Predatory Pricing & the Competition Act: a False-Positive?

We have previously, on African Antitrust, reported on South Africa’s first predatory pricing case in the Media 24 matter. In light, however, of the recent cases on exclusionary conduct — particularly predatory pricing, which has received significant attention from competition law agencies across a number of jurisdictions of late (see, for instance, the Paris Court of Appeals’ dismissal of the predatory pricing and exclusionary conduct allegations made against Google by an online maps rival.  The Indian Competition Commission has also launched an investigation into alleged predatory pricing in the taxi industry, and the European Commission has launched investigations into predatory pricing in the potato-chips / crisps industry) — a more substantive evaluation of predatory pricing in South Africa is called for. The following article on predatory pricing, in light of the Media 24 case, neatly sets out and evaluates the landscape of predatory pricing in South Africa.

 

Predatory Pricing & the South African Competition Act: a False-Positive?

By Michael J. Currie

Intro & Summary

“From an antitrust perspective, predatory pricing is a particularly difficult problem with which to deal. If we are to prevent anticompetitive monopolization, it is a strategy that must not be permitted. The paradox, however, is that such a pricing strategy is virtually indistinguishable from the very sort of aggressive competitive pricing we wish to encourage.”

D L Kaserman and J W Mayo, ‘Government and Business: The Economics of Antitrust and Regulation’ (1995) Fort Worth, TX: Dryden Press at 128

In September 2015, the Competition Tribunal (“Tribunal”), for the first time in South Africa’s sixteen-year history of competition-law enforcement found, in the Media 24 case that the respondent had engaged in predatory pricing in contravention of the South African Competition Act, 89 of 1998 (“Act”).

The Media 24 case, despite being dragged out for nearly six years, was set to be the leading jurisprudence on the laws pertain to predatory pricing, and in particular, how Section 8(d)(iv) of the Act would be interpreted and applied by the Tribunal. The finding by the Tribunal was, however, based on Section 8(c) of the Act, which is a broader ‘catch-all’ provision, and left some important questions as to the interpretation of Section 8(d)(iv) unanswered. Most notably, whether or not Section 8(d)(iv) permits complainants to utilise cost measurement standards other than Average Variable Costs (“AVC”) or Marginal Costs (“MC”) to prove that a dominant firm has engaged in predatory pricing in contravention of the provision.

Having said that, however, the Media 24 case provides some insight as to the precise relationship between Sections 8(d)(iv) and 8(c) of the Act as they relate to predatory pricing, and may have offered, by way of certain obiter remarks, an indication as to how the Tribunal may interpret and apply Section 8(d)(iv) of the Act in the future.

Continue reading the full article, an AAT exclusive, in PDF format:

Predatory Pricing and the South African Competition Act: a False-Positive?

Advertisements

First predatory pricing case before the Competition Tribunal

Media24 excludes GNN, Tribunal finds

By Julie Tirtiaux

A year ago, we at AAT reported on the intervention by competitors in the merger between Media24 and Paarl Media.  Today, we want to highlight a “one-year-later” feature about that same company, which has now been found liable of predatory exclusion of its rivals by the South African Competition Tribunal (the “Tribunal”).  The Tribunal found on 8 September 2015 that Media24 had engaged in exclusionary conduct due to predation by removing a rival community newspaper publication, Gold Net News (“GNN”), out of the market. [1]

Two routes explored by the South African Competition Commission’s (“SACC”) to sanction Media24’s predation conduct

In 2009, GNN exited the newspaper community market. Within 10 months of the exit of GNN, Media24 closed down one of its titles, Forum. From then until today, Vista which is another title owned by Media24, is the only title to survive in the Welkom market.

According to the SACC:

  • If Vista is the only local paper operating in the Welkom market, it is because Forum was used as a predatory vehicle to exclude its competitor, GNN.
  • The strategy consisted in pricing Forum’s advertising rates below market cost despite repeated loss making and failure to perform to budget forecasts.
  • Media24 operated Forum as a fighting brand, meaning that Media24 sacrificially maintained Forum in the market to exclude its competitor.

For the SACC the reduction of choice of community newspapers during the period January 2004 to April 2009 can only be explained by Media24’s predatory pricing conduct. In order to condemn this conduct as predation, the SACC relied on two provisions of the Competition Act 89 of 1998 (the “Act”) which respectively lead to different sanctions.

  • First and ideally, the SACC alleged that Media24 should be sanctioned for its predatory behaviour in terms of section 8(d)(iv) of the Act, which is the explicit predation provision and enables the Tribunal to impose a fine for a first offence.
  • Second, should the predation not be captured by the express predation provision of section 8(d)(iv), Media24 should at least be found responsible for engaging in general exclusionary conduct, prohibited by section 8(c) of the Act which only gives the Tribunal the power to impose remedies. No fine is available for a first contravention. Only a repeated offence may be subject to an administrative penalty.

Following the Commission’s investigation after the allegations brought by Hans Steyl, who ran GNN from 1999 until its eventual closure in 2009, the Commission referred the case to the Tribunal in 2011.

The denial of predation conduct by Media24

Media24 (whose slogan is, somewhat ironically perhaps: “Touching lives through the power of media“) denied any casual link between the fates of the Forum and the GNN’s papers. Forum was not used as a predatory vehicle to exclude GNN. Media24 attributed the closure of Forum to the 2008 recession, on-going downsizing in Media24 as a whole, and to the problem of publishing two newspapers, Forum and Vista, in the Welkom area. It further argued that GNN had exited because it was not viable.

The difficulty to prove a direct predatory pricing conduct

For the first time in the sixteen years in which the new Competition Act has been in operation[2], the Tribunal assessed a predatory pricing case.

Predatory pricing means that prices charged by a dominant firm are not market related but below what would be expect to be a market price. Predatory pricing is only a transient pleasure for consumers as once competitors are eliminated or new entrants are deterred from entering, then the low price honeymoon is over and the predator can impose high prices to recoup the losses sustained in the period of predation.

In terms of section 8(d)(iv) of the Act, to find an express predation contravention, the Commission is required to prove that Media24 priced below “its marginal or average variable cost” (“AVC”) (our emphasis)[3]. The Commission argued that this wording is broad enough to include pricing below average avoidable cost (“AAC”)[4]. This is the cost the firm could have avoided by not engaging in the predatory strategy.[5]

To find exclusionary conduct and thus a contravention of section 8(c) based on predation[6], the Commission would not necessarily need to establish that the dominant firm’s pricing is below any specific cost standard.  All that is required is that the conduct (in this case, low pricing) has an anti-competitive exclusionary effect.

In the Media24 case, the Tribunal has effectively established a new test for predatory pricing which does not meet the test under section 8(d)(iv).  It said that if Media24 is found to have priced below its average total cost (“ATC”)[7] accompanied by additional evidence of intention and recoupment of the loss of profits sustained during the predation period, then a contravention of section 8(c) has taken place.

As ATC include more costs than AAC and AVC of marginal cost, it makes a finding of predation more likely.  The AAC test is thus more stringent than the ATC test.  This follows the logic of the consequences of each section.  As a contravention of section 8(d)(iv) of the Act leads to a fine while a contravention of section 8(c) of the Act only leads to a remedy, it is more difficult to fill the requirements of the specific predation section – section 8(d)(iv).

Consequently, a central issue in this case was to determine Media24’s costs, and compare them to the prices charged during the relevant period.  This is no simple matter.

The Tribunal’s findings trigger questions about how section 8 of the Act on abuse of dominance is structured

Following lengthy discussions about what constitute avoidable costs, the Tribunal held that opportunity costs[8] and re-deployment costs cannot be factored into the calculation of Forum’s AAC. Accordingly, the Tribunal found that Media24 did not contravene the express predation section 8(d)(iv) of the Act.

Interestingly, the Tribunal did however found that Media24 contravened the general exclusionary section 8(c) of the Act. Indeed, after establishing that Media24 was a dominant firm in the market for community newspapers[9], the Tribunal found the evidence of predatory intent which resulted from statements and the implementation of a plan that was predatory in nature. Moreover, the Tribunal held that the pricing of Forum was below ATC.

As a result, it was found that GNN’s exit of the market affected both advertisers and readers. While advertisers paid higher prices as they lost an alternative outlet, readers lost the choice of an alternative newspaper.

Accordingly, the Tribunal concluded that Media24 engaged in exclusionary practice because of predation but didn’t find a contravention of the express predation section of the Competition Act.

The implication of this finding is that Media24 is not liable for a fine. The only power left to the Tribunal is the imposition of another form of remedy. Only if Media24 does the same thing again, will it be subjected to a potential administrative penalty under section 8(c).

Such a finding triggers two interrogations about how section 8 of the Act deals with abuse of dominance.[10]

  • Firstly, how can deterrence be guaranteed when the only consequence of a predatory exclusion conduct, in certain circumstances, is a remedy without a monetary fine? This case leaves food for thought as to the necessity to empower the Tribunal to impose a fine for a first offence when a general exclusionary conduct is found.
  • Secondly, if the required test to prove a contravention of the explicit predation section is too stringent and almost impossible, not only a predatory conduct will never lead to a fine but more generally the utility of this section should be seriously considered.
Footnotes

[1] See the Tribunal’s decision: http://www.comptrib.co.za/assets/Uploads/Reasons-for-Decision-Media24-Section-8-Case-Signature-Documentfinal.pdf

[2] See the Tribunal’s press release: http://www.comptrib.co.za/publications/press-releases/media24-press-release/

[3] A variable cost being a cost that varies with changes in output. The AVC is defined as the sum of all variables costs divided by output.

[4] The important difference with AVC is that AAC include an element of fixed costs.

[5] AAC has become a widely accepted cost standard for the assessment of predatory pricing. This acceptance is evident both from its inclusion in the EU‘s Guidelines, the recent International Competition Network Guidelines, and a Department of Justice Report.

[6] See Nationwide Airlines (Pty) Ltd v SAA (Pty) Ltd and others [1999-2000] CPLR 230 (CT), page 10. The Tribunal stated that a predatory pricing could lead to a finding in terms of section 8(c).

[7] ATC includes fixed, variable and sunk costs (sunk costs being costs that have already been incurred and thus cannot be recovered).

[8] An opportunity cost is a cost of an alternative that must be forgone in order to pursue a certain action.

[9] Media24 would have had a market share of approximately 75%.

[10] On this topic, see the articles of Neil Mackenzie, “Are South Africa’s Predatory Pricing Rules Suitable?” and “Rethinking Exclusionary Abuse in South Africa”.

Appellate competition body questions authority’s lenient fine

south_africa

Tribunal expresses doubts as to lenient fining level of Premier Fishing

The chairman of the South African Competition Tribunal, Takalani Madima, has asked the South African Competition Commission and Premier Fishing for ‘detailed substantial submissions’ on the settlement agreement reached between them, which lets the fishing company “off the hook” for an administrative penalty of a mere R2.1m (or 2% of its revenues).

2% fine not sufficient deterrent to anti-competitive conduct

According to a BDlive report, Mr. Madima is quoted as saying: ‘I am personally not too happy (with the agreement). I am still to be persuaded.’

The underlying conduct involves a cartel between Premier Fishing and others, in which the competitors shared information and pricing regarding the pelagic fish industry.  The Commission’s July 2008 investigation included the following companies as targets: Oceana, Foodcorp (note: the two former cartelists recently decided to merge and the competition authorities imposed conditions on the planned transaction), Premier Fishing, Gansbaai Marine, the SA Pelagic Fish Processors Association, Pioneer Fishing, Saldanha Bay Canning and others.

As the leniency applicant, Pioneer Fishing obtained full immunity from prosecution.  Others, such as Oceana, settled for approximately 5% of their fishing turnover.

Language barrier persists in Tribunal proceedings

south_africa

A report by the South African Citizen discusses the language barriers still present in the Republic today.

The piece, entitled “Tribunal struggles with Afrikaans” by Antoinette Slabbert, notes that the RSA Competition Tribunal has decided to have testimony given in Afrikaans transcribed, together with its English translation, “to ensure the court properly captures what a witness was trying to say.”

The underlying case is the Competition Commission’s case against Media24, alleging an abuse of dominance by squeezing its competitor, Gold-Net News, out of the market for advertising in community newspapers in the Free State Gold Fields between 2004 and 2009.

The Citizen reports:

Tribunal chairperson Norman Manoim asked whether Van Eck would mind testifying in English, since he was concerned about the quality of the translation of her responses the previous day. Media24′s legal team objected, saying Van Eck was already assisting the tribunal by taking questions in English.

The legal representative of the commission pointed out that Van Eck’s English was good. Both legal teams shared Manoim’s concern about the English interpretations. Van Eck said she prefered testifying in her home language to better express herself.

Earlier, Wian Bonthuyzen, Van Eck’s former manager and a key witness, switched from Afrikaans to broken English during his testimony, after another interpreter failed to properly convey his responses to the tribunal.

Commission’s fisheries merger conditions upheld on review by Tribunal

south_africa

Competition Tribunal confirms Commission’s ruling on Oceana and Foodcorp merger

Johannesburg-listed Ocean Group Limited is the largest fishing company in South Africa, whose fishing activities include inter alia the catching, processing, marketing and distribution of canned fish, fishmeal and fish oil and mid-water and deep-sea fishing.

Foodcorp Limited is a food producer and manufacturer with eight production divisions, one of which is a fishing division. Foodcorp’s fishing business comprises a pelagic division, a hake division and a lobster division.

The Competition Commission said its investigation into the proposed transaction showed that the proposed transaction would substantially affect competition in the market for canned pilchards to the detriment of competition and customers. Following implementation of the transaction, Oceana will hold 80% of the market, while its closest competitor would hold less than 10%. Furthermore, the Commission was concerned that the transaction, without the conditions, would remove an efficient competitor to Oceana’s Lucky Star brand from the market, as Glenryck would not be able to provide competition to Lucky Star without its own fishing quota.

Both Oceana and Foodcorp contended that the Department of Agriculture, Forestry and Fisheries had approved the transfer of Foodcorp’s small pelagic fishing rights to Oceana, which includes the consideration of public interest issues regarding black economic empowerment.

The merging parties had taken the conditional approval of the intermediate merger on review before the Competition Tribunal. The conditions which the Competition Commission had imposed entailed that the merging parties are to sell the Glenryck canned-pilchards brand to an independent third party, as well as the small pelagic fish quota allocated to it by the Department of Agriculture, Forestry and Fisheries. The condition was imposed as a means that would deprive Oceana of Foodcorp’s fishing quota, thereby preventing market dominance.

The Competition Tribunal approved the transaction on the same conditions initially imposed by the Competition Commission. The Tribunal will issue its reasons for the decision in due course.

Tsogo Merger Unconditionally Approved

south_africa

Unconditional approval of SA hotel deal

The Competition Tribunal of South Africa (“Tribunal”) has unconditionally approved the merger of Southern Sun Hotel Interests (Pty) Ltd (“Southern Sun Hotel Interests”), which is a subsidiary of Tsogo Sun Holdings Limited, and The Cullinan Hotel (Pty) Ltd (“The Cullinan Hotel”).

The merger related to the provision of short-term hotel accommodation. Pre-merger, Southern Sun Hotel Interests held a 50% shareholding in The Cullinan Hotel and exercised joint control with Liberty Holdings Limited (“Liberty”) over The Cullinan Hotel. Southern Sun Hotel Interests acquired an additional 10% shareholding in the Cullinan Hotel from Liberty, thus increasing its shareholding in the joint venture to a majority interest of 60% and thereby acquiring sole control of The Cullinan Hotel.

The Tribunal approved the merger without any conditions.  Nortons Inc. represented Southern Sun Hotel Interests in this transaction.

How to (almost) gut an agency – the final twist in the maize seeds case?

How to (almost) gut an agency – the final twist in the maize seeds case?

By Patrick Smith

On 18 December 2013, the Constitutional Court of South Africa (“Constitutional Court”) handed down its decision in an appeal by the Competition Commission (“Commission”) against an unprecedented costs order imposed by the Competition Appeal Court (“CAC”).  The costs order related to the CAC’s decision to overturn the decisions of the Commission and the Competition Tribunal (“Tribunal”) to prohibit the merger between Pioneer Hi-Bred International and Pannar Seeds.

The Commission had originally prohibited the proposed merger on 7 December 2010,[1] following a three-month investigation.  In the Commission’s assessment, the transaction amounted to a 3 to 2 concentration amongst producers of seeds for the staple food in South Africa, if not much of sub-Saharan Africa.  Quite apart from the substance, this sector fell squarely within the Commission’s prioritisation programme, and so was always likely to receive close scrutiny.[2]  On the Commission’s assessment, the transaction would give rise to significant unilateral effects, removing an important competitor from the market.  The Commission considered the merging parties’ submissions that the transaction would lead to efficiencies from a combination of the two parties’ breeding programmes, but found the claimed benefits unconvincing and unlikely to outweigh the anti-competitive harm.
south_africa

Following an extensive discovery process and a three-week hearing involving nine witnesses, the Tribunal also decided to prohibit the merger, on 9 December 2011.[3]  The Tribunal considered the potential for anti-competitive effects (concluding that the parties were close and effective competitors, and that the transaction would accordingly give rise to very significant anticompetitive effects),[4] and the likelihood of significant efficiencies (concluding that the Parties’ assumptions were “either grossly exaggerated or totally unrealistic”, and that any potential merger-specific efficiencies would lie beyond a 5 year time horizon)[5].  Despite the parties’ characterisation of the industry as a “dynamic innovation market”, maize seeds improve by 1-2% per annum (not exactly Moore’s law)[6] and the wide variety of different growing conditions (and the use of seeds adapted for each region), mean that any particular innovation is unlikely to be universally applied; the Tribunal highlighted the need to account for anticipated non-merger specific innovation as a benchmark against which the parties’ claims should be measured.

Notably, the Tribunal focussed substantial attention on assessing the relevant counterfactual against which the merger should be assessed.  While it was common cause that the target firm did not meet the requirements of the failing firm defence, in the course of the Tribunal hearing the parties had argued that the target firm, Pannar, would decline as a competitive force, most rapidly in relation to one specific product area (so-called irrigated region hybrids), but also more generally across its whole product range.  Considering local and international approaches to the counterfactual, the Tribunal found that there was no compelling evidence of the certain decline of the target firm (which was still the market leader in relation to the irrigated region hybrids), and concluded that there was no reason not to accept the status quo as the relevant counterfactual.

Following two days of oral argument, the CAC overturned the Tribunal’s prohibition, instead deciding on 28 May 2012[7] that the merger should be allowed subject to conditions, including the imposition of restrictions on price increases on existing Pannar varieties to the level of consumer price inflation for three years, and agreeing to license a list of Pannar varieties for breeding by third parties.  The CAC’s reasoning was based on an assumption that the decline of the target firm was “inevitable”[8] albeit uncertain in its timing, although it was again universally accepted that Pannar failed to meet the requirements of a failing firm.  On that assumption, the CAC appeared to reverse the onus that would have applied with a failing firm defence, and stated that the Commission[9] had failed to establish the likelihood of an alternative transaction that might preserve Pannar’s assets, in the event of a prohibition.  The CAC placed an unusually heavy weight on the interests of private shareholders,[10] as opposed to consumers, which is in distinction to the strict requirements of the failing firm defence, as applied internationally.[11]  The CAC ultimately concluded that the relevant counterfactual was the continued decline, eventual demise and exit by Pannar,[12] and against that benchmark, approved the transaction, subject to conditions.

It is unfortunate that the Supreme Court of Appeal denied the Commission leave to appeal on the substance, as the CAC’s approach to the counterfactual has created some uncertainty that may need to be resolved in another case.  In any event, the Constitutional Court was only asked to consider the CAC’s costs award.[13]

The CAC had awarded costs against the Commission, not only in respect of the CAC proceedings, but also those before the Tribunal.  The Constitutional Court first clarified that the Tribunal has no power to award costs against the Commission (thereby distinguishing the Commission, as a “party”, from a private “complainant” in Tribunal proceedings).[14]  Furthermore, the Constitutional Court determined that the CAC is similarly unable to award costs in relation to Tribunal proceedings.[15]  Finally, while the CAC has discretion to award costs against the Commission in respect of CAC proceedings, it must properly exercise this discretion.[16]  The Constitutional Court noted that while the “Unreasonable, frivolous or vexatious pursuit of a particular stance” may justify a costs order against the Commission, the vigorous pursuit of its case would not.  The Court highlighted the distinction between an ordinary civil litigant and the Commission, which is required to pursue its statutory mandate vigorously, often where there is no opposing party or amicus.  Ultimately, the Constitutional Court concluded that the lack of reasoning behind the costs award, and the lack of any evidence of “mala fides, irregularity, or unreasonable conduct” by the Commission meant that the costs order had to be set aside.

This is clearly an important result for the Commission’s ongoing activities.  The Commission had argued before the Constitutional Court that a costs order would have a serious effect on its budget and its stance in defending similar investigations and findings before the CAC.  Ideally, competition enforcement should aim to strike a balance between sufficiently robust enforcement to achieve policy objectives and the need to avoid imposing undue or disproportionate costs on the businesses that ultimately drive competition, growth and job creation.  Particularly in a developing country context, a certain degree of prioritisation can be helpful in building institutional capability and making the most effective use of limited resources, as well as minimising the burden of investigations.  By focussing the most resources and attention on those cases most likely to cause harm, an agency might maximise the benefits of enforcement, while minimising the potential for any inefficiency caused by the investigation process.

In this case, while the CAC took a different view from the Tribunal (and the Commission), it would be difficult to label the Tribunal’s decision (and hence the Commission’s defence at the CAC) as unreasonable or vexatious.  In a nutshell, this was a 3 to 2 combination between direct (“horizontal”)[17] competitors in a priority sector, in an industry that, while increasingly influenced by innovation, is slow moving in comparison with “innovation markets” such as those in the ICT sector.

South African merger control is not characterised by many prohibition decisions.  Amongst intermediate and large mergers, this is the most recent prohibition decision issued by the Tribunal.  There have been around 500 decisions since the previous prohibition, Telkom/BCX in August 2007.[18]  Few prohibitions may well point to the outstanding deterrent effect of the Commission’s historical enforcement efforts, but it seems a stretch to consider that the Commission’s (albeit vigorous) defence of the only large/intermediate prohibition decision by the Tribunal in the past 6 years is an indication of a vexatious or overly aggressive approach.

While the Commission will no doubt be heartened by this decision, it will be interesting to see whether the clarifications provided by the Constitutional Court will have any bearing on the Commission’s stance on contentious matters before the CAC in future, in particular those involving more complex theories of harm.  Arguably more important will be the anticipated clarification of the approach to mergers involving declining firms in the light of the CAC’s approach to the counterfactual.

Patrick Smith, RBB, author

Patrick Smith, RBB, author (South Africa)


[2]     See Roberts, Simon (2008) “South African Competition Policy in 2008: Key Priorities of the Competition Commission” Global Competition Policy, April 23rd, 2008.  Prioritisation might justify closer scrutiny, or even firmer enforcement, in particular sectors or industrial areas.  For an example of where enforcement might depend on sector characteristics, see EdF/British Energy, European Commission Case No COMP/M.5224, 22/12/2008, at para 31, cited in http://www.compcom.co.za/assets/Uploads/events/Fourth-Competition-Law-Conferece/Session-4B/100812-PS-Paper-for-SACC-conference-DRAFT.pdf.

[3]     Pioneer Hi-Bred International Inc and Pannar Seed (Pty) Ltd v The Competition Commission and the African Centre for Biosafety, CT CASE NO: 81/AM/DEC10 (“Tribunal Decision”), http://www.comptrib.co.za/assets/Uploads/81AMDec10.pdf

[4]     Tribunal Decision paragraphs 282 to 284.

[5]     Tribunal Decision paragraphs 317 and 327.

[7]     Pioneer Hi-Bred International Inc and Pannar Seed (Pty) Ltd v The Competition Commission and the African Centre for Biosafety, CAC CASE NO.: 113/CAC/NOV11, (“CAC Decision”), http://www.comptrib.co.za/assets/Uploads/113CACNov11-Pioneer-Pannar.pdf

[8]     CAC Decision paragraphs 3 and 29.

[9]     CAC Decision paragraph 26.

[10]    CAC Decision paragraphs 21-26.

[12]    CAC Decision paragraph 28.

[13]    The Competition Commission v Pioneer Hi-Bred International Inc, Pannar Seed (Pty) Ltd, and the African Centre for Biosafety, Case CCT 58/13 [2013] ZACC 50, (“Constitutional Court Decision”), http://www.saflii.org/za/cases/ZACC/2013/50.html

[14]    Constitutional Court Decision paragraph 40.

[15]    Constitutional Court Decision paragraph 43.

[16]    Constitutional Court Decision paragraph 46-47.

[17]    More precisely, producers of substitutes.

ArcelorMittal, Telkom, now Sasol? “Excessive pricing” case going to trial in South Africa

south_africa

Settling the South African Competition Commission’s case against alleged collusion in the polypropylene market [for no less than R111 million] back in 2010 was not to be the end of Sasol‘s long antitrust journey in the polymers world.

The S.A. Competition Tribunal is hearing the excessive-pricing portion (which was not settled) of the Commission‘s claims against the refining & steel giant this month.  The relevant legal underpinning of the case is the provision against excessive pricing by a dominant firm.  Precedent has declared prices excessive that “bear no reasonable relation to the economic value of the good or service” at issue.  Pheeew.  Facts.  Economics.  Nice.  Looks like a coming battle of the experts to me…

By comparison, in the U.S., antitrust law of course does not forbid “excessive pricing.”  While setting and reaping apparently high prices may be indicative of monopoly power, such acts are not in themselves anti-competitive or illegal in the States.  In Verizon v. Trinko, the U.S. Supreme Court held famously that:

The mere possession of monopoly power, and the concomitant charging of monopoly prices, is not only not unlawful; it is an important element of the free-market system. The opportunity to charge monopoly prices—at least for a short period—is what attracts “business acumen” in the first place; it induces risk taking that produces innovation and economic growth.

Interestingly, there is a notable history of failures in the area of ‘excessive pricing’ complaints in South Africa, as well, despite the statutory legitimisation of the cause of action.  In the prior ArcelorMittal and Telkom cases, the Commission and/or Tribunal lost in the end, either at trial or on appeal to the Competition Appeal Court.  That Court had found, in the ArcelorMittal case, that the antitrust watchdogs could not use the ‘excessive pricing’ provision of the statute to combat perceived anti-competitiveness in the “market structure rather than price level.”

We will, of course, report on the ongoing trial and ultimate outcome of this high-profile case, as it unfolds.