Babelegi Workwear and Industrial Supplies CC v The Competition Commission of South Africa

Babelegi Workwear and Industrial Supplies CC (the appellant), a small business selling workwear and industrial supplies including face masks, was accused of excessive pricing during the Covid-19 pandemic. Between 31 January 2020 and 5 March 2020 (the complaint period), appellant increased the price of FFP1 face masks from R50.60 per box of 20 masks to R500 per box (an 888% increase). Appellant's mark-up increased from 23% to 1120% during this period. These price increases occurred before appellant experienced any increase in its own acquisition costs for the masks. Appellant sold only 76 boxes to external customers during the complaint period (with an additional 400 boxes to its sister company). The Competition Commission investigated after receiving customer complaints and concluded appellant contravened section 8(1)(a) of the Competition Act. Appellant's market share in the face mask market was approximately 4.7%. The complaint period preceded the publication of specific price gouging regulations related to Covid-19.

• Whether appellant was a 'dominant firm' with 'market power' as defined in sections 1 and 7 of the Competition Act despite having less than 5% market share
• Whether the concept of the 'lucky monopolist' applies to determine dominance in crisis conditions such as the Covid-19 pandemic
• Whether appellant charged an 'excessive price' as prohibited by section 8(1)(a) of the Competition Act
• Whether the price charged was 'unreasonable' considering the factors in section 8(3) of the Act
• Whether the requirement of 'durability' of pricing conduct is necessary to establish a contravention of section 8(1)(a)
• Whether the prices charged were 'to the detriment of consumers or customers' as required by section 8(1)(a)
• Whether the administrative penalty imposed by the Competition Tribunal was appropriate in the circumstances

1. The appeal against the finding that appellant contravened section 8(1) of the Competition Act 89 of 1998 as amended is dismissed. 2. The order that appellant pay an administrative penalty of R76,040 is set aside. 3. There is no order as to costs.

A firm with a market share of less than 35% can be found to be dominant with market power under section 7(c) of the Competition Act when crisis conditions (such as the Covid-19 pandemic) confer temporary market power that enables the firm to behave independently of competitors, customers and suppliers. Market power in such circumstances can be established by examining the firm's actual pricing conduct as a proxy. The concept of the 'lucky monopolist' applies where a firm's dominant position arises from exogenous events outside its control rather than from efficiencies or anti-competitive conduct. Once dominance is established and a prima facie case of excessive pricing is made out under section 8(2), the evidential burden shifts to the respondent firm to show under section 8(3) that the price charged was reasonable. To discharge this burden, the firm must provide credible justification that correlates with the extent and timing of price increases. Anticipated future cost increases, without clear evidence of their magnitude and timing corresponding to the price increases implemented, do not provide sufficient justification. The requirement that excessive prices be charged 'to the detriment of consumers or customers' in section 8(1)(a) is satisfied when essential goods necessary for health and safety during a pandemic are priced excessively. When determining administrative penalties under section 59, the de minimis nature of the contravention, the size of the firm, the limited harm caused, and costs already incurred are relevant considerations that may justify not imposing a penalty despite a finding of contravention.

Davis JP made several important observations: (1) The doctrine of excessive pricing is extremely challenging for competition authorities as it requires them to act as price regulators and establish appropriate yardsticks for competitive pricing. (2) It would have been preferable for this case to be determined under specific price gouging regulations rather than the general excessive pricing provisions of section 8(1)(a). (3) Section 8 of the Act as amended is not drafted with appropriate precision and covers both the excessive pricing inquiry and the reasonableness defense within section 8(3). (4) The requirement of 'durability' in pricing conduct matters, but in crisis conditions even six weeks can be sufficient to establish market power where a firm acts as a monopolist throughout that period. (5) Competition law in South Africa has a more ambitious framework than US antitrust law or EU competition law, designed to ensure markets work fairly and do not disadvantage economically disadvantaged South Africans, as reflected in the Preamble and section 2 of the Act. (6) It is regrettable that the first case interpreting the important amended section 8(1)(a) provisions involved a small firm that sold only 76 boxes during the complaint period, brought with 'unseemly haste at the expense of precision.' (7) The Court noted with concern that the application was launched at 20h48 on the eve of Good Friday with a shortened timetable, reflecting inadequate preparation by the Commission.

This is the first South African case to interpret and apply the amended section 8(1)(a) of the Competition Act (as amended by the Competition Amendment Act of 2019) dealing with excessive pricing by dominant firms. It is also the first excessive pricing case brought in the context of the Covid-19 pandemic and price gouging concerns. The judgment establishes important principles regarding: (1) the concept of temporary or crisis-induced dominance through the 'lucky monopolist' doctrine; (2) how market power can be assessed through conduct when exogenous events (like a pandemic) fundamentally alter market conditions; (3) the application of the amended excessive pricing framework including the prima facie case structure in section 8(2) and the reasonableness factors in section 8(3); (4) the relationship between competition law and consumer protection in emergency situations; and (5) the exercise of judicial discretion in imposing administrative penalties in de minimis cases. The case demonstrates the challenges of applying competition law provisions not specifically designed for crisis situations to address price gouging behavior.