Dominance & price discrimination

The Competition Act prohibits the abuse by a firm of its dominant position within a particular market. Whether a firm will be regarded as dominant for purposes of the Competition Act will depend on its market share:

• A firm with a market share of more than 45% is automatically dominant.
• A firm with a market share of between 35% and 45% is presumed to be dominant, unless that firm can prove that it does not have market power.
• A firm with a market share of less than 35% is regarded as dominant only if it is proven that the firm has market power.

Market power is defined in the Competition Act as the power of a firm to control prices, or to exclude competition or to behave to an appreciable extent independently of its competitors, customers or suppliers.

Dominant firms may not:

• charge an excessive price to the detriment of consumers
• refuse to give a competitor access to an essential facility when it is economically feasible to do so
• refuse to supply scarce goods to a competitor when it is economically feasible to supply those goods
• sell goods or services on condition that the buyer purchase separate goods or services unrelated to the object of a contract, or force the buyer to accept a condition unrelated to the object of the contract
• sell goods or services below their marginal or average variable cost
• buy up a scarce supply of intermediate goods or resources required by a competitor

If a dominant firm does any of the things in this list it will have to prove that the pro-competitive gains from such conduct outweigh the anticompetitive conduct. If it cannot prove this, the dominant firm may have to pay an administrative penalty of up to 10% of its annual turnover during the preceding financial year.

If a dominant firm engages in an exclusionary act other than those listed above, the Competition Commission will have to prove that the anticompetitive consequences of the act outweigh its pro-competitive consequences.

An action by a dominant firm as the seller of goods or services is prohibited price discrimination if:

• it is likely to have the effect of substantially preventing or lessening competition;
• it relates to the sale, in equivalent transactions, of goods or services of like grade and quality to different purchasers; and
• it involves discriminating between those purchasers in terms of the price charged, any discount, allowance, rebate or credit given or allowed or payment for services provided.

Should a particular action be price discrimination it will not be prohibited if the dominant firm establishes that the price discrimination:

• makes only reasonable allowance for differences in cost, or likely cost, of manufacture, distribution, sale, promotion or delivery resulting from the differing places to which, methods by which, or quantities in which goods or services are supplied to different purchasers;
• is constituted by doing acts in good faith to meet a price or benefit offered by a competitor; or
• is in response to changing conditions affecting the market for the goods or services concerned, including:
  • the actual or imminent deterioration of perishable goods;
  • the obsolescence of goods;
  • a sale pursuant to a liquidation or sequestration procedure; or
  • a sale in good faith where the business is discontinuing its supply of the product or service concerned.

  Featured news Competition law makes its mark on South African business The Competition Commission is celebrating its 10th anniversary later this year. It has reason to celebrate, as it has ensured that the Competition Act has become a central point in the South African commercial landscape. A number of cases have enjoyed prominence in the media and the Commission is steadily increasing its enforcement capacity. Compliance with the Act has steadily moved up on the agendas of board meetings as failure to comply could deliver a destructive blow to any company’s reputation and financial position. To read more on this topic see: Competition law breaches are a corporate governance risk.   Featured office: Angola Inquiry: angola@adamsadams.com   Featured person: Marais , Jac Partner Attorney Tel: +27 (0) 12 432 6356