Abstract
Excessive pricing occurs when a dominant firm charges a price that is above prices that would prevail in competitive markets or under effectively competitive situations. Economic theory provides explanations for why one might be concerned about excessive pricing in terms of welfare harm to consumers and customers. However, the analytical framework used to assess whether prices are excessive in practice is highly contentious and open to subjectivity. To address this, the South African Competition Act was amended in 2019 to give more direction to the provision. This paper critically assesses the tests for excessive pricing, drawing on local and international case precedent. It further reviews the approaches used to assess excessive pricing under the introduction of the new price gouging provisions in South Africa following the Covid-19 pandemic. The study also demonstrates the complexity of the provision in recent excessive pricing cases internationally and the implications of the amendments to the Competition Act.
The study shows that in the absence of a ubiquitous test, it is crucial that in order to avoid errors, competition authorities strive to try and find the best approach for each particular case. Consequently, competition authorities should strive to examine an excessive pricing case by combining several methods among those which are accepted by standard economic thinking The convergence of results of multiple tests can be used as a robust indicator of excessive pricing.
Keywords: excessive price, price gouging, economic value, monopolist pricing, legal uncertainty, abuse of dominance, market power, consumer welfare.