Definition of the relevant market (Commission and AACMED)
USAP’s complaint here, which goes to the root of both referrals, is that neither the Commission nor AACMED have succeeded in defining a relevant market and hence both referrals are fatally flawed for want of alleging a necessary jurisdictional
fact.
USAP argues that in order to succeed with a claim in terms of section 4, a claimant must show that the respondents are competitors.
This is because section 4 requires the agreement to be one between firms in a horizontal relationship and a horizontal relationship is defined in the Act as being one between competitors. Firms can only be competitors, it is argued, if they compete within the same
market. This entails competing in respect of either substitutable products or services as well as in the same geographic market.
It is the latter aspect, which USAP alleges has not been pleaded properly, and hence no case is made out that the respondents are
competitors.
The Commission, they argue, has alleged that the geographic markets are local. For instance in paragraph 8.2.6 of her affidavit the
Commission’s investigator states:
“Competition between pharmacies occurs within a local area. Local in the present matter is used to refer to either town (in the case
of small towns) or a suburb or a township (in the case of big cities).
If this is so, USAP argues, it must allege which of the second respondents compete with one another locally, which it has not done.
Secondly it is improbable that all the second respondents who on the Commission’ s version are located in a number of local
markets could be competitors of one another. There is, USAP maintains, a disjuncture between the Commission’s market definition
and its theory of competitive harm. How can markets be local and harm be national?
In AACMED’s referral the geographic market is alleged to be local:
“The second and further respondents are competitors of one another in as much as each vies with the other second and further respondents
for custom within the suburbs, towns cities and surrounding areas in which they are located.”
However AACMED also allege that it is national.
“The second and further respondents also intermittently compete with one another on a national basis.”
USAP’s criticism of the market definition is that it is meaningless, vague and embarrassing and contradicts that of the Commission.
What the Commission contends for is to be found in paragraph 8.2.10 of the Complaint referral.
Here the Commission, in a concluding paragraph, allege:
“.. the geographic market should be defined as a local market for the retail of prescription medicines to members of the medical aid
schemes. The only case where the geographic market could be defined as national is in the case of chronic medication for which the
medical aid members may order using the order pharmacies.”
In our view both referrals attempt to define a relevant geographic market.
The Commission and AACMED have alleged that the respondent firms compete with one another on a local basis. AACMED go further to allege
that these local markets may also intermittently compete. Both then allege an agreement amongst the respondents nationally to deal
with AACMED members only on certain terms.
The agreement, it is alleged, has as its purpose placing pressure on AACMED via its members to restore its previous policy to payments
of discounts. There is thus a relationship between the manner in which the members of the second respondent class compete at a local
level and the object of the agreement viz. to use power in local markets collectively to force compliance nationally. The case is, as we understand it, one that seeks to establish a causal link between competition in local markets and the alleged national
boycott. It is thus not correct to state that no geographic market has been alleged - both pleaders have done so. For the purpose of pleading their case both the Commission and AACMED have made sufficient allegations to enable the respondents to
not only appreciate the case being made out against them, but also to answer in the manner required by Rule 16. Whether the theory
of harm made out is adequate or not is not a matter for exception, but for evidence and argument.
USAP’s error is to elevate a relevant market definition to the status of a prior jurisdictional fact. What must never be lost
sight of is that market definition serves as a “surrogate for detrimental effects”
Thus if a complainant can establish detrimental effects, elaborate market definition to establish market power is unnecessary as market
power is presumed from the existence of the anticompetitive effect.
We have made this observation albeit in a different context in the Natal Wholesale case where we stated:
“We do not share the respondent’s view that a formal market definition is a necessary precursor to an enquiry into an alleged
restrictive practice. We concur with the claimant that the purpose of defining a relevant market is to identify the exercise of market
power defined in the Act as ‘the power of a firm to control prices, to exclude competition or to behave to an appreciable extent independently of its competitors, customers or suppliers’ and that market definition is only a tool for estimating market power,
not a scientific test.”
What the Act requires by the notion that parties are in a horizontal relationship is an allegation that they are in the same line
of business. Neither the language of the Act nor the logic of how the section works requires that there be allegations that the respondents operate
in the same geographical market in order to be considered competitors. Take, for instance, the prohibition on dividing markets by
allocating territories, set out in section 4(1)(b). If the respondent’s argument is correct, such a practice could never be
instituted against those who divided markets before they were ever in one another’s markets. By definition, having divided
territories, they are not in the same geographic market, and indeed may never have been. It is ludicrous to suggest that for this
reason they would not be competitors.
The respondent of course might retort that in these situations the market dividers are potential competitors within the same geographic
markets and hence their a priori condition that they be competitors in a geographic market is still satisfied.
Yet this begins to become a more and more contrived argument, an attempt to re-construct a model whose initial premise is faulty.
The point nevertheless is that it is not a prior jurisdiction requirement that, at least for the purpose of section 4, a complainant
has to allege a relevant geographic market. Proof of an agreement between firms in the same line of business, which has the effect
of substantially preventing or lessening competition in a market, would suffice for a finding against the respondents, without a
finding of what constitutes the relevant geographic market. If that is so at the end of proceedings then it can hardly be required
of a complainant that they plead the relevant geographic market at the pleadings stage.
The real complaint of the respondent, although not articulated as such, is that the Commission and the intervenor have not alleged
what their theory of harm is. Whilst this may be a desirable feature of pleading it is not a sine qua non of a non- excipiable plea.
Both referrals contain sufficient factual material to enable the respondent to plead. They know who the respondents are, where they
are located, and what the actions constituting the alleged boycott are. Any other deficiencies that there may be are matters for
evidence.
Given what we stated earlier about our approach to pleadings being less demanding than in adversarial proceedings, we find that the
present referrals are adequately pleaded in this respect, for the purpose of enabling the respondent to understand and respond to
the case against it.
The exception in respect of the market definition fails in respect of both the Commission’s and the intervenor’s referrals.
Costs
Costs are relevant only between AACMED and USAP. As both parties have only been partially successful we make no order as to costs.
22 January 2003
____________________
N. Manoim
Date
Concurring: D. Lewis, M. Holden
For the parties:
CDA Loxton SC, AG Gotz, instructed by Webber Wentzel Attorneys (Intervening
Complainant)
JWG Campbell, instructed by Gildenhuys Van Der Merwe (Respondents)
For the Commission:
M. Simelane, Competition Commission
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