Big news for big buyers and suppliers – Buyer power & price discrimination

Big news for big buyers and suppliers – Buyer power & price discrimination
04 Mar 2020

The recently enacted buyer power and price discrimination provisions of the Competition Act, together with the regulations governing these provisions, will have a significant effect on South African businesses on both the buyer and supplier side. Compliance, particularly for large businesses, is more complex and complicated than it was before and considering the substantial financial penalties and reputational consequences which follow a contravention of the Competition Act, non-compliance is not something any business should consider.

Earlier in February 2020, the provisions relating to confidential information, buyer power and price discrimination in respect of small and medium sized enterprises (SMMEs) and firms owned or controlled by historically disadvantaged persons (HDPs) came into operation. Regulations governing the buyer power and price discrimination provisions were also published. These newly effective provisions and regulations will significantly impact how large players deal with their suppliers and customers. Businesses must carefully re-examine their procurement policies, as well as their trading terms and conditions, to ensure they do not fall foul of these new laws.

Dominant firms are now prohibited from imposing unfair prices or other trading conditions upon SMME or HDP suppliers – but limited to dominant purchasers in the grocery retail and wholesale sector, agro-processing sector and e-commerce and online services sector. However, given the broad definition of the final sector as “the online sale of goods or services to businesses or consumers”, this arguably includes any business selling products or services online. The prohibition, however, only applies to SMMEs that meet certain thresholds based on total full-time equivalent paid employees and total turnover, and HDP firms that supply 20% or less of the purchases of the dominant buyer for the product or service in question. Companies operating in these sectors will need to carefully assess their position in the market and determine whether they fall within the relevant categories.

Businesses which are dominant suppliers of goods or services are also affected by the recently enacted laws. Historically, dominant firms were only prohibited from discriminating in terms of the prices charged to customers where the conduct was likely to substantially prevent or lessen competition, related to equivalent sales to different purchasers, and involved discriminating between those purchasers in terms of, amongst other things, prices, discounts or rebates (certain exemptions also applied relating to the place and method of delivery and volumes). Now, dominant firms are also prohibited from engaging in price discrimination where it is likely to impede the ability of SMMEs or HDP firms to participate effectively. This prohibition also applies to SMMEs that meet the prescribed thresholds referred to above, and HDP firms that purchase 20% or less of the purchases of the dominant buyer. Unlike the buyer power regulations, these provisions are not limited to certain sectors. As such, all dominant suppliers will need to tread carefully.

Notably, the new legislation also includes anti-avoidance provisions which mean that dominant businesses cannot simply refuse or avoid dealing SMMEs or HDP firms in order to circumvent the buyer power and price discrimination provisions. The anti-avoidance provisions are yet another development in the law which business will have to consider when arranging their commercial affairs.

The focus on SMMEs and HDPs brings the regulations squarely within the public interest realm, an area in which the competition authorities are more than ever interested. As President Ramaphosa noted in his recent State of the Nation Address, these abuse of dominance amendments will help even the playing field for small businesses and emerging entrepreneurs. While this intention may be laudable, the potential down-side of these new laws may be protecting inefficient businesses and/or stifling competition by favouring certain groups. This may in turn result in further and perhaps unexpected difficulties for businesses and growth in South Africa.

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(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)
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