The Competition Commission gets 'excessive pricing' totally wrong

28 July 2020
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The Competition Commission is at it again with its anti-business enforcement of the Competition Act and its "abuse of dominance" provisions that seek to punish successful entrepreneurs.

In the most recent attack on the economy and free enterprise, the prices of another business were deemed "excessive" by the commission.

This conclusion was not demonstrated via market processes like minimal to no demand for the item that is excessively priced, but was rather determined through the pseudo-economics and pseudo-law of the commission and the Competition Tribunal.

Dischem Pharmacies was found to have contravened the consumer protection regulations of the lockdown which prohibit the excessive pricing of goods like masks.

The criteria for determining whether a given price is excessive or not does not even factor in demand and supply.

Instead, it operates upon the fallacious "perfect knowledge" premise of objective costs for an environment, the economy, characterised by subjective demonstrated valuations.

Dischem was found to be guilty of excessive pricing not by their consumers, who would vote with their money and go to the many other pharmacies around the country, as should be the case in the market.

Instead, they were deemed guilty by regulators who pride themselves in interfering, using state force, in voluntary commercial transactions.

It must be noted as a principle that prices are largely determined by demand and supply of whatever good or service.

Yet in the analysis of the commission and the tribunal, the "costs" - something only the entrepreneur themselves can determine – is what is used.

Costs are determined by the entrepreneur looking at demand and supply.

Prices, on the other hand - what something costs to another in an intersubjectively ascertainable manner - is a determination that happens at the level of trade between two individuals.

A third party like the Competition Commission determining that a trade was exploitative is a logical contradiction.

For that trade would not occur if one party was in fact being exploited, like say in paying an "excessive price".

The definition of excessive pricing within the context of the Competition Act provisions on the abuse of dominance was amended last year.

From a price that is above "economic value" to one that is above the "competitive price".

Either way, and besides the best efforts of the regulators to deny this, any enforcement of the excessive pricing provisions of the Competition Act amount to price regulation.

It would be an understatement to say that price regulation has disastrous effects beyond its fallacious operating premise.

Although the commission, in its heads of argument to the tribunal, does acknowledge receiving submissions on the benefits of price-gouging, which would be classified as excessive pricing, these were ignored.

Dischem was still penalised for behaving like a business ought to.

If the demand for a good increases whilst its supply remains relatively unchanged, to ensure that the number of units demanded are "spread out" among more people instead of being hoarded by one person, prices are (rightly) increased or "gouged".

This is not to say businesses aren't acting in self-interest as they always do.

The point is that the consequence of pursuing rational self-interest has an egalitarian air to it: it benefits us all.

An example illustrates this saliently. Say there is a blackout, as is the norm in South Africa. This will most likely cause the demand for candles to increase.

If candles under normal conditions of functioning electricity are R2 a unit, and the spaza owner increases them to R5 when electricity runs out, although acting in self-interest, the effect is that more households get the candles.

This is because the likelihood of a single household buying large quantities all at once, to the exclusion of other households, is decreased, due to the higher price per unit.

Instead of the "cheese boy's" family clearing out the shop before anyone else, the increase in price dissuades them from doing so, leaving supply for other families.

The tribunal regards activity like this as worthy of punishment, even in the wake of fresh memories of bulk panic-buying, which cleared out retailers of much-needed supplies in the past months.

What we should always keep in mind is that consumers aren't entitled to any good or service provided by entrepreneurs, just as much as businesses aren’t entitled to the patronage of consumers.

All commercial transactions are voluntary. This fact of commerce is ignored, if not actively undermined, by the Competition Act and its enforcers.

The recent ruling by the Competition Tribunal does not represent a break with their usual modus operandi. Dischem is simply their latest victim.

Until a paradigm shift in how competition law is understood takes place, from punitive enforcement to deregulation that fosters real competition, the war waged on entrepreneurs by the Competition Commission and tribunal will continue unabated.

This is to the detriment of the South African economy and its population at large.

This article was first published on City Press on 20 July 2020

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