Malherbe conceded that although firms were free to expand organically, they cannot remove existing competition in the market with impunity. Where the Competition Act was used to effect changes in what a firm could or could not do, the rule of reason approach should be used, with the burden of proof on the complainant.
The Competition Commission is asking the tribunal for an order to force SAB to remove the exclusivity section of its contracts with its appointed distributors and to extend discounts offered to its distributors to a wider class of sellers.
Malherbe testified before the tribunal that there was no evidence that the removal of exclusive territories would generally reduce costs, lower prices or increase service levels. He argued that the removal of the territories might weaken managerial control and decrease operational efficiency.
A decision by a firm to partially outsource a function was also not a ground for forcing it to outsource completely, or more extensively, Malherbe stated in a presentation.
The commission, in its investigation, has found evidence of market allocation and price-fixing in the agreements SAB concluded with its appointed distributors. They are given exclusive territories, with certain discounts and service fees, in exchange for meeting universal service standards and investing in the necessary infrastructure.
According to the Competition Act, an agreement between parties in a vertical relationship (such as SAB and its distributors) is prohibited if it leads to a major lessening or prevention of competition. The parties must show that the agreement leads to efficiency or other pro-competitive gains that outweigh the anti-competitive effects of the deal.
The commission's investigation followed a complaint in 2004 by the Big Daddy's Group, a wholesaler in the Eastern Cape, that it was not given the same bulk discounts as those offered to SAB's own distributors, thus impeding its expansion in the liquor distribution market.
The commission has argued that it would be beneficial for the distribution market if more competition was allowed between the SAB-appointed distributors and independent ones, although this would not necessarily lead to lower prices.
Malherbe said exclusive territories were an integral part of SAB's management system.
Without them, two considerable benefits for customers in outlying areas - a price cap and universal service - would be lost. Appointed distributors did not have pricing freedom, making them wholly different from wholesalers and resellers.
"The ADs (appointed distributors) are an integral, if small, part of the SAB system. Using ADs as a vice to prise open the far larger SAB depot system to market, instead of self-provision, seems inappropriate," Malherbe said.
Source: Business Day via I-Net Bridge
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