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Dis-Chem fined R1.2m for its ‘exploitative’ behaviour

Inflating face mask prices during a pandemic ‘reprehensible’ – Competition Tribunal.
Poorer customers would have been unable to access the first-line protection, so vital in a pandemic, due to the exorbitant increases. Image: Moneyweb

Pharmaceutical giant Dis-Chem has been found guilty of price gouging during the Covid-19 pandemic and ordered to pay R1.2 million for its actions.

The case was heard by the Competition Tribunal after the Competition Commission received complaints from the public about excessive pricing for masks.

In its findings, the tribunal found that Dis-Chem failed to explain why its price increases were reasonable.

It says, therefore, that the retailer charged an excessive price for three types of surgical face masks (SFM 50, SFM 5 and Folio50) to the detriment of consumers during March 2020.

“In our view, Dis-Chem’s massive price increases of surgical masks during the complaint period, which constitute an essential component of life-saving first-line protection in a pandemic of seismic proportions, without any significant increases in costs, are utterly unreasonable and reprehensible.”

The tribunal highlights that although the first case of Covid-19 in South Africa was only reported on March 5 and the National Disaster proclaimed on March 15, South Africans had already been affected by the spread of the coronavirus from January, with global supply chains and international travel disrupted and events being cancelled.

“It is common knowledge that the Covid-19 outbreak has led to an increase in global demand for personal protective equipment (PPE) of which surgical masks constitute an essential component. This increase in demand is reflected in the massive increases in Dis-Chem’s own sales volumes from January onward,” it says.

Power exerted

According to the commission, Dis-Chem exerted market power by increasing its face mask pricing to significant levels.

One of the increases, it noted, took place on the very day that South Africa’s first Covid-19 case was announced.

As a result, the commission found that in the context of a global health crisis, with high demand for surgical masks, considered essential in the fight against Covid-19: “Dis-Chem has demonstrated that it enjoyed and exerted market power by materially increasing its prices, without a significant increase in costs, and a significant increase in margins.”

Consumers disadvantaged

The commission said it has shown that Dis-Chem engaged in excessive pricing to the detriment of consumers, as there were material price increases of the magnitude of 47% to 261% without corresponding increases in costs of any goods in a country. It said this would seriously affect the public interest adversely, considering the country’s long history of economic exclusion and deep inequality.

“Material price increases of surgical masks, without corresponding costs justifications, in the context of Covid-19 for which there is no discernible cure and where health services are skewed towards the wealthy, would seriously impact vulnerable and poorer consumers even more.

“Poorer customers would have been excluded from accessing the masks by such exorbitant increases; other customers would have spent more on these items as a percentage of their disposable income,” it said.

Penalty conclusion

In determining an appropriate penalty, the commission considered the extent of Dis-chem’s overcharge, aggravating and mitigating factors, and the deterrent effect on consumers who desperately needed to purchase masks.

“The exploitative conduct of Dis-Chem of excessive pricing was particularly reprehensible. It exploited customers desperate to lay their hands on an essential item in the fight against a pandemic of global proportions, with potential consequences for consumers and public health ….

“Notwithstanding its professed commitment to the interests of consumers, Dis-Chem elected to increase its prices of surgical masks by exorbitant percentages in the context of the life-threatening outbreak of Covid-19. To this end, we consider its conduct was not only exploitative of vulnerable consumers, especially the poor, but was especially egregious.”

It added that the aggravating factors far outweigh any mitigating factors.

It describes Dis-Chem’s behaviour as “exploitative” to the detriment of consumers and “reprehensible”, therefore requiring a hefty penalty.

“We find that an appropriate penalty, in this case, would be R1 200 000.”

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If the Competition Tribunal finds that Dis-Chem exploited the pandemic to boost prices they should have the b*lls to impose an appropriate penalty. R1.2 million for them is laughable and is no deterrent. It’s an insult to the consumer and shows in whose favour the Tribunal operates.

In a free-market economy, where many companies compete for the client’s money, and where that client is free to shop around or to postpone the transaction, no company is able to exploit that client.

Now, when it comes to a command economy where the state enforces its monopoly on the distribution of essential products and services, there is no protection or alternatives for the consumer. There is no freedom of choice. The consumer is captured to be plundered. This is Eskom and the price of electricity. Where is the competition commission in the case of all these exploiting SOEs?

No, they only act against private companies. This is how the state abuses its power to make laws to act against its competition in the free market. Eventually, after they have destroyed the alternatives for the consumer, the state presents itself as the only solution.

The competition commission is a step towards total state control and central planning. Those individuals who support the action against this provider of services and products to the consumer, are lambs that are purposefully and playfully running towards the abatoir.

The Competition Tribunal have proved one thing: they are against free market principles. Economists spent centuries debating what constitutes a “fair price”. After all this lengthy deliberation they concluded that this was that which was agreed upon by the buyer and the seller. What they are really saying is that they are instituting a form of price control and sellers are not free to set prices. Price controls lead to empty shelves by depriving the market of important pricing signals. High prices are the cure for high prices as super profits attract competition like bees to the honeypot. The Competition Tribunal is clearly clueless about fundamental tenets of economics and why command economies fail every time. There is no law dictating profit margins in a free market. What DisChem did was maintain availability of the item and thus should be lauded not fined.

There are many places where one can purchase masks. If you don’t like one supplier then you are free to patronise another.

I salute another brave “freedom fighter”, a brother in arms! We can take your line of reasoning it a step further.

The lowly criminal uses any leverage at his disposal to break into a branch of Dis-Chem. This thief physically exerts himself and runs the risk of being arrested when he uses a crowbar to remove the burglar bars and to break in to steal one expensive face mask.

Another criminal is much more innovative. He also uses leverage to steal a face mask, but he does not exert himself in the slightest. This thief walks in the door in broad daylight, pretend to pay the full price, and walks off with the mask. He uses the law as leverage to force Dis-Chem to lower the price of the facemask to a level that suits him. This criminal uses the competition commission as leverage to break in at Dis-Chem.

The fact that he used the law to take some portion of the property of another person does not make him less of a thief though. It is legalised plunder. The law can act against illegal plunder that is committed by the use of a crowbar, but the law is impotent to act against legalised plunder that is committed by the use of a combination of a vote and a pen.

This is why legalised plunder is much more destructive than corruption. We all point to the Guptas. They are a small irrelevant cog of illegal plunder, harmless in comparison, within the enormous machine of legalised plunder that is the ANC government.

I totally disagree! 200% rise in price is ridiculous..

I totally disagree! 200% rise in price is ridiculous.. the tribunal looked at various factors such as supply and sale of these products elsewhere and at what point Dischem inflated prices. As a holder of DCP R1m is nothing, I wish they appeal for reduction and move on.. stop trying to play innocent. Let’s jus move one from the bad news. Fair price is not always determined by mere acceptance by the consumer..

You have a right to your opinion and I thank you for sharing it. How many people do you provide with face masks and what is your price?

My point is that we are supposed to have a free market, a free society, where property rights are supposed to be respected. You are supposed to be able to deal with your property as you please. If you don’t like the way other people deal with their property, then avoid them. Punish them by supporting their opposition. Ignore them until they go bankrupt. By all means, that is your right. But to throw the law at someone because he does not want to part with his property is not fair. The input costs or the previous price are irrelevant.

If Dis-Chem does not want to sell their masks, if they want to display it on the shelves and use a high price to prevent customers from taking their display piece, then it is certainly within their right.

If I visit your house and I want that precious vase in your display cabinet and you don’t want to sell it to me at any price, can I take you to the competition commission?

You are faced with a choice: empty shelves or masks available at a price. You choose the former like the Soviet Union did. You are conveniently ignoring the demand side of the equation. If demand increases so must the price. Mask makers will make masks until their marginal revenue equals their marginal cost and total average cost. Then they will stop as the marginal cost will now exceed the marginal revenue. To increase mask production, the marginal revenue must rise. This is basic economics 101. What is a little harder i.e. less basic is pricing. DisChem must price the masks to maximise profit. If they price too low we have empty shelves and lost opportunity. If they price it too high then we have unsold goods and lost opportunity as shoppers recoil in horror and go elsewhere. As they do in a free market.

Now if only they will grow a set of B…s and investigate Mr #Hamilton Ndlovu’s astronomical 500% pricing for masks and nearly 800% pricing for IR Thermometers (the tender schedules shows his pricing).
He who spent more than R10m buying cars for his Gran (Porsche), his wife (Maserati), his kids (2 x Porsche’s) and a Jeep Trackahawk for himself – all in one day during lockdown!!
I am not decrying the spending spree and good luck to him for winning the R400m tender – but price gouging is the issue for me.
When tenders are involved there is investigations by the Competition Comm. Am not sure why that is??

I saw many others pushing much more expensive masks online and via unsolicited email advertising. Where are the reports of those, less high profile companies (probably hastily set up shelf companies), being fined? Were they maybe politically connected people selling some of the free masks SA got from China?

Is that R1.2m to be paid to Dis-Chem customers who were ripped off, or to some government department to misappropriate?

End of comments.





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