Commission is trying to scapegoat Dis-Chem in price gouging case, says lawyer

Dis-Chem, which is currently answering a case of price gouging, has accused the Competition Commission of “scapegoating” the pharmaceutical retailer to show the public that it can prosecute excessive pricing as the country battles the coronavirus pandemic.

The retail group appeared before the Competition Tribunal on Monday after the Commission charged it with abusing its dominance and charging excessive prices for surgical masks to the detriment of customers and consumers.

The Commission accused Dis-Chem of pushing through two price increases, on 14 and 26 February 2020, while its average cost of sourcing each mask declined over that period. The company effected four more price increases in March, according to the Commission’s heads of argument.

The competition regulator wants the Tribunal to fine Dis-Chem 10{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} of the group’s total turnover.

Penalty ‘must send a clear message’

“The Commission’s approach is that the penalty must match the conduct, and this has been reprehensible conduct. It must set indication. A clear message must be sent that deters all other firms and Dis-Chem again from engaging in the same conduct,” said the Commission’s Litigation Manager, Candice Slump.

However, Advocate Michelle le Roux, who represented Dis-Chem, said a fine equal to 10{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} of its revenue would be “shockingly inappropriate”. She said it would amount to an “unexplained eagerness for scapegoating Dis-Chem” and to find “a good company to make an example of”.

Demand and supply shocks

Le Roux said Dis-Chem was forced to temporarily increase prices of masks because of product shortages and inflated quotes it was receiving from suppliers. The demand for face masks spiked 12 times in January 2020 and in February it breached 500 000 for just that month, while Dis-Chem only received about half of the masks it ordered. The quotes it received from suppliers were highly inflated, she added.

Le Roux argued that the retailer followed on the footsteps of competitors like Clicks and Takealot, who also reacted to this supply shock by increasing their prices, but that Dis-Chem kept its price adjustment lower than that of other retailers.

“The Commission clearly wants to set an example with this case. But, again; the facts of this case are not a good example,” she said before accusing the Competition Commission of “cherry picking” evidence that would make its case.

“This case actually tells the story of competition and markets that are working. We are dealing here with markets that have been disrupted to a level never seen before. We see spikes in demand. We see complete collapses in supply,” she said.

She said the Commission has chosen to ignore price movements before the promulgation of the Consumer and Customer Protection and National Disaster Management Regulations on 19 March. The Regulations sought to prevent unjustified price hikes and stockpiling of goods to protect consumers.

Dis-Chem is not the first company to be charged by the Commission, but Le Roux said the retailer has cut its prices for masks twice since the global supply stabilised, ad the first cut was before the Commission approached the group about price gouging complaints.

But the retail group is refuting that it unjustifiably increased its prices or that it has market dominance or temporary monopoly caused by Covid-19. Le Roux said Dis-Chem’s direct competitors, other pharmacies and online retailers also sold the surgical masks and the retailer only held 35{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} market share.

The hearing will continue on Wednesday, 6 May.

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