Excessive pricing in South African competition law: Elucidating the nature and implications of the consumer-detriment requirement

• Jurisdiction: South Africa
• Pages: 173-218
• Citation: (2017) 29 SA Merc LJ 173
• Author: Ryan David McKerrow
• Published date: 20 August 2019
• Date: 20 August 2019

Articles

EXCESSIVE PRICING IN SOUTH AFRICAN

COMPETITION LAW: ELUCIDATING THE

NATURE AND IMPLICATIONS OF THE

CONSUMER-DETRIMENT REQUIREMENT

RYAN DAVID MCKERROW*

Abstract

Section 8(a) of the Competition Act prohibits dominant f‌irms from

charging excessive prices to the detriment of consumers. In Harmony v

Mittal the Competition Tribunal took the position that the provision’s

reference to consumer detriment was ‘simply a superf‌luous description

of an excessive price rather than a qualif‌ier of its likely effects’. This

article challenges the Tribunal’s relatively static approach to consumer

detriment. It acknowledges that the incorporation of a consumer-

detriment requirement into section 8(a) not only safeguards dominant

f‌irms from prejudice, but also gives rise to a contextually appropriate

consumer-welfare standard. The article argues that consumer detriment

must be evaluated by means of an analysis which adequately accounts

for market dynamics. Following a critical analysis of three pertinent

arguments in favour of non-intervention — the self-correction, innova-

tion, and error-costs arguments — it concludes that the welfare interests

of current and future consumers are not always aligned. As such, net

consumer detriment and an interventionist outcome cannot be the

invariable fate of an excessive price. The appropriate outcome must

therefore be determined on a case-by-case basis.

Keywords: Competition law, anti-trust, abuse of dominance, excessive

pricing, consumer detriment, consumer welfare, market intervention.

*BComm (Hons) LLB (Rhodes) LLM (UCT).

173

(2017) 29 SA Merc LJ 173

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I INTRODUCTION

Section 8(a) of the Competition Act

1

(‘the Act’) prohibits the charging

of excessive prices by dominant f‌irms where such pricing gives rise to

consumer detriment. This article shows that the consumer-detriment

requirement incorporated into section 8(a) imports into the prohibition

a consumer-welfare standard that is suited to the South African context

— a context shaped by historical imbalance. It is argued that consumer

detriment should be evaluated through a dynamic approach which

accounts for the interests of both current and future consumers. A

critical analysis of three pertinent arguments in favour of non-

intervention in supra-competitive pricing practices — the self-

correction, innovation, and error-costs arguments — demonstrates that

the interests of current and future consumers are not invariably aligned.

On this basis it is contended that, where a price is deemed excessive,

consumer detriment, construed as net detriment to the general con-

sumer body, is not a foregone conclusion. Therefore, a blanket prohibi-

tion cannot be placed on excessive pricing. The proscription of excessive

pricing must be informed by a consumer-detriment enquiry carried out

on a case-by-case basis. This enquiry must necessarily account for the

interplay between legal, market, and social forces. A range of pertinent

considerations are identif‌ied and discussed as a means of edifying and

facilitating the process.

Section II begins with an outline of the legislative framework for the

prohibition of excessive pricing in South Africa. This is followed by an

analysis of its interpretation and application by the competition authori-

ties in two noteworthy cases. Section III discusses comparative

approaches to excessive pricing adopted in Europe and the United

States. This is followed, in Section IV, by an exposition of the role of

consumer detriment as a unique, but appropriate, qualif‌ier of the South

African prohibition. Section V provides a critical analysis of the self-

correction, innovation and error costs arguments commonly put for-

ward in support of a non-interventionist stance. Section VI consolidates

a new understanding of consumer detriment and advocates a context-

oriented consumer-detriment enquiry. Drawing on the analysis con-

ducted in the previous section, it also provides a distillation of some

pertinent factors to be considered in the enquiry, and offers a suggestion

on the approach to be adopted moving forward. This is followed, in

Section VII, by some concluding remarks.

1

Competition Act 89 of 1998.

(2017) 29 SA MERC LJ

174

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II THE SOUTH AFRICAN PROHIBITION ON EXCESSIVE

PRICING

(a) The legislative framework

Section 8 of the Act deals with the abuse of a dominant position. While

the bulk of the section focuses on exclusionary acts, provision is made

for addressing a single exploitative practice — excessive pricing.

2

Section

8(a) of the Act prohibits a dominant f‌irm from ‘charg[ing] an excessive

price to the detriment of consumers’. This innately nebulous prohibi-

tion is qualif‌ied by section 1 of the Act, which def‌ines an excessive price

as a price which ‘bears no reasonable relation to the economic value of

[the] good or service [on offer]’ and which is higher than that economic

value.

3

This def‌inition was incorporated into our legislation as a direct

import from the judgment of the European Communities Court of

Justice in United Brands Company and United Brands Continentaal B.V.

v Commission of the European Communities.

4

A key feature of the

def‌inition is its reference to ‘economic value’ — a term that is not

def‌ined in the Act.

The excessive-pricing prohibition is one of only two per se prohibi-

tions in section 8.

5

Therefore, a successful prosecution on this basis is

not reliant on proof of anti-competitive harm; nor can it be defended by

establishing a pro-competitive gain.

6

Yet, interpreting and applying the

prohibition in a factual context is by no means simple. A competition

authority hearing an excessive pricing complaint will be required to

grapple with a host of vexing issues. It will need somehow to determine

the economic value of the goods or service — a task that necessarily

involves an interrogation of complex economic theories and arguments,

and which may be thwarted by seemingly ‘insurmountable technical

2

Incidentally, s 48(1)(a)(i) of the Consumer Protection Act 68 of 2008 also imposes

constraints on pricing practices, albeit without limiting the operation thereof to dominant

f‌irms. The section states that ‘[a] supplier must not offer to supply, supply, or enter into an

agreement to supply, any goods or services at a price that is unfair, unreasonable or unjust ... ’.

Nevertheless, a detailed consideration of s 48(1)(a)(i) falls outside the scope of this paper.

3

Section 1(1)(ix) of the Competition Act.

4

United Brands Company and United Brands Continental BV v Commission of the European

Communities Case 27/76, [1978] ECR 207 paras 248–250.

5

The other being the s 8(b) prohibition on refusing to allow a competitor access to an

essential facility when it is economically feasible to do so.

6

Lewis, Enforcing Competition Rules in South Africa: Thieves at the Dinner Table (Edward

Elgar Publishing 2012) 161.

EXCESSIVE PRICING IN SOUTH AFRICAN COMPETITION LAW 175

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