Original Research

Focal point pricing: A challenge to the successful implementation of Section 10a (introduced by the Competition Amendment Act)

Mike Holland, Jannie Rossouw, Jessica Staples
South African Journal of Economic and Management Sciences | Vol 18, No 3 | a803 | DOI: https://doi.org/10.4102/sajems.v18i3.803 | © 2015 Mike Holland, Jannie Rossouw, Jessica Staples | This work is licensed under CC Attribution 4.0
Submitted: 29 November 2013 | Published: 25 August 2015

About the author(s)

Mike Holland, Pricemetrics and Gibs
Jannie Rossouw, University of the Witwatersrand, South Africa
Jessica Staples, Cambridge University

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The Competition Amendment Act introduced section 10A, which provides the Competition Commission with the powers to investigate complex monopoly conduct in a market and allows the Competition Tribunal, under certain conditions, to prohibit such behaviour. Although more than five years have elapsed since the Competition Amendment Act was promulgated, this provision has yet to come into force. However, when it eventually does so, it will mark a significant change in South African competition law, as it seeks to regulate firms’ consciously parallel conduct. This is coordinated conduct that occurs without communication or agreement, but results in the prevention or substantial lessening of competition. Examples of horizontal tacit coordination practices include price leadership and facilitating practices, such as information exchanges and price signaling. The successful implementation of the amendment poses problems for the competition authorities in assessing the competitive effects of complex monopoly conduct and in providing effective remedies. Oligopoly markets result in mutual interdependent decision-making by firms, which can lead to market outcomes similar to explicit collusion. However, a further and little noticed issue is that firms in oligopolistic markets have opportunities to use focal points to determine coordinated strategies. This paper explores the nature and role of focal point pricing, which can lead to prices that are above competitive levels. The South African banking industry is used as an example. We find that focal point pricing is difficult to control, making the successful implementation of section 10A even more problematic. Moreover, the proposed amendment provides scope for the imposition of structural remedies by the Competition Tribunal, a function that the Competition Tribunal is ill-suited to perform.


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