Starting a business, while exciting, can also be scary when one considers that they would have to start from the bottom and build a brand while facing competition from other companies that are already established and are well-liked.
The Competition Act 89, of 1998 (the Act) seeks, among other things, to address this very concern. One of the objectives of the Act is to promote small businesses and afford all South Africans equal opportunity to participate fairly in the national economy.
In order to achieve this objective, the Act prohibits anti-competitive conduct among competitors, their customers or suppliers and the abuse of dominance by companies that have a substantial market share.
Companies that have market power in respect of a certain industry or product are considered to be dominant in spite of their actual size. Such companies have the capacity to influence trends, exclude competitors or to behave to a noticeable extent independently of competitors, customers or suppliers.
In order to allow businesses that have just entered the market or that are still growing to also thrive, the Act prohibits the following acts by dominant companies:
- Charging excessive prices to the detriment of consumers;
- Refusing to give a competitor access to an essential facility when it is economically feasible to do so; and
- Engaging in exclusionary acts, where the anti-competitive effect of those acts outweighs any technological, efficiency or other pro-competitive gain.
There is a misconception that when big companies charge excessive prices they open up the market for smaller companies to offer low prices thereby attracting more customers. However, this is not the case. Instead, when big entities charge more for a product, it results in the increase of production and supply costs and consequently, small businesses cannot sustain low prices over time without operating at a loss. They are forced, therefore, to also increase their prices but because their brand is still new, they cannot attract as many customers as the big companies.
The Competition Commission recently announced that it will be conducting an inquiry into the business practices of online platforms such as Takealot and UberEats which have established dominance on the online markets. The Commission has invited public comments until 12 March 2021.
Although it is usually big companies that are the culprits of dominating the market, small traders can also be guilty of this offence. In June 2020 a small trader with a market share of just 4.7% was found guilty of abusing its dominance due to excessive pricing of face masks and was found guilty and fined R76 040.00.
All businesses, small and large, should be equally wary of abusing their dominance to the detriment of competitors.
Should you need assistance in a competition matter please feel free to contact us.