Covid ‘price-gouging’ rules under the spotlight
The Competition Commission has only brought two such cases against companies in the 20 years before the pandemic
The farcical winter clothing rules – forcing retailers to sell “crop bottoms” only if they ensure customers wear them with leggings and boots – are not the only poorly constructed coronavirus regulations to emerge from trade & industry minister Ebrahim Patel.
Last week, the Competition Tribunal, which acts as a court, upheld a guilty plea, or “consent order”, from the small Mandini Pharmacy, about 100km north of Durban, which made all of R300 while overcharging for masks in March. It was ordered to donate “essential goods” worth R300 to a child welfare group.
The price regulations, which Patel gazetted on March 19, are aimed at preventing companies from price gouging during the Covid-19 outbreak on items like hand sanitiser, bleach, masks and gloves. The rules aim to restrict companies to a maximum 10% increase in their profit margin during the pandemic.
More than 900 complaints have been received against companies that allegedly broke these rules.
Mandini Pharmacy’s guilty plea is one of seven made in recent weeks. The Competition Act prevents “dominant” firms – those with an appreciable ability to set prices for long periods of time irrespective of competition – from applying “excessive pricing”. But it’s tough to prove: the Competition Commission has only brought two such cases against companies in the 20 years before the Covid-19 pandemic.
Still, some companies are fighting Patel’s new coronavirus rules.
One of them is Dis-Chem, which has been accused of flouting the Competition Act by hiking prices for three types of surgical masks by up to 261% in February.
Legal experts say that however well-intentioned, Patel’s price gouging rules are unenforceable, because they require every firm charged to be shown to be dominant with high levels of market power and little effective competition.
The problem is that in more than two decades since the Competition Act was promulgated, not a single firm has been successfully convicted of excessive pricing by SA competition authorities.
The competition appeal court dismissed the only two cases, against Mittal and Sasol, brought by the commission.
Yet these rules are now being applied to a small pharmacy in remote KwaZulu-Natal, which wouldn’t appear to fit the bill of being a “dominant firm” with a market share of more than 35%.
One lawyer, speaking on condition of anonymity, tells the FM: “The commission is applying a prohibition that is meant to only apply to a Sasol to a little pharmacy.”
Competition commissioner Tembinkosi Bonakele, however, has said that “no effort” will be spared to protect consumers. He said companies “shouldn’t be exploitative and take advantage of cash-strapped consumers during the worst time in our history”.
In the Dis-Chem case, the pharmaceutical group’s advocate, Michelle le Roux, said the commission “keeps fudging” its case.
Le Roux argued that the commission “failed to demonstrate the dominance required to bring the charge”, and anyway, she said, Patel’s regulations didn’t apply to Dis-Chem as they were only gazetted in March – after the pharmacy had hiked its prices.
Le Roux suggested that Patel redo the regulations, and that the Competition Tribunal give him advice on how to do so.
She argued that the regulations against price gouging shouldn’t be linked to the Competition Act, which requires that a firm be dominant. Rather, she said, the rules should be promulgated under the Disaster Management Act and could simply include a prohibition of price gouging.
This is not the first time Patel has tried to use competition law to achieve social justice objectives. In 2011, he used the competition authorities to leverage concessions out of US retailer Walmart, which was seeking to buy Massmart.
This sparked fierce criticism. David Lewis, the former chair of the Competition Tribunal, described Patel shortly afterwards as an “activist, interventionist and micromanaging minister” who had tried to “extort” concessions from investors that were not merger-specific.
But Patel’s officials denied this, saying that but for that intervention, the Walmart deal would have gone through “at the expense of the public interest”.