Abstract
Although provisions prohibiting abuses of dominance through the setting of excessive prices have long been present under many competition jurisdictions, prohibitions have been seldom applied in practice. This is most likely due to the profound conceptual and practical difficulties in differentiating between pricing conduct that is neutral from a competition law perspective and conduct that genuinely constitutes excessive pricing, and then further problems in remedying genuine abuses. However, recent developments in South African competition policy have focussed on use of import parity pricing as a possible indicator of excessive pricing, although in our view the mere existence of import parity pricing is unlikely to be a reliable indicator of such conduct. This paper draws upon economic theory and relevant jurisprudence to provide clarity as to the circumstances under which import parity pricing might reflect excessive pricing. It then considers the prospects for effective remedies if an abuse is identified.
Highlights
Dominance, imports, pricing, import parity pricing, competition policy, antitrust, remedy * Mr Richard Murgatroyd is a partner at RBB Economics, South Africa. # Mr Simon Baker is a partner at RBB Economics, South Africa
The existence of import parity pricing (IPP) is in and of itself unlikely to provide a reliable indicator of whether or not a firm is charging excessive prices, and that IPP can only be indicative of excessive pricing where it has resulted from firms, by virtue of the market power they enjoy, having increased prices significantly in excess of competitive levels by restricting output, and earning a return in excess of their economic cost of capital
This paper highlights that in theory import parity pricing may result from excessive pricing, it is in isolation likely to be a poor indicator of excessive pricing
Summary
As under EC law, and in common with many other jurisdictions, South African competition law contains a provision prohibiting the abuse of dominance through the exploitation of market power, notably the setting of excessive prices. This paradox arises from the contrast between the extensive efforts typically made by competition agencies to prevent the exclusionary acts which can lead to the acquisition or maintenance of the market power required to exploit consumers through excessive prices (wherein lies the eventual welfare harm from exclusionary acts) and the far less extensive efforts apparently made to prevent excessive pricing by those already in possession of enduring market power The explanation of this seemingly perverse allocation of regulatory effort arises from the immense conceptual and practical difficulties involved in the identification of excessive prices and the associated problems of framing suitable remedies. Even where a remedy is identified, difficulties in implementation and the potential for knock on effects in other markets mean that overall consumer welfare will not necessarily be improved
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