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The Competition Amendment Bill – An Economist’s View on Select Items

By Helen Kean

The second version of the Competition Amendment Bill was published on 5 July 2018. Econex’s summary of the first version, published on 1 December 2017, may be found here. As there are now numerous summaries of what is contained in the second version of the Bill (and how this differs to the first), this blog does not add to these, but rather provides comment on a few of the proposed changes – in particular some of those that impact on how economists are to carry out analyses and provide evidence in competition proceedings. Econex* was invited by Hogan Lovells to be one of three panelists in discussing the Competition Amendment Bill on 16 August 2018. The other panelists were Michelle Le Roux (Advocate and Chair of the Ministerial Advisory Panel to Minister Patel), and Tembinkosi Bonakele (Commissioner of the South African Competition Commission). The panel discussion was introduced by Norman Manoim (Chairman of the South African Competition Tribunal). Whilst this panel discussion more broadly discussed the Bill, in particular and from an economist’s viewpoint, the proposed changes in respect of buyer power (Section 8), price discrimination (Section 9) and excessive pricing (Section 8), inter alia raise questions of workability and potential unintended consequences.

Starting with the provision for buyer power as a possible abuse of dominance, guidelines will certainly be necessary to determine how one would go about testing for this. Whilst it is noted that there is provision for guidelines on this, there appears to be little discussion to date around what these will contain. Assuming that the focus is on the upstream firm (‘particularly a small or medium business or a firm controlled or owned by a historically disadvantaged person’ selling ‘its products to the dominant firm at a price which impedes the ability of the supplier to participate effectively’) and in other words not on the ultimate consumer to whom the cost-savings could be passed, the key question will be around how to test causality of the buyer power and the effect on the upstream firm. One should consider how to deal with controls in such cases, for example, relating to the efficiency and scale of the upstream firm. Alongside these practicalities one should question how dominant firms may respond to this provision, with the very threat of cases being brought potentially discouraging dealings with smaller firms. This would be in opposition to the aims of the Bill.

The same concerns as above hold for the proposed changes in respect of price discrimination by ‘a dominant firm as the purchaser of goods and services’ (potentially impeding ‘the ability of small and medium enterprises and firms controlled or owned by historically disadvantaged persons to participate effectively’). Further to this, the lowering of the standards for price discrimination by removal of the term ‘substantially’ (‘preventing or lessening competition’) may be of concern in terms of potential effects. From an economist’s perspective, the welfare effects of price discrimination are ambiguous and, in many instances, may be welfare enhancing since sales may be made to a wider group of consumers with differentiated prices. If firms respond to the changes in respect of price discrimination by creating more uniform pricing, it is possible that this would tend toward higher (profit-maximising), rather than lower prices, excluding certain consumers from participation in the economy. This would again be in opposition to the aims of the Bill.

Similar concerns relate to the proposed changes to the excessive pricing provisions. Here the most concerning issue is that the prior definition of excessive pricing has been removed, in turn removing any reasonability standard for testing of excessive pricing. In this regard it would be necessary to stipulate that prices need to not only be in excess of the competitive price, but that they also need to be unreasonably so. Absent guidance, this complicates the typical price-cost test undertaken by the economic expert.

These are certainly items that require significant discussion. At present and in their current form these provisions remain unworkable and warrant further engagement amongst legal and economic experts.

*Helen Kean, Principal Economist

Author/s: Helen Kean

Nothing in this publication should be construed as advice from any employee of Econex and should be seen as general summaries of developments or principles of interest that may not apply to specific circumstances.

2018-08-21T11:48:07+00:00August 21st, 2018|