Price Gouging

24 Apr 2020 4:04 pm by Matthew Thomson

Suppliers of items like toilet paper, surgical masks and even basic foodstuffs have an almost unprecedented ability to manipulate and profit from radical price increases. Thankfully, on 19 March 2020, the Minister of Trade and Industry, Ebrahim Patel, stepped in to prevent such abuse.

Written by Matthew Thomson, an Associate at Dingley Marshall, for LexisNexis South Africa.

[Durban, 24 April 2020]

Following the declaration of the national state of disaster and subsequent lockdown period, consumers have been flocking to retail outlets and grocery stores to stock up as they prepare for the worst of the COVID-19 crisis and the potential of a full-scale lockdown. This sudden rise in demand has left suppliers of items like toilet paper, surgical masks and even basic foodstuffs with an almost unprecedented ability to manipulate and profit from radical price increases. Thankfully, on 19 March 2020, the Minister of Trade and Industry, Ebrahim Patel, stepped in to prevent such abuse.[1]

The regulations address the following:

  1. Excessive pricing by dominant firms;
  2. Unconscionable, unfair, unreasonable and unjust prices in the context of consumer transactions;
  3. Equitable distribution and maintenance of adequate stock; and
  4. Penalties

In terms of the regulations, a “price increase” means:

“the direct increase or an increase as a result of unfair conduct such as, amongst others, false or misleading pricing practices, covert manipulation of prices, manipulation through raising or reducing grade levels of goods and services.”

The regulations apply to the following categories of goods and services:

  1. Basic food and consumer items;
  2. Emergency products and services;
  1. Medical and hygiene supplies;
  2. Emergency clean-up products and services.

The regulations set out a list of goods that it applies to including but not limited to;

  • toilet paper;
  • hand sanitiser;
  • facial masks;
  • disinfectants and cleaners;
  • surgical gloves and masks;
  • disinfectant wipes;
  • antiseptic liquids;
  • all-purpose cleaners;
  • baby formula;
  • disposable nappies;
  • bleach;
  • cooking oils;
  • wheat flour;
  • rice;
  • maize meal;
  • pasta;
  • sugar;
  • long-life milk;
  • canned and frozen vegetables;
  • canned, frozen and fresh meat, chicken or fish;
  • bottled water.

Price gouging and excessive increases

Price gouging and excessive increases are addressed separately, by dominant firms in terms of the Competition Act 89 of 1998 (“the Competition Act”) and as against consumers in terms of the Consumer Protection Act 68 of 2000 (“the CPA”).

Excessive pricing by dominant firms

Section 8(1) of the Competition Act prohibits a dominant firm from charging an excessive price to the detriment of customers or consumers.

Regulations 4.1 and 2.2 provide that, during the period of the national disaster, where a price increase: that price increase is prima facie excessive or unfair and thus, that the increase is prohibited in terms of section 8 of the Competition Act.

The restriction on price increases imposed on dominant firms applies to any customer of those firms (natural persons, companies and even other dominant firms).

Excessive pricing to consumers

In terms of sections 40 and 48 of the CPA, suppliers may not engage in unconscionable conduct, unfair tactics and may not supply or agree to supply any good or service at a price that is unfair, unreasonable or unjust. This restriction on price increases, as it is imposed by the CPA, only applies to transactions where the CPA finds application.

Price increases, cost of providing and margins

It is important to note that the Minister, in restricting only the margin / mark-up on the prices of goods and services, has shown an appreciation of the reality of supplying goods and services during the COVID-19 crisis. Suppliers, not just consumers, face harsh price increases in their own supply chains, many of which are imposed from outside of South Africa and thus, beyond the control of our legislative measures. While consumers are protected by the regulations, suppliers are also afforded protection against abuse by dominant firms. These regulations seek to mitigate not against price increases per se but from excessive and opportunistic profiteering during a time of crisis.

Penalties

A dominant firm which contravenes the regulations may be investigated and is liable for the penalties imposed in terms of the Competition Act.

If a person or firm contravenes the regulations could be liable for:

  1. A fine of up to R1 000 000;
  2. A fine of up to 10% of a firm’s revenue; and
  3. Imprisonment for a period not exceeding 12 months.

The COVID-19 crisis and the national disaster which has been declared are unprecedented and new regulations are being published daily (see the Government Printing Works published Gazettes).

[1] https://www.lexisnexis.co.za/__data/assets/pdf_file/0011/753851/REGULATIONS-MADE-IN-TERMS-OF-THE-COMPETITION-ACT,-1998-ACT-NO.-89-OF-1998.pdf


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