The new price discrimination provisions

03 Jul 2020

The new price discrimination provisions of the Competition Act and the Regulations are in effect.

These provisions prohibit dominant (as defined in the Competition Act) sellers from discriminating in the prices that they charge to purchasers in the designated class of purchasers, which are firms that are small and medium enterprises (SMEs), or firms that are owned and controlled by historically disadvantaged persons (HDPs) and purchase less than 20% of the goods and services supplied by the dominant seller.

It is important to note that, unlike the new buyer power provisions, the price discrimination provisions are not limited in their application to only certain sectors of the economy.

To establish a contravention of the price discrimination provisions a dominant seller must treat a SME and/or HDP purchaser and any other purchaser differently in respect of the price or prices that the dominant seller charges for the goods or services supplied, discounts provided, the provision of services in respect of the goods or services supplied or the payment for those services, and where the different treatment cannot be justified for any of the generally accepted commercial reasons, such as an act of good faith to meet a competitor’s price, or taking into account the different costs of different areas or methods of supply. Most importantly, however, to establish a contravention of the price discrimination provisions, the discriminating treatment must impede the ability of the SME or HDP purchaser, or a group of them, to effectively participate in the specific market.

Factors and benchmarks that may be indicative of whether price discrimination by a dominant seller is likely to impede the ability of SME or HDP purchasers to effectively participate in the relevant market include –

• the extent of the difference in respect of price or other factors outlined in the Competition Act, relative to other purchasers in the same market or markets in which the SME or HDP purchaser is a potential competitor;
• the significance of the input in the cost structure of the SME or HDP purchasers or as a driver of sales in the downstream market for such purchasers;
• the duration and timing of the price discrimination;
• the likelihood that the discriminating treatment will result in the SME or HDP purchasers facing a decreased demand for their goods or services in the downstream market; and
• the likelihood that the discriminating treatment will result in decreased investment by the SME or HDP purchasers.
• As in the case of the buyer power provisions, anti-avoidance provisions prevent dominant sellers from simply refusing or avoiding to deal with SMEs or HDP purchasers in order to circumvent the price discrimination provisions.

Contraventions can attract an administrative penalty of 10% of turnover in South Africa for a first contravention, and up to 25% of turnover for a repeat contravention.

The extensive scope of the price discrimination power provisions and significant consequences of a contravention require firms that are dominant sellers in their respective markets to carefully consider their positions and review the nature and extent of their network of purchasers, pricing policies and agreements.

See also:

• The impact of the Competition Amendment Act on the mining sector
• Business rescue is about the beginning, not the end
• Competing interests of trade competitors: A delicate balance
• Big news for big buyers and suppliers – Buyer power & price discrimination

(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.)