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In South Africa’s first contested excessive pricing case in the context of Covid-19, the Competition Tribunal (Tribunal) has found Babelegi Workwear and Industrial Supplies CC (Babelegi) guilty of excessive pricing.
 
In its order and reasons issued today, the Tribunal has found that Babelegi contravened section 8(1)(a) of the Competition Act by charging excessive prices for face masks that it sold to customers between 31 January 2020 and 5 March 2020 (the complaint period). The contravention relates to the sale of face Dust Mask FFP1 Pioneer (FFP1 masks).
 
The Tribunal has also ordered the Pretoria-based company to pay an administrative penalty (a fine) of R76 040 (seventy-six thousand and forty Rand).
 
The Tribunal’s reasons will be made publicly available on the Tribunal’s website in due course. Below, is a summary and several excerpts from the reasons:
 
Successive, significant price increases 
 
In considering the matter 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 Organization declared Covid-19 a public health emergency of international concern;

Babelegi’s price increases became progressively bolder in February 2020: 

On 10 February 2020, Babelegi again significantly increased its price; and

On 5 March 2020 when South Africa announced its first Covid-19 case, Babelegi again significantly raised its price; and

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.”
 
Market power, dominance and prima facie case
 
From an economics perspective, conditions for exploitation of the crisis situation and market power existed from the end of January 2020 due to the Covid-19 health crisis: “As is clear from its pricing conduct, Babelegi exploited this crisis situation, when it successively and massively increases both its prices and mark-ups for masks during the Complaint Period …”
 
Based on the evidence of its own conduct, and considering the context of Covid-19, the Tribunal found that “… one can reasonably infer that Babelegi had market power during the Complaint Period since it behaved to an appreciable extent independently of its competitors, customers or suppliers. Babelegi is therefore a dominant firm during the Complaint Period in terms of section 7(c) of the Act.”
 
Further, the Tribunal concluded that the Competition 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.
 
Unreasonable difference in price
 
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 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”.
 
Detriment to customers and consumers 
 
The Tribunal also found that Babelegi’s prices were of an exploitative nature: “Babelegi knew full well that there was a significant increase in demand for masks … and took advantage of customers and consumers amid the international Covid-19 health crisis. This leads us to conclude that Babelegi’s prices charged during the Complaint Period were to the detriment of consumers and customers”.
 
Conclusion
 
While the Commission presented evidence that warrants a finding of excessive pricing, Babelegi failed to discharge its onus to rebut the Commission’s case.
 
Penalty
 
“… 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.”
 
In deciding the penalty amount of R76 040, the Tribunal considered, among others, the grave nature of the conduct and the excess profit or improper gains that Babelegi earned from its excessive pricing conduct: “…an appropriate penalty should exceed Babelegi’s improper gains from the excessive pricing conduct and should furthermore act as a deterrent to itself and others to engage in such 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.
 
Background
 
On 09 April 2020, the Commission referred to the Tribunal the first excessive pricing complaint, in the context of Covid-19 against Babelegi.
 
Babelegi denied the Commission’s claims against it, arguing that it was not a dominant firm during the complaint period and that it anticipated its supplier to increase its price of masks during the complaint period.
 
The Tribunal heard the matter on an urgent basis via video conferencing on 24 April 2020.

Issued by Competition Tribunal