Competition Commission of South Africa (“Commission”) v Babelegi Workwear Overall Manufacturers and Industrial Supplies CC (“Babelegi”)

On 24 March 2020, a complaint was lodged against Babelegi with the Commission for the contravention of section 8(1)(a) of the Competition Act, 89 of 1998, as amended (“Competition Act”) in the market for the sale of FFP1 disposable face masks (“face masks”) in South Africa.

Section 8(1)(a) of the Competition Act prohibits a dominant firm from charging an excessive price to the detriment of consumers or customers. This provision inter alia addresses the abuse of dominance and ensures the application of the consumer welfare standard. In terms of section 7 of the Competition Act, a firm is dominant in a market if it falls under the following categories and has at least:

• 45% of the market share;
• 35% but less than 45% of the market share, unless it can show that it does not have market power; or
• less than 35 % of the market share but has market power.

The Competition Act defines “market power” as “the power of a firm to control prices, to exclude competition or to behave to an appreciable extent independently of its competitors, customers or suppliers.” Section 8(2) of the Competition Act provides that if a prima facie case of abuse of dominance, by charging an excessive price, is established, the dominant firm in question must show that the price was reasonable. Furthermore, section 8(3) of the Competition Act provides a list of factors to be considered when determining if the excessive price in question is higher than a competitive price and whether such difference is unreasonable.

Prior to arriving at the decision to refer the complaint to the Competition Tribunal of South Africa (“Tribunal”), the Commission conducted an investigation and found that Babelegi:

• implemented its first significant price increase of face masks on 31 January 2020, after the World Health Organisation declared the corona virus (“Covid-19”) a public health emergency of international concern;
• further inflated the price of face masks on 10 February 2020; and
• increased the price of face masks again on 5 March 2020, after the National Institute for Communicable Diseases announced its first suspected positive case of Covid-19.

During the period 31 January 2020 to 5 March 2020, the Commission found that Babelegi increased its prices of face masks from R41.00 (forty one rand) per box to R500.00 (five hundred rand) per box, which afore-said increase in price constitutes a mark-up of 500% (five hundred percent). On 9 April 2020, the Commission referred the complaint against Babelegi to the Tribunal. The Commission alleged that Babelegi charged its customers and consumers excessively on the price of face masks during the period 31 January 2020 to 5 March 2020 and, therefore, contravened section 8(1)(a) of the Competition Act.

On 1 June 2020, the Tribunal concluded that the Commission had established a prima facie case of abuse of dominance as Babelegi charged excessive prices between 31 January 2020 and 5 March 2020 for face masks. The Tribunal found that Babelegi:

• had market power between 31 January 2020 and 5 March 2020 as it behaved, “to an appreciable extent independently of its competitors, customers or suppliers” and, as such, was a dominant firm for that period in terms of section 7 of the Competition Act;
• did not present a rational and valid explanation for its successive and massive price inflation on face masks;
• did not substantiate the price increases by any corresponding increase in cost;
• took advantage of its customers and consumers amid Covid-19; and
• contravened section 8(1)(a) of the Competition Act.

The Tribunal found Babelegi guilty of charging excessive prices on face masks during the three-month duration and made a remark that the administrative penalty should exceed the excess profit made by Babelegi as a deterrent to itself and others engaging in such conduct. The Tribunal imposed a fine of R76,040 (seventy-six thousand and forty rand).

Surprisingly, the Tribunal drew an inference that Babelegi had market power between 31 January 2020 and 5 March 2020 and considered it to be a dominant firm during that period. Based on the Tribunal’s findings, it is evident that the Tribunal considered inter alia the current unprecedented economic times and grave nature of Babelegi’s conduct when imposing the penalty.

Considering that Babelegi is a small firm which sells inter alia disposable face masks in Pretoria, in our opinion, it is difficult to concur with the Tribunal that Babelegi is a dominant firm (whether temporary or not) in the relevant market and, therefore, guilty of abusing its dominance.