13 May 2013 by

Sasol excessive pricing hearing to start this week

The Competition Tribunal starts its hearing into the Competition Commission's allegations that Sasol is charging excessive prices for plastic product inputs this week.

Chris Charter, Director in the Competition Practice at Cliffe Dekker Hofmeyr notes that the regulator has long been concerned that the structure of certain markets in South Africa, particularly those dominated or exclusively covered by incumbent State Owned Entities  (such as Iscor, Telkom and now, Sasol), that achieved their dominance not through competition on the merits but rather years of protectionism can be susceptible to excessive pricing. 

“These markets are often capital intensive and beset by high entry barriers and low levels of competition. This allows incumbents to charge higher prices.  But higher prices, while undesirable, are not necessarily anticompetitive and many economists would argue that excessive pricing is a myth, as really high prices should attract new entry (or the threat of entry) which would bring prices down.  But some large companies are able to take measures to keep competitors out and thus keep their pricing power intact.  Where such measures are anticompetitive (such as collusion with potential rivals not to compete or sustained predatory pricing to keep competitors away) then the regulator steps up,” Charter explains. 

“The case against Sasol seems to be partly based on the fact that Sasol charged at import parity, which the Commission often regards as evidence of excessive pricing.    However, it is only logical for a seller to charge in relation to the closest available substitute, and if that happens to be foreign competitor, import parity pricing (ie a little less than the cost of importing, with perhaps a "hassle factor" built in as a premium) is the result. 

“What often makes such cases hard to prosecute is the notion that large competitors should be required to "leave something on the table" and somehow charge less than customers are willing to pay.  Apart from the philosophical challenge of such an approach and its proximity to price regulation, the economic evidence that will need to be led to prove what amount of profit is "fair" is complex and hard to come by,” he adds.   

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