EXCESSIVE PRICING AND PRICE HIKING BEFORE AND AFTER COVID-19

The effect of the initial Level 5 national lockdown not only instilled anxiety and fear of the unknown in all South Africans, but this fear of the unknown, amongst others,lead to panic buying which resulted in a number of essential items running low or completely out of stock at most retailers.

Essential household items as well as newly regarded essential items such as hand sanitisers, etc., received renewed attention especially in so far as terms such as “price hiking” and “excessive pricing” are concerned.

Consumers in South Africa are generally protected from excessive pricing by section 8(a) of the Competition Act, 89 of 1998 (“Competition Act”), which prohibits a dominant firm (a leader in its industry) ­­­­­­­­­­­­­­­­­from charging an excessive price to the detriment of its consumers. A consumer does not only include the consumer in general, but also retailers.

In terms of the Competition Act, an excessive price is defined as:

  • a price that has no reasonable relation to the economic value of the product; or
  • a price that is higher than the value referred to in (a) above.

What amounts to price hiking or excessive pricing, especially in so far as essential goods during lockdown are concerned? For instance, a pharmacy commences production of its own hand sanitisers and puts a slight mark-up on the product and thereby making it slightly more expensive than a similar product that could be purchased from a chain store. Would that amount to excessive pricing or price hiking? The answer is quite simple. In determining what constitutes an excessive price, the following facts should be considered:

  • The actual price charged;
  • The economic value of the product;
  • If the price exceeds the economic value, it must be determined whether the difference is unreasonable; and
  • If the price charged is indeed unreasonable, it must be established if it is to the detriment of the consumer.

A producer of a product is accordingly entitled to place its own mark-up on a product that it produces and sells. Going back to the pharmacy scenario above, in arriving at a reasonable mark-up for the hand sanitisers produced in-house, production and bottling costs would, amongst others,need to be taken into account in arriving at the mark-up. Unless the mark-up is unreasonable, and bearing in mind that the production costs and bottling costs might be slightly higher to this pharmacy as it does not mass-produce hand sanitiser in the same volume as a mass-distributor would, then the elevated price cannot be regarded as a “hiked price” or an “excessive price” – obviously, provided that the price is still reasonable.

If, however, this pharmacy purchases ready-made hand sanitisers and then hikes the price and sells it on to the consumer at an unreasonable inflated price, it could be regarded as price hiking and/or excessive pricing in terms of the Competition Act. The above conduct will also amount to an infringement of the Regulations promulgated in terms of the national Disaster Management Act, 57 of 2002

The economic value of a product is accordingly something that is not determined purely based on supply or demand but also takes the cost of production and supply into account.

Consumers may report any price hikes or unjustified price increases to the National Consumer Commission.

Author: Madeleen Charsley

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