This article was first published by Business Day on 6 April 2023
Competition Commission Overreach
The Competition Commission has aroused the ire of mainstream economists and analysts with its latest Essential Food Pricing Monitoring Report for 2021 to 2022. It has charged the maize as well as the meat and poultry markets with ‘excessive pricing’. This time, even the halls of academia through the likes of Prof. Johan Kirsten of Stellenbosch University, shook in disagreement.
Proponents of the free market – such as the author here – have been writing about how unsound it is to posit that greed and other bogeyman reasons encourage price increases. This is unsound because there are other more rational explanations to such a phenomenon.
Prices are primarily influenced by supply and demand. Thus, investigating what may have caused a shortage in the supply chain would be more rational and reasonable than alleging that the ‘big bad’ businessmen are out to get consumers by gouging them.
Factors like the war in Ukraine, the drought in South America, and the strength or weakness of the Rand are a more reasonable justification. Ukraine is a major producer of maize, and its supplies have been lessened. Yet, demand for the crop is still at the levels it was before its supply was interrupted. Price increases are rational in a situation like this wherein supply decreases while demand stays the same.
Beyond the rational explanations, legally, it is irrational and thus unjust to conclude that a price is ‘excessive,’ given the subjectivity of value and the subjectivity of purchasing power among individuals. What is excessive to A may be reasonable or even cheap to B, and so on.
Acting on this subjective determination means the power of law is used to the advantage of some and disadvantage of others without any violation of rights by neither party. This is done by making things more affordable for one group, since we have established ‘excessive’ can never be objective, by forcing or rather strongly suggesting that another group of citizens reduce their prices or else.
If a potential customer feels that a price is excessive or too high then there are the options of not buying the good, seeking another alternative to it, or producing it yourself. This is the freedom of the market. The ease and ability to get an alternative or being one yourself and entering a market is what competition authorities should be concerned about. Not how much businesses who are being voluntarily patronized charge for products.
The legal basis of the Commission to even conduct the Essential Food Pricing Monitoring Report is questionable. According to section 21 of the Competition Act investigations into ‘excessive pricing’ for ‘essential foods’ are not part of the Commission’s functions.
The powers to conduct a market inquiry under Chapter 4A are expansive and discretionary to a large degree, since they are contingent on what the Commission believes to be impeding competition as laid out in section 43A and 43B (1)(a) of the Act. If the Report was an inquiry like say the Fresh Produce Market Inquiry that is supposed to be under way, then that would have a stronger legal basis.
Yet, the Monitoring Report is seemingly an opinion released by a regulator, that has the conclusion of charging firms in the mentioned markets with nefarious actions and motivations. A report with seemingly scant to no legal basis and end.
The accusation of excessive pricing contained in the Report is seemingly made outside of a section 43B market inquiry which would have necessitated firms being investigated, dominance being established through section 7 and then making the conclusion of an abuse of that dominance by charging an excessive price, as per section 8 of the Competition Act.
There is a prima facie case of regulatory overreach and overzealousness on the part of the Commission. The intent behind the Essential Food Pricing Monitoring Report is arguably noble in seeking to monitor the prices of what one deems ‘essential’ foods. Yet this is not the mandate of the Commission, unless it commits itself to conducting a formal inquiry and referring the excessive pricing charge to the Tribunal.
The reasoning used in the conclusions of the Report released by the Commission are quite unreasonable as has been outlined by economists. A more important issue though are the powers the Commission has, justified in law or not. Those powers and their exercise are what should be substantively questioned, as well as their benefit or lack thereof to the health of our economy coupled with our general prosperity.