In South Africa’s first contested excessive pricing case in the context of COVID-19, the Competition Tribunal (“the Tribunal”) found Babelegi Workwear and Industrial Supplies CC (“Babelegi”), a Pretoria-based company, guilty of excessive pricing of dust masks between 31 January 2020 to 5 March 2020 (“the complaint period”).
The Tribunal, in its Order and Reasons, found that Babelegi contravened section 8(1)(a) of the Competition Act by charging excessive prices on face Dust Mask FFP1 Pioneer (FFP1 masks).
The Tribunal also ordered Babelegi to pay an administrative penalty of R76 040.
On 9 April 2020, the Competition Commission (“the Commission”) referred to the Tribunal the first excessive pricing complaint, in the context of COVID-19, against Babelegi. On 24 April 2020, the matter was heard via video conferencing on an urgent basis.
Babelegi denied the Commission’s claims against it, arguing that it was not a dominant firm during the complaint period and that it anticipated that its supplier would increase its price of masks during this time. The Tribunal concluded that the Commission established a prima facie case of an abuse of dominance because Babelegi charged excessive prices for FFP1 masks during the complaint period in breach of section 8(1)(a) of the Act.
The Tribunal noted Babelegi’s successive and significant price increases for face masks during the complaint period. Babelegi effected several price increases (before the actual increase in its supplier costs on 18 March 2020):
The first significant price increase occurred on 31 January 2020, a day after the World Health Organisation declared COVID-19 a public health emergency of international concern;
On 10 February 2020, Babelegi further significantly increased its prices; and.
On 5 March 2020, when it was announced that South Africa had its first COVID-19 case, Babelegi again significantly raised its price.
The Tribunal held that Babelegi’s mark-ups on the masks sold increased significantly with each successive price increase during this period.
The Tribunal concluded that “Babelegi has not put up a rational and valid explanation for its successive and massive price increases… [that are] not substantiated by any corresponding increase in cost.”
The Tribunal found Babelegi’s price increases and mark-ups were unreasonable in that they “ … bear no reasonable relation to the prices charged and mark-ups prior [to] the complaint period as the appropriate and sensible benchmark of what competitive prices and mark-ups would be under conditions of normal and effective competition.”
In the Tribunal’s reasons for the penalty, it held that “… the exploitation of consumers or customers by charging excessive prices in a time of crisis such as Covid-19, must be considered as both grave and reprehensible conduct.”
“It would be wholly against the public interest if Babelegi were to financially benefit from its excessive pricing conduct. This means that the administrative penalty should exceed the excess profit made by Babelegi”, said the Tribunal.
Nortons is currently advising a number of clients on excessive pricing cases.
Should you require additional information, please contact Anthony Norton on 082 452 7336 or by email on anthony@nortonsinc.com; or Leago Mathabathe on 082 400 6805 or by email on leago@nortonsinc.com.
