First South African Excessive Pricing Case
This week, the Competition Tribunal held that Mittal Steel South Africa had abused its
dominant position in the South African market for flat steel products by charging excessive
prices. Gold producers Harmony and DRD Gold lodged the complaint against
Mittal’s use of import parity pricing with the Competition Commission in 2002, and referred
it to the Tribunal in February 2004.
This is the first case in which the Tribunal has found a dominant firm to be guilty of
contravening section 8(a) of the Competition Act. This section provides that “it is prohibited
for a dominant firm to charge an excessive price to the detriment of South African
consumers”. International jurisprudence generally recognises that such cases are
among the most difficult for competition authorities to prove.
The Tribunal emphasised that the task of our competition authorities is not to determine
what the ‘right’ price is, but rather to defend competitive market structures. The
decision makes it clear that there are significant hurdles to be overcome by a complainant
who alleges that it has been charged an excessive price by a dominant supplier:
• Firstly, it must be shown that the supplier is a ‘super-dominant’ firm, or one of
overwhelming size relative to the market in which it participates, and that the
structure of this market enables it to charge excessive prices.
• Secondly, the complainant must demonstrate that the super-dominant supplier
has in fact taken advantage of these market conditions by imposing excessive
prices on its customers.
The Tribunal held that Mittal met the first leg of this test because its dominance in the
South African flat steel market is indeed absolute in that there are no meaningful constraints
on Mittal’s ability to unilaterally determine prices and no prospects of new entry
into this market. Mittal’s conduct also met the second leg of the test because it had
imposed a pre-determined price (the import parity price) on South African customers
by withholding supplies of flat steel from the domestic market, purposefully preventing
arbitrage and maintaining the segmentation of its markets. The Tribunal characterised
this as “the most fundamental and egregious monopolistic conduct”.
Remedies are still to be argued, although the Tribunal observed in the decision that
one possible remedy might be to order Mittal to divest itself of either its Vanderbijl or
Saldanha plants. However, the Tribunal indicated that there may well be other adequate
alternative remedies in the present market conditions, and a divestiture would
only be ordered if it was ‘the only appropriate remedy’. Mittal may also be forced to
pay an administrative penalty of up to 10% of its annual turnover.
It is still unknown whether Mittal will appeal to the Competition Appeal Court. Whatever
the final outcome, the decision sends a clear warning signal to dominant firms
that excessive pricing of this nature will not be tolerated by our competition authorities.
