Companies now have further clarity on the enforcement of competition law, particularly regarding the Competition Act’s price discrimination and buyer power provisions. The Competition Commission (“Commission”) recently published guidelines on how the ‘Buyer Power’ regulations will be enforced.
The Buyer Power regulations – essentially aimed at levelling the playing field for companies – will assist to prevent potential exploitation by dominant entities. In turn, dominant and larger companies must be cognisant of their obligations when dealing with smaller entities under these new provisions.
The Buyer Power regulations are aligned with the sections of the Competition Act which imposes a special responsibility on dominant firms not to engage in exclusionary conduct. A firm will be regarded as dominant, if it holds a market share of more than 35%, or if it has ‘market power’. A firm has market power if it can control prices, exclude competition, or behave independently of its competitors.
The Competition Act was amended in 2019 to include the prohibition of unfair prices or trading terms on small and medium businesses (SMME) or firms, or firms owned by historically disadvantaged persons (HDP) in designated sectors. The Minister has designated that the prohibition will (for now) only apply in certain designated sectors being agro-processing, grocery wholesale & retail and the ecommerce & online services sector.
Exclusionary conduct is prohibited at the hand of dominant firms in these sectors. Prohibited conduct includes charging excessive prices; refusing access to an essential facility; refusing to supply goods or services to a competitor when it is economically feasible to do so; engaging in price discrimination etc. Therefore, dominant entities may not impose unfair prices or other trading conditions when dealing with SMME or HDP suppliers, customers or competitors.
In assessing whether trading terms are unfair, the Commission will determine whether the terms are one-sided, onerous, disproportionate, or whether it unreasonably transfers risk or costs. The assessment will be conducted by comparing similar goods or services. For example, the Commission will consider a price to be ‘unfair’ if there are no objective justifications to explain a difference in price. If justifications are provided, the Commission may also consider whether the justifications are valid. All justifications must be proportionate to the price difference. Unfair trading terms could relate to terms of payment; cancellation of orders on short notice; requiring a supplier to bear all discounts sold as part of a promotion; and other forms of differential or preferential treatment. The list of unfair prices and trading conditions contained in the guidelines are not exhaustive, but is still a useful guideline for what may be regarded as exclusionary and exploitative.
Companies, individuals, partnerships and trusts (all falling in the definition of a ‘firm’) are encouraged to take note of the Buyer Power regulations and the enforcement guidelines issued by the Commission, as non- compliance can lead to a fine of up to 10% of turnover of the preceding financial year.
For more information on these regulations, we invite you to contact our Competition Law team at email@example.com.