COVID-19: SOUTH AFRICAN COMPETITION COMMISSION REFERS FIRST CASE OF PRICE GOUGING TO COMPETITION TRIBUNAL
Shortly after the declaration of COVID-19 as a national disaster, the South African Government published regulations addressing price gouging from a competition law perspective (Excessive Pricing Regulations).
The Excessive Pricing Regulations prohibit dominant suppliers from charging excessive prices for certain specified goods and services (mainly basic food and consumer items, medical and hygiene supplies, and other emergency products and services).
The Competition Commission (Commission) has warned that dominant firms found to be engaged in excessive pricing (click here for more) will be prosecuted and the Competition Tribunal (Tribunal) has confirmed the procedure in terms of which it will deal with these cases (click here for more).
The Commission has now referred its first COVID-19 excessive pricing case to the Tribunal.
The Commission alleges that a local manufacturer of medical face masks earned mark-ups in excess of 500% between 31 January 2020 and 5 March 2020, by increasing the price of a box of face masks from ZAR 41 to ZAR 500. It is also alleged that the manufacturer had increased its price by at least 888% during the period 9 December 2019 to 5 March 2020.
The Commission reports that the manufacturer’s mark-up (but not prices) dropped significantly after 18 March 2020, following its supplier adjusting the price of key inputs. The supplier is under separate investigation. The Tribunal intends to hear the matter against the manufacturer on 24 April 2020.
The Regulations provide that a price increase by a dominant supplier of specified critical medical equipment and basic consumer goods will be ‘a relevant and critical factor in determining whether a price is excessive or unfair’ and indicates prima facie that the price is excessive or unfair in terms of the Competition Act, 1998 (Act), in circumstances where the price increase:
- does not correspond to, or is not equivalent to, an increase in cost; or
- increases the net margin or mark-up on the product or service above the average margin or mark-up in the three months prior to 1 March 2020.
Under the Act, dominant firms alleged to have engaged in excessive pricing must be able to demonstrate that the price charged was reasonable. If not, a penalty of up to 10% of the firm’s annual turnover may be imposed for a first offence and up to 25% if the conduct is substantially a repeat by the same firm of conduct previously found by the Tribunal to be a prohibited practice.