On 13 February 2020, exactly a year since the price discrimination and buyer power provisions were signed into law, President Ramaphosa and Minister Patel have brought into effect the operation of the amended section 9 of the South African Competition Act (price discrimination) as well as section 8(4) (buyer power provisions) together with the respective Regulations.
Both provisions are aimed at ensuring that small or medium owned businesses or firms controlled by historically disadvantaged persons are able to “participate effectively” in the market.
While the buyer power provisions are largely consumer protection provisions – which require large firms to impose fair trading terms vis-a-vis their smaller customers, the amended section 9 of the Act has material ramifications not only for large suppliers but consumers as well.
At the heart of section 9, is a prohibition of volume based rebates/trading terms. While the Act permits for certain efficiency based pricing differentials (provided they are proportionate and reasonable), suppliers are prohibited from competing purely based on quantities. Low margins high volume type strategies would in many instances be prohibited – with the concomitant imposition of administrative penalties.
The motivation behind the amendments is to assist smaller players participate in the market. A noble objective. Although it seems quite apparent that those in support of the amendments have not fully recognized, appreciated or cared about the unintended consequences which are likely to flow from section 9.
Pro-consumer welfare pricing strategies may, under the amended Act, be outlawed. So while the counter factual is that certain small businesses may benefit, is this an industrial policy victory if consumer welfare is diminished? Hardly.
Although section 9 and section 8(4) where brought into effect on the eve of President Ramaphosa’s State of the Nation Address – certainly not coincidental – a challenge to the rationality of section 9 seems most likely.
The Competition Commission’s price discrimination draft guidelines expressly preclude any considerations to the level of efficiency of downstream customers or any impact (good or bad) on consumer welfare).
Seriously concerning stuff and large suppliers (across all industries) should take note of these amendments with urgency.