3.

Prohibited Practice of Abuse of Dominance

Introduction
• It is possible to draw a conceptual distinction between abusive conduct that ‘exploits’ (exploitative
conduct), and conduct that ‘excludes’ (exclusionary conduct):
o Conduct is exploitative where a dominant firm with market power uses its position of
dominance to extract higher profits from its customers.
o Conduct is exclusionary if it has the effect of excluding or impeding the growth or
maintenance of competition in the market.

Dominance
Dominance as a theoretical concept
• S7 of the Competition Act contains legal presumptions regarding when firms are deemed to be
dominant.
• If a firm falls within the ambit of the presumptions contained in s7 it will be subject to prohibitions
contained in s8 – 9 (dominance is a pre-condition)

Market Definition and Market Power

• Look @ topic 1 notes for a refresher.
• Market shares are a crude proxy for establishing dominance.
• They can be an indicator of market power, and thus of dominance, but a thorough assessment of
market power should, at least at a theoretical level, entail the following:
o The constraints imposed by existing competitors
o Consideration of the barriers to entry and expansion in the marker
o Competitive constraints can e exercised not only by competitors but also by customers.

Dominance as a legal concept

The Legal Test
• S6 competition act excl. firms of a certain size from the abuse provisions of the Act.
• Firm’s annual turnover/assets is less than R5 million, it cannot be subjected to the prohibitions
contained in s8 – 9 competition act.
• S6 is seen as a safe harbour for firms that are too small to be able to meaningfully alter the structure
of their markets.
• S7 sets out the legal test for when a firm will be deemed dominant.
• S7 provides the following:

• The Tribunal has held that a party alleging dominance must do more than simply allege in its
pleadings that a firm is dominant.
• Although parties are not required to give a precise figure of market shares, they are obliged to plead
the approximate market shares alleged, and on what basis those market shares are calculated.
• Market shares may be calculated using various measurements such as sales revenue, or the number
of goods sold.

Super-dominance
• The notion of ‘super-dominance’ presupposes that certain conduct may be abusive when it is
attributable to certain firms as opposed to others that are merely dominant.
• The stronger the dominant position of the firm in question, the greater the chance that exclusionary
conduct will have an anti-competitive effect.
• The SA Tribunal initially adopted the notion of super-dominance in a case involving excessive pricing.
 o Where a firm has a market share approaching 100%, it is super-dominant, and will
accordingly exercise its market power to set excessive prices for its goods or services to the
detriment of consumers.
• CAC criticised the Tribunal’s findings noting that the competition act does not refer to super-
dominance, and introducing this concept would ignore established principles of statutory
interpretation.
• Abuse of dominance provisions applies to all firms found to be dominant for the purposes of s7,
regardless of their degree of dominance.

Joint/collective dominance
• S7 refers to a firm being dominant, does this mean that firms can’t collectively be dominant?
• Joint/collective dominance is recognized in Europe however the position in SA is more complicated.
• The best way to deal with this is to possibly introduce an amendment that allows the competition
authorities to punish firms that co-ordinate their conduct.

Section 8 abuses
Introduction to conduct prohibited under s8
• S8 of the Competition Act provides that if a firm is found to be dominant, it is prohibited from
engaging in certain conduct.
• I.t.o s8, it is prohibited for a dominate firm to:
o charge an ‘excessive price’ to the detriment of consumers (s8(a))
o refuse to give a competitor access to an ‘essential facility’ when it is economically feasible to
do so (s8(b))
o engage in an ‘exclusionary act’, other than an act listed in s8(d), ‘if the anti-competitive effect
of that act outweighs its technological, efficiency or other pro-competitive gain’ (s8(c))
o engage in any of the following identified ‘exclusionary acts’, unless the firm can justify on the
same basis as in s8(c), quoted above:
▪ require or induce a supplier or customer not to deal with a competitor
▪ refuse to supply scarce goods to a competitor when supplying those goods is
economically feasible
▪ sell goods/services on condition that the buyer purchases separate goods/services
unrelated to the object of a contract, or forcing a buyer to accept a condition unrelated
to the object of a contract
▪ sell goods or services below their marginal or average variable cost
▪ buy-up a scarce supply of intermediate goods or resources required by a competitor.

Exclusionary conduct
Introduction to the Types of Exclusionary Conduct Prohibited under the Competition Act
• In broad terms, s8 prohibits what may be described as exclusionary abuses by dominant firms and
examples of this is:
o Refusals to give access to an essential facility
o Inducements not to deal
o Refusing to supply scare goods
o Buying up scarce resources
o Tying (and bundling)
o Predatory pricing

Anti-Competitive Effects
• From the types of conduct mentioned, it does not mean that the conduct is always anti-competitive.
o Why should a firm be punished for selling its goods at below cost? Why should it be forced to
deal with a rival? Why should it have to share access to a facility that it has developed?
• Exclusionary conduct caught by s8(c) and (d) of the Act is prohibited when:
o It is perpetrated by a dominant firm;
o It has an anti-competitive effect that cannot be justified on pro-competitive grounds.
• What is meant by “anit-competitive effect”? And, who must prove that it has occurred, or is occurring?
o In Europe, the competition authorities look at the degree to which the conduct serves to
impair competition.
▪ Jurisprudence has clarified that an anti-competitive effect must be “likely” although it
need not be actually observed.
 ▪ There is no de minimis threshold irt abuse of dominance.
▪ The need to show the likelihood of an anti-competitive effect is predicated on the
underlying theory that healthy competition increases consumer welfare.
o In US, s2 of Sherman Antitrust Act prohibits firms from engaging in conduct that can be
characterized as the wilful acquisition/maintenance of a position of monopoly power in a
market.
o In SA, in the SAA case, the tribunal described the meaning of “anti-competitive effect”
▪ Important finding regarding the approach to exclusionary acts under Competition Act:
• Confirmed that s8(c) is seen as a “catch-all” provision as if prohibits any
exclusionary act.
• This is in contrast to s8(d) which contains a closed list of types of conduct that
the legislature deems as being necessarily exclusionary.
• First step in assessing whether conduct is prohibited under s8(c) or (d) is to
determine whether it constitutes an exclusionary act under this section.
o Purposes of s8(c): does the conduct falls within the definition of
exclusionary act which is defined as “any act that impedes or prevents
a firm from entering into, or expanding within, a market’”
o Purposes of s8(d): does the conduct fall within the ambit of the
conduct described in ss (i) to (v), in which event the conduct is
presumed to be exclusionary.
• The next step is to determine whether the exclusionary act is anti-competitive
in effect. One of the two requirements must be satisfied according to the
Tribunal:
o Evidence of actual harm to consumer welfare
o If the exclusionary act is substantial/significant ito its effect in
foreclosing the market to rivals
• The tribunal held under s8(c) a complainant not only bears onus of
establishing that the conduct is exclusionary and anti-competitive in effect, but
also to negate any efficiency justifications claimed by a respondent to outweigh
the anti-competitive effect of the conduct.
• Under s8(d), respondent attracts the onus of proving any claimed efficiency
justifications.
▪ The tribunal ultimately held that SAA had abused its dominance contrary to s8(d)(i) by
using its incentive schemes to induce travel agents, who exercised significant
influence over consumers, not to deal with SAA’s rivals.
• It was held that the conduct was exclusionary in nature, and that the
Commission, although not furnishing any direct evidence of consumer harm
had led sufficient evidence to establish that the effect of the incentive schemes
was to inhibit SAA’s rivals from expanding in the market, while at the same
time reinforcing SAA’s dominant position.

Monopoly Leveraging
• Refers to a broad class of theories of harm which involve a firm acting in 2 different but related
markets.
• A firm may leverage its dominant position in one market in order to obtain a benefit in a related
market; alternatively, a firm with a dominant position in one market might use its conduct in a related
market to protect that dominant position.
• Monopoly leveraging (involves tying or bundling)
o Tying and bundling refers to practices involving the sale of more than one product in some
form of combination.
o US Supreme Court clarified that monopoly leveraging is not a distinct offence, but rather that
a monopoly leveraging claim musts prove why the conduct in the related market falls within
recognised classes of abusive conduct.
o To constitute monopoly leveraging, conduct must do more than merely result in a competitive
advantage in another market.
▪ Rather, it must be ‘predatory’ or ‘exclusionary’ with a ‘specific intent’ to monopolise
and have a ‘dangerous probability of achieving monopoly power.’
• The Tribunal has recognised that a dominant firm may infringe section 8 of the Competition Act
where it leverages its market power in one market to foreclose a rival in a different market.
Burden of Proof and Efficiency Justifications
• Under both s8(c) and 8(d) the complainant must establish that the respondent engaged in conduct
alleged to fall within the ambit of those sections, and that the conduct produces anti-competitive
effects.
• However, under s8(c), even where the complainant establishes that the respondent engaged in
conduct that produces anti-competitive effects, it is nevertheless also required to prove that the anti-
competitive effects of the conduct are not outweighed by any efficiency justifications.
• This is in contrast to s8(d) where once the complainant has established that the respondent engaged
in anti-competitive conduct proscribed in terms of s8(d)(i) to (v), and that the conduct produces anti-
competitive effects, shifts the burden of proving that any claimed efficiency justifications outweigh
anti-competitive effects of the conduct to the respondent.
• Where efficiency justifications are alleged by a respondent they must relate directly to the anti-
competitive conduct in question.
• Where efficiency justifications have been raised the competition authorities have to engage in a
balancing exercise, weighing up the anti-competitive effects of conduct with the alleged gains.
• Types of efficiencies that may eventuate from otherwise anticompetitive conduct could include:
o Increased output
o Lower prices
o More efficient distribution
o Improved services
o Increased services
o Increased incentives for innovation
• In the European Commission Guidelines, the EC proposed a 4-step test for assessing an efficiency
defence which helpfully be adopted in SA:
o Step 1:Do the efficiencies result from the conduct in question?
o Step 2:If yes, is the conduct ‘indispensable’ to the realisation of the efficiencies (that is, the
sine qua non test applied by the Competition Appeal Court in South Africa)?
o Step 3:If yes, do the efficiencies outweigh any negative effects on competition and consumer
welfare in the markets affected by the conduct?
o Step 4:Finally, does the conduct eliminate all of effective competition in the market or
markets?

Section 8(c): A “Catch-All” Provision

• s8(c) is a ‘catch-all’ prohibition, and is designed to catch ‘exclusionary acts’ that do not fall within the
ambit of the prohibitions contained in s8(d)(i) to (v)
• Competition Act defines an “exclusionary act” as one that impedes or prevents a firm from entering
into, or expanding within, a market.
• In the Senwes case the Tribunal made a finding that Senwes Limited had contravened s8(c) of the
Competition Act by engaging in an exclusionary act described as a ‘margin squeeze’
o Margin squeeze: instead of refusing to supply a downstream rival, a dominant undertaking
charges a price for a product or service upstream which does not allow even an equally
efficient competitor to trade profitably in the downstream market.
o In summary, the Tribunal held that in order to establish a ‘margin squeeze’ under s8(c), a
complainant would need to establish that:
▪ the supplier of the input (that is, the dominant firm) is vertically integrated
▪ the input in question is in some sense essential for downstream competition
▪ the dominant firm’s prices would render the activities of an efficient rival uneconomic
▪ there is no objective justification for the dominant firm’s pricing arrangement

Specific Exclusionary Conduct Under s8

Refusing to supply access to an essential facility (s8(b) of Competition Act)
• Elements of the prohibition:
o The firm accused of refusing access to the essential facility must be dominant, and the firm
refused access must be a competitor (typically downstream).
o The dominant firm must as a fact refuse access to the facility.
o The facility must be ‘essential’ as contemplated in the Competition Act.
▪ Ito s1 of the Competition Act, the first component of the definition of an ‘essential
facility’ refers to ‘infrastructure or [a] resource that cannot reasonably be duplicated’
 ▪ CAC has stated that resource cannot incl. products, goods or services.
o It must also be shown that it is ‘economically feasible’ for the dominant firm to supply access
to the facility in question.
• In SA, the leading case involved Telkom, and a complaint that it had abused its dominance as
contemplated in s8(b) by refusing rival ‘value added network service (VANS) providers’ access to its
telecommunications network infrastructure.
o Constructive refusal to supply access by Telkom; complaint made in 2002
o Telkom argued for exclusive access via Telecommunications Act
o Rejected; R449 million fine
o Tribunal finds no proof required of anti-competitive intent

Requiring or inducing a customer not to deal with a competitor (s8(d)(i) Competition Act)
• Elements of the prohibition:
o The complainant firm must be a competitor or potential competitor to the dominant firm
accused of requiring or inducing a customer not to deal.
o The dominant firm’s customer must be required or induced not to deal with the complainant
firm.
▪ Requiring a customer not to deal contemplates a contractual provision to this effect in
a supply agreement
▪ Inducing a customer not to deal contemplates something short of a contractual
stipulation, which will typically take the form of a financial incentive.
• Exclusive supply agreements and incentive schemes can be pro-competitive (may result in improved
customer service etc)
• Inducements need not take the form of written pricing or rebate schemes, and may take the form of
practical inducements.
• BATSA was accused of contravening s8(d)(i) of the Competition Act by supplying retailers with free
shelving units in return for preferential positioning of its cigarettes at retail points of sale.

Refusing to supply scarce goods to a competitor when it is economically feasible to do so (s8(d)(ii)

Competition Act)
• Elements of the prohibition:
o The respondent firm that is alleged to have refused to supply the complainant firm scarce
goods must be dominant.
o The dominant firm must refuse to supply the scarce goods, either expressly or through
constructive conduct, to a competitor or a potential competitor.
o The refusal to supply must be in respect of scarce ‘goods’.
o The good in question must be ‘scarce’
▪ There is at present no jurisprudence or guidance from the competition authorities on
the meaning of ‘scarce’ under s8(d)(ii).
▪ Considerations to guide us when determining if a good is scarce:
• The good in question should be reasonably required by the complainant firm in
order to compete.
• The lack of availability of the good should be objectively verifiable.
• Scarcity should not simply be determined with reference to a complainant’s
allegation that the respondent firm will not supply it with the good.
▪ It must be ‘economically feasible’ for the dominant firm to supply the good in question.

Selling goods/services on condition that the buyer purchases unrelated goods/services (tying) (s8(d)(iii)
Competition Act)
• Elements of the prohibition:
o Requires the sale of the tying good or service to be conditional on the acquisition of the tied
good or service.
o The tied product must be ‘unrelated to the object of a contract’.
o Whether or not products are to be regarded as distinct from one another is in turn a function
of consumer demand.
o Applies to conduct of a dominant firm that takes the form of coercion of a purchaser to accept
a condition unrelated to the object of a contract
▪ Sappi: Competition Tribunal held that this component to the prohibition simply reflects
the cautious approach of the legislature to ensure that dominant firms do not seek to
 evade the prohibition by leveraging their market power into a second market without
specifying the tied good or service.

Selling goods/services below their marginal/average cost (predatory pricing) (s8(d)(iv) Competition Act)
• Elements of the prohibition:
o Prohibits dominant firms from doing this unless it can be shown that doing so produces
technological, efficiency or other pro-competitive gains that outweigh any proven anti-
competitive effects.
o A complainant is required to establish that the dominant firm sold the goods or services in
question at below marginal or average avoidable cost.
▪ Marginal cost is the increase (or decrease) in the cost of production by producing
one extra unit.
▪ Average variable cost is the variable cost of each unit of output, calculated by
dividing the total variable cost by the number of units of output.
o Competition Act does not stipulate how long the dominant firm must have priced its goods or
services below cost. (not be a once-off occurrence)
o A complainant is also required to establish that the dominant firm’s conduct produces anti-
competitive effects.
▪ Media24: Tribunal held that where a complainant can produce evidence that the
dominant firm priced its goods or services below average avoidable, this would give
rise to a ‘very strong’ inference of anti-competitive effect.
o As regards rebuttal evidence, the Tribunal held that a respondent can lead evidence to rebut
the inference of anti-competitive effect but, unlike under s8(c), cannot lead evidence rebutting
evidence of exclusion in terms of s8(d)(iv)
o In the US, the Supreme Court has held that a complainant in a predation case must
additionally demonstrate evidence of ‘recoupment’.
o Direct intention: the Tribunal accepted that it could consider, albeit when assessed against
other evidence, evidence of subjective intent on the part of Media24 to foreclose competition.
o Indirect intention is based on circumstantial economic evidence that may give rise to an
inference that conduct is predatory.
o The Tribunal explained that the approach favoured by it as regards evidence of intention was
to use evidence of intention (direct and indirect) ‘in tandem’ with other evidence.

Buying-up a scarce supply of intermediate goods/resources required by a competitor (s8(d)(v)

Competition Act)
• Elements of the prohibition: (no case law)
o In order to succeed in establishing a contravention of section 8(d)(v), it would be necessary
for a complainant to establish the following:
▪ complainant would need to demonstrate that the dominant firm engaged in conduct
that falls within the ambit of the phrase ‘buying-up’ scarce goods or resources.
▪ Common-sense approach must be used when interpreting the quantities aspect.
▪ The requirement that the ‘good’ or ‘resource’ is ‘scarce’ suggests that legislature
contemplated that there should be a short supply of the good or resource, irrespective
of the conduct of the dominant firm.
▪ These goods or resources must be ‘intermediate’ in the sense that they are not
actually sold by the dominant firm in question.
• BUT are sold by third parties, and used as an input by firms in the manufacture
of products or the delivery of services in a market or markets in which the
dominant firm competes.
• 2-pronged Brooke Group Test:
o the plaintiff must prove that the alleged predatory bidding led to below-cost pricing of the
predator’s outputs, that is, costs must have risen to above revenues.
o there must be a dangerous probability of recouping the losses incurred in bidding-up input
prices through the exercise of monopsony power, which must be assessed on the basis of the
structure and conditions of the relevant market.