Draft Price Discrimination and Buyer Power Regulations published for comment

price discrimination
09 Jan 2019

On 21 December 2018, the Minister of Economic Development published draft Price Discrimination Regulations and Buyer Power Regulations (collectively, the Regulations) for public comment (Government Gazette No. 42133 is available here). The swift publication of the Regulations, following the passing of the Competition Amendment Bill 2018 (the Bill) late last year, is a clear indication of government’s intention to ensure that proposed amendments to the Competition Act 89 of 1998 (the Act) are effected as soon as possible.

The Minister has also requested public comments on the first draft of definitions for small and medium businesses – in particular, on the appropriateness of the thresholds specified in Government Gazette No. 41970 (available here) regarding the National Small Enterprise Definition, as it may apply to determining a small or medium sized business in terms of the Act and the Bill.

Comments are due by 31 January 2019, and shortly thereafter, the Ministry intends hosting a set of forums with firms which may be impacted by the proposed amendments.

Overall, the Regulations indicate the general approach to determine the appropriate factors and benchmarks to give effect to the amendments proposed to the abuse of dominance sections of the Act. A short summary of some of the key aspects of the Regulations is set out below.

The Price Discrimination Regulations:

  • Proposed section 9(1)(a)(ii) of the Bill provides that an action by a dominant firm is prohibited price discrimination if it is likely to have the effect of impeding the ability of small and medium businesses or firms controlled or owned by HDPs, to participate effectively. The Price Discrimination Regulations indicate that the purpose of this section is not to guarantee that every firm in the designated class remains in business, regardless of its business acumen and efficiency, but rather to ensure that there are a large and growing number of enterprises in this class. The Price Discrimination Regulations:
    • list a number of elements related to price discrimination that must each be satisfied in order to establish an offence in terms of this section;
    • provide an indication of instances where effective participation in a market may be impeded; and
    • set out factors and benchmarks that may be relevant as to whether the price differential itself has impeded participation.

The Buyer Power Regulations:

  • Proposed section 8(4)(a) of the Bill provides that it is prohibited for a dominant firm in a sector designated by the Minister to directly or indirectly, require from or impose on a supplier that is a small and medium business or a firm controlled or owned by historically disadvantaged persons (HDPs), unfair prices or other trading conditions.
  • The Buyer Power Regulations state that the purpose of section 8(4) is to protect the public interest by making it an offence for a firm with buyer power to unfairly exploit suppliers that are small and medium business or firms controlled or owned by HDPs (collectively, the designated class of suppliers) in specific sectors of the economy. In so doing, the purpose is not to protect firms in the designated class from competing to supply large customers on the merits, but rather to ensure that they are equitably treated in gaining access to customers and markets. The Buyer Power Regulations:
    • list a number of elements that must each be satisfied in order to establish an offence in terms of this section;
    • set out factors that are relevant to the consideration of buyer power in relation to a class of suppliers; and
    • provide further detail regarding factors and benchmarks that may be relevant to considering when a price or trading condition may be deemed unfair.
  • Importantly, the Buyer Power Regulations also list sectors identified in other jurisdictions or raised in the course of debates on the need for a buyer power provision in the Act. These include: the food and grocery wholesale and retail supply chain; the apparel retail supply chain; online trading platforms; the construction supply chain; the financial and insurance supply chain; and the private healthcare supply chain. In this regard, public comments are invited as to whether buyer power exploitation exists in these sectors or can be anticipated to arise in future; whether there are other sectors that also fulfil such criteria, and what the optimal scope of sectors is for the initial implementation of the buyer power provision.

Overall, the Regulations are complex and wide-ranging. The implications of these provisions for businesses across South Africa will have to be carefully considered from a legal, economic and practical perspective. The commentary process and pursuant forum sessions will be crucial in ensuring that the Regulations sufficiently clarify the practical implementation of these significant proposed amendments.

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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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