Outrage over Dis-Chem pricing on face masks ‘not a legal test’, argue its lawyers

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“Outrage is not a legal test,” argued lawyers defending Dis-Chem and another firm from charges of excessive pricing, reports Business Day. The Competition Commission had not discharged its legal onus, the tribunal was told.

The law still needs to be followed even during the “terrible time” of the coronavirus pandemic, lawyers for Dis-Chem and another firm charged with excessive pricing have argued in their defence, says a Business Day report. The Competition Commission has charged Dis-Chem, South Africa’s second largest pharmaceutical retailer, and Babelegi, a small industrial clothing firm in Rosslyn, with excessive pricing of face masks under section 8 of the Competition Act.

Both cases were recently heard in virtual hearings at the Competition Tribunal. Lawyers for Dis-Chem and Babelegi Workwear & Industrial Supplies sounded remarkably similar and both argued that what is really at stake is the ‘rule of law’. In South Africa, proving an excessive price has been made even more difficult by the Competition Appeal Court that has had strict requirements before upholding a conviction of excessive pricing. The penalty can equal 10% of a company’s annual turnover – which the commission has asked for in these cases.

Babelegi sold 79 boxes of dust masks to 20 industrial customers in February, with at least a 500% mark-up. Two customers complained to the commission about the huge hikes. Between February and early March, Dis-Chem lifted the prices of its surgical masks by as much 250% with the highest-priced pack of 50 masks reaching R175. Both companies sold old stock at higher prices without facing cost increases, though they expected new supplies would be pricey.

Dis-Chem and Babelegi were charged under section 8 of the Competition Act – a law that sets high barriers or tests to pass before companies can be found to have charged an “excessive price”, notes the Business Day report. First, the Act only prohibits a “dominant” firm charging an excessive price. The commission admits in legal papers it has to prove Dis-Chem is a dominant company.

The law requires that if businesses are charged with excessive pricing, then authorities must show they are pricing products independently of competitors for “durable periods of time”, have 35% market share, or in absence of this have “market power”. Greta Engelbrecht SC, an advocate acting for Babelegi, said: “It is easy to be outraged about high prices at this time. Our outrage is not a legal test.”

Advocate Le Roux, for Dis-Chem, argued that the commission had the “onus” to prove that Dis-Chem was a dominant market player. She said the commission had “failed to demonstrate the dominance required to bring the charge”. Instead, she said, the “commission keeps fudging’ its case. Le Roux said the commission had not done what it was required to by law and analysed Dis-Chem’s competitors’ market share and competitors” prices as well as barriers to entry for other mask suppliers. Engelbrecht said the same in defending Babelegi.

The commission argued the high prices proved dominance and showed a form of temporary market power gained from having a supply of masks during a time of high demand. It argued it was protecting vulnerable consumers and the poor by ensuring firms did not exploit the coronavirus disaster to take advantage of desperate customers looking after their health.

Full Business Day report

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