Last week the Ministry of Justice and Public Security (MJSP) released the new “Practical Guide for the Analysis of Price Increases in Products and Services,” an initiative of the National Consumer Secretariat (Senacon), including basic guidelines and a script for public agencies of the National Consumer Defense System (SNDC), suppliers, and general society, in cases of suspicion of unfair price increases.
According to the Guide, the characterization of an abusive price increase – i.e. the unjustified increase in prices of products or services – is based on the following premises: (i) free prices are crucial for the functioning of the market; (ii) price increases may be justified, for example, by increases in market costs or changes in the balance between supply and demand; and (iii) free competition and the fight against violations of the economic order are fundamental in combating disguised and deliberate price speculation in markets with uncompetitive structures or momentary atypical disturbances that are being faced (as in the case of the Covid-19 pandemic). Based on these elements, public authorities should consider intervening only on an exceptional basis and when there are indications of deliberate and unjustifiable arbitrariness and distortions.
For authorities to act, the Guide proposes a script for action when abusive prices are suspected:
- Identification/registering of the potentially abusive practice, at which time preliminary indications must be collected and analyzed for a decision on whether or not to act in the identified situation. Such identification would occur with the verification of price increases that extrapolate the context and effects of specific supply and demand shocks, in addition to consulting the main inflation indexes to deliberate on the existence of exceptional readjustments. The decision not to act directly (for example – not instituting a sanctioning administrative process) must be taken, if all the necessary elements are not available to conclude concerning the arbitrariness of the price increase or if the result of its action could have caused more negative effects than positive (such as shortages, greater market concentration, or even legal uncertainty).
- Preliminary referrals for analysis by competent authorities. If there are indications of other conduct related to the abusive increase, the procedure must be forwarded to other authorities. An example would be if there is evidence of collusion, then CADE must be notified. If the alleged abuse involves a regulated market, there must be liaison with the specific regulatory authority. If a crime against the general economy is suspected, the procedure must be shared with the Public Ministry, etc.
- Verification of the existence of exploitation of specific situations to increase prices, such as, the exploitation of emergencies and calamities for abusive increases. The Guide also provides specific recommendations for analyzing price increases in the service sector or in relation to basic food baskets and food products.
- Applicable economic and legal analysis. At this stage, the analysis must be carried out on a case-by-case basis, based on technical and objective criteria for the observed price increase. In this sense, the Guide highlights that “as we know, the increase “per se” is not always a sufficient criterion for verifying the “abusiveness” of economic agents.” Thus, the guide recommends that the economic-legal analysis follow the following steps: (i) identify the product in which the abuse is to be verified; (ii) identify companies that compete in this market; (iii) identify the elements that are part of the production chain, including raw materials; (iv) request purchase and sale invoices with a reliable historical series, with a recommendation of at least 3 months (90 days); and (v) identify the existence of economic rationality in the price increase or if it is merely business opportunism (a situation in which abusiveness would remain configured).
- Closure with the filing or application of applicable sanctions to the investigated agent.
The Guide highlights the following as competent agencies to deal with the issue (whether in a preventive or corrective way): the National Consumer Secretariat, who coordinates the National Consumer Protection System (Senacon), the Secretariat of Competition and Competitiveness Advocacy of the Ministry of Economy ( SEAE-SEPEC/ME), the Administrative Council for Economic Defense (Cade), the administrative authorities for consumer protection and defense, in states, Federal District, and cities (Procons), the Public Ministry, the Public Defender’s Office, and finally, the Regulatory Agencies in the case of sectoral markets. This means that the Guide starts with the comprehensive and expansive attention of public authorities and civil society in the inspection and monitoring of this practice.
The MJSP also reinforces that sanctioning procedures are not the only mechanisms available to consumer protection authorities for the fulfillment of their institutional missions and for the prevention, supervision, and correction of possible conduct. The following can and should be used as well – analyses, issuing guidelines, and even resorting to the Collective Consumption Agreement described in the CDC, art. 107 between civil consumer protection entities and suppliers.