly holder's share of and status in the market, the structure of the industry in which the firm operates, the level of risk in the manufacture of the products in this industry and more.

 

When the Authority is faced with this question, the balance of powers between the monopoly holder and the consumer will be taken into account. The greater the differences in powers between the parties, so that the consumers have no real alternative to the purchase of the product, the more the Authority will tend to regard the charging of prices that are significantly higher than the prices that have been charged under conditions of competition as an unfair act on the part of the monopoly holder.

 

The existence or absence of a regulator in the industry will also be taken into account, and the acts he performs, insofar as he performs any, in the market in question. The Authority will tend not to exercise this power as long as there is a regulator as aforesaid, who is in possession of specific tools for the supervision of the price charged by a monopoly holder.

 

The Authority has decided to repeal the "safe harbor" granted to the monopoly holders by the previous public statement, whereby no enforcement action will be taken against the monopoly holder as long as the difference between the price of the product and the cost of its production is less than 20%. The decision to repeal the safe harbor was made against the background of the many difficulties that arose from its very existence, and from the concept whereby the safe harbor based upon a difference of 20% (just like any other difference that may be determined) is arbitrary and relates in an identical manner to different and varied markets without taking into consideration the differences between the different markets and between different products. Instead of this threshold condition, the Authority has preferred to determine a series of threshold conditions that are more acceptable among scholars and competition authorities worldwide, and that are based upon the conditions of the relevant market, the status of the monopolistic firm and the circumstances under which it achieved this status.