Price gouging forces Competition Commission to act against rogue companies

Covid-19 provided the Competition Commission’s staffers with a crash course in how to successfully bring price-gouging companies to book, in record time.

From handling about 350 price-gouging complaints a year pre-Covid-19, the commission was swamped with more than 1,000 cases by the end of April last year, and at one point they were dealing with 2,000.

Litigating cases got off to a bit of a rocky start, commission staff revealed during a report-back webinar on Friday, the first case – against Babelegi Workwear – being heard via Microsoft Teams over the Easter weekend.

The Competition Tribunal had some issues with the way the commission presented its case, but ruled in June that Babelegi Workwear “knew full well that there was a significant increase in demand for masks by imposing exploitive prices”. Its prices shot up by 888% in the course of just six days, the commission said on Friday.

By the end of March this year, the commission had dealt with 36 price-gouging cases.

Two more gouging “waves” – prompted by the ginger/garlic shortage of January and the food shortages caused by mass looting in Gauteng and KwaZulu-Natal in July – led to sharp spikes in the number of gouging complaints from the public.

“In the past these cases took three to eight years to complete, so the fact that we have been able to finalise these quite quickly is quite an achievement,” said litigation manager Candice Slump.

“Competition authorities around the world have noted the need for a swift response in these cases so we aim to refer cases [to the tribunal] within 10 days, which is very little time when dealing with complex issues.”

In the 20 years before the pandemic, the commission had only brought two price-gouging cases against companies, and lost both.

The pandemic was a steep learning curve for the commission, Slump said, with mistakes made and corrected.

Price-gouging regulations applying to basic food and consumer items, and hygiene supplies such as hand sanitiser, bleach, masks and gloves were implemented in March 2020, restricting companies to a maximum 10% increase in their profit margin for as long as the Disaster Management Act remains in effect.

Price gouging refers to cases where prices have increased without a rise in input costs (from the supplier) and where net price markups have increased during a crisis.

In the Dis-Chem matter – in which the retailer was found guilty of increasing the price of surgical masks by 317%, and paid an administrative penalty of R1.2m – the tribunal was very clear about its stance on price gouging: “Massive price increases of surgical masks ... which constitute an essential component of life-saving first line protection in a pandemic of seismic proportions, without any significant increases in costs, are utterly unreasonable and reprehensible.”

After those two widely reported judgments, Slump said, many other cases were settled without the hearing of evidence.

The commission requires those companies to undertake to stop their price gouging, reduce their profit margins and make a payment equal to their excessive profits to the Solidarity Fund, and to compensate their customers if practically possible.

Judgment is pending in two other price-gouging cases: the Tsutsumani case involving the supply of surgical face masks and the BlueCollar and Ateltico case regarding the supply of bulk hand sanitiser.

Some small and medium-sized companies have argued, unsuccessfully, that the Competition Act refers to companies being a dominant player in their markets, thus it does not apply to them. But the commission is of the view that while a company may not be “dominant” during ordinary times, exceptional circumstances such as the pandemic, leading to an increase demand for certain goods, a reduced supply and limits on consumer’s movements, makes them fit the definition of dominant.

“Size does not matter,” Slump said. “Even a small firm with less than 5% market share can be dominant.

“More than one firm can have market power, within the same market, at the same time.”

To rebut the commission’s case, a respondent company has to provide sufficient evidence that their price was reasonable.

• To report price gouging, send an SMS or WhatsApp to the Competition Commission with all the relevant details: 084-743-0000.

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