Competition Law Part 3

Question 1

Abuse of Dominant Position

What is abuse of dominant position?

Answer 1

-Whena firm uses its position to exploit its customers and kick out its competitors

Question 2

Abuse of dominant position

What is the product market and what is the geographical market?

Answer 2

**Product market **: Includes all the products/ services considered to be viable substitutes by consumers.

Geographic market: Area in which the firms concerned are involved in the supply and demand of products or services, in which the conditions of competition are sufficiently homogeneous ( i.e., the geographic area within which substitutable products compete).

Question 3

Abuse of dominant position

What are the different types of market share as held in section 7 of the Comp Act?

Answer 3

A firm is dominant in a market if—
(a) it has at least 45% of that market;
(b) it has at least 35%, but less than 45%, of that market, unless it can show that it does not havemarket power (The firm must prove it doesn’t have market power)
(c) it has less than 35% of that market, but has market power. (The competition commission must prove it has market power)

Question 4

Abuse of dominance

What is excessive pricing according to sec 8(3)?

Answer 4

A price is excessive when it is higher than a competitive price and it is unreasonable
ITO section 8(3): if the commision/complainant establishes prima facie evidence of an excessive price - the dominant firm must show that the price was reasonable

Question 5

Abuse of dominance

What is the sec 8(1)(a) excessive pricing prohibition?

Answer 5

it is prohibited for a dominant firm to charge an excessive price to the detriment of consumers or customers.

Question 7

Abuse of dominance

What factors determine that a price is excessive?

Answer 7

• Respondent’s price-cost margin, internal rate of return, return on capital invested or profit history;
• Respondent’s prices historically, and in other competing markets;
• Competitor’s prices profit levels in a competitive market;
• Length of time the prices have been charged at that level;
• Structural characteristics of the relevant market (market share, barriers to entry etc.);
• Regulations published by the Minister.

Question 8

Absue of Dominance

What does sec 8(4) provide for regarding a dominant firms abuse of dominance?

Answer 8

prohibits dominant firms from particularly, charging small firms or firms owned by HDPs unfair prices, imposing contract terms that are unfair or refusing to deal with small firms or firms owned by HDPs

Question 9

Abuse of dominance

What did the* Competition Commision v Babelegi Workwear* case state regarding abuse of dominace?

Answer 9

Babelgi charged excessive prices for PPE equipment during Covid-19
- Tribunal found that Babelegi’s price increases and mark-ups were unreasonable in that they bore 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 .

-The increases pointed to the company’s taking advantage of a crisis period when customers were vulnerable.

Question 10

Abuse of dominance

What is the sec 8(1)(b) essential facility abuse of dominance?

Answer 10

Sec 8(1)(b)-that it is prohibited for a dominant firm to refuse to give a competitor access to an essential facility, when it is economically feasible to do so.

Essential Facility: is defined in section 1 as “an infrastructure or resource” that cannot reasonably be duplicated, and without access to which competitors cannot reasonably provide goods or services to their customers

Question 11

Abuse of dominance

What is the sec 8(1)(d)(i) prohibition against inducing a supplier to notdeal with a competitor?

Answer 11

: prohibits a dominant firm from requiring or inducing a supplier or customer to not deal with a competitor, unless such conduct can be justified by technological, efficiency or other pro-competitive gains

Question 12

Abuse of dominance

What did the Competiion Commision v South African Airways case state regarding section 8(1)(d)(i) inducement?

Answer 12

the Competition Commission against South African Airways (“SAA”) , in terms of which the Commission alleges that SAA, a dominant firm, is offering incentive commissions to travel agents as well as incentives to travel agent consultants in the form of travel bonuses

Question 13

Abuse of dominance

What is the sec 8(1)(d)(ii) abuse of supplying scarce resources?

Answer 13

: prohibits a dominant firm from refusing to supply scarce goods or services to a competitor or customer when supplying those goods or services is economically feasible, unless such conduct can be justified by technological, efficiency or other pro-competitive gains

Question 14

Abuse of dominance

What is the sec 8(1)(d)(iii) abuse of dominace in the form of tying/bundling?

Answer 14

: prohibits a dominant firm from selling goods or services on the condition that the buyer purchases separate goods or services unrelated to the object of a contract or forcing a buyer to accept a condition unrelated to the object of a contract, unless such conduct can be justified by technological, efficiency or other pro-competitive gains.

Question 15

Abuse of dominance

What did the Sappi Fine Papers v Competition Commision case state regarding tying and bundling?

Answer 15

Sappi’s insistence that Papercor pays its legal costs prior to concluding a supply agreement is conduct prohibited by section 8(d)(iii) of the Act
- an essential feature of tying is the linking of two unrelated markets, the reference to an unrelated condition closes a loophole whereby a condition (rather than a product) is used to leverage a dominant firm’s power in an unrelated market.

Question 16

What is the sec 8(1)(d)(iv) abuse of dominace for predatory pricing?

Answer 16

prohibits a dominant firm from selling goods or services at predatory prices unless such conduct can be justified by technological, efficiency or other pro-competitive gains

Question 17

What did the Media 24 v Competition Commision case sate regarding predatory pricing?

Answer 17

Media24 was found by the Competition Tribunal to have contravened section 8(c) of the Competition Act by using its publication by the name of “Vista” to engage in a predatory pricing strategy to drive a rival community newspaper publication, Gold Net News out of the market in the Welkom area,

Question 18

Abuse of dominance

What did the sec 8(1)(d)(v) case state regarding abuse in buying up intermediate goods required by a competitor?

Answer 18

: prohibits a dominant firm from buying up a scarce supply of intermediate goods or resources required by a competitor unless such conduct can be justified by technological, efficiency or other pro-competitive gains

Question 19

What are the different types of buying up intermediate goods?

Answer 19

“Naked Overbuying”: a firm buys intermediate goods or resources that it does not use in its production process but which its competitors use.

“Warehousing”: a firm buys intermediate goods or resources that it uses in its production process, but buys more than it needs and disposes of the remainder

Question 20

What did the American Tobacco v United States case state regarding Buying up?

Question 21

Abuse of dominance

What is the sec 8(1)(d)(vi) margin squeeze as a form of dominance?

Answer 21

: prohibits a dominant firm from engaging in the practice of margin squeeze, unless such conduct can be justified by technological, efficiency or other pro-competitive gains.

-margin squeeze occurs when the margin between the price at which a vertically integrated firm, which is dominant in an input market, sells a downstream product, and the price at which it sells the key input to competitors, is too small to allow downstream competitors to make profit

Question 22

Abuse of dominance

What did the Senwes Ltd v Competition Commission of South Africa case state regarding margin squeeze?

Answer 22

-Sec 8(c) of the Act prohibits a dominant firm from engaging in an exclusionary act, which is defined in section 1 of the Act as “an act that impedes or prevents a firm from entering into, or expanding within, a market”.

-A “margin squeeze” is a phenomenon that occurs when a vertically integrated firm, participating in both the upstream and downstream markets, is dominant in the upstream market and supplies an essential input to its competitors in the downstream market.

-The dominant firm is then said to engage in a margin squeeze when it raises the price of that input to a level where the downstream competitors can no longer survive in that market.

Question 23

Abuse of dominance

What is the sec 8(1)(c) catch all provision regarding abuse of dominace?

Answer 23

prohibits a dominant firm from engaging in any exclusionary act, other than any of the exclusionary acts listed in section 8(1)(d), if the anticompetitive effect of that act outweighs its technological, efficiency or other procompetitive gain

Exclusionary Act: defined in section 1 as an act that impedes or prevents a firm from entering into, participating in or expanding within a market

Question 24

Abuse of dominance

What is the sec 9(1) price discrimination?

Answer 24

prohibits price discrimination by a dominant firm in the sale of goods or services

For prohibited price discrimination: the conduct must have the likelihood of substantially preventing and lessening competition OR impeding small firms or firms owned by historically disadvantaged persons to participate effectively in the market relates to the sale, in equivalent transactions, of goods or services of like grade and quality to different purchasers; and involves discriminating between purchasers in terms of: the price charged;

Question 25

Abuse of dominance

What is the sec 9(1A) price discrimination?

Answer 25

Section 9(1A): further prohibits a dominant firm from refusing to sell Goods/Services to small firms or firms owned by historically disadvantaged persons

Question 26

Abuse of dominance

What is the sec 9(1) justification for price discrimination?

Answer 26

Price discrimination can be justified if:
* the discrimination is based on differences in costs of manufacture/distribution;

• is in good faith to meet the price or benefit offered by competitor;
• is in response to changing market conditions

Question 27

Abuse of dominance

What did the Nationwide Poles v Sasol (Oil) (Pty) Ltd case state regarding the justification for price discrimination?

Answer 27

In order to succeed in a complaint of price discrimination a complainant must show that the respondent is dominant in the relevant market and that its conduct is likely to have the effect of substantially preventing or lessening competition; is in respect of equivalent transactions and is related to price.

-It was found by the Tribunal that the respondent was dominant in the relevant market. Price discrimination constitutes a threat to the competitive structure of the market,