The case against Media24 for anti-competitive behaviour was a predation case “at the highest level”, Neil Dryden, an economist at Compass Lexecon, told the Competition Tribunal yesterday.
The case, which was first heard last year, resumed yesterday and will continue until the end of the week. It will resume again next month.
Dryden is a witness for the Competition Commission, which has asked the tribunal to fine Media24 10 percent of its annual turnover in terms of section 59 of the Competition Act, which caps the penalty at no more than 10 percent of revenue for the preceding year.
Cases alleging below-cost pricing are rare in competition matters. It is the first case of its kind that has been brought before South Africa’s tribunal.
The commission has argued that Media24 is guilty of contravening section 8 of the Competition Act. It alleges that between 2004 and 2009, Media24 deliberately drove its competitor, Gold Net News, out of the market for advertising in community newspapers. Media24 allegedly did this by positioning its Goudveld Forum as a “fighting brand” against Gold Net and running Goudveld at a loss until Gold Net eventually closed down in 2009.
Media24 published two community newspapers, Vista and Goudveld, in Gold Net’s market during the period. Goudveld and Gold Net were considered direct competitors.
According to Dryden, the definition of predation included a predatory strategy that involved the sacrifice of profit relative to non-strategic profit maximising conduct. It is motivated by the marginalisation or exclusion of a rival and the resulting increase in market power and profits.
It involved short-term price cuts to exclude a rival, with price increases following the exit of the competitor.
“Price cutting by Goudveld Forum is not a necessary part of the theory of harm. However, the level of Goudveld Forum’s prices is a lever that affects the intensity of the conduct,” Dryden added.
The test of sacrifice in this case are the costs that Media24 would have avoided if it had not operated Goudveld Forum during the complaint period.
A study by Compass Lexecon found that Goudveld ran at negative profit margins during the complaint period from January 2004 to February 2009.
Media24 has argued that it budgeted for a profit every year, which proved it did not intend to run Goudveld at a loss.
But Dryden said “a budget approach is not necessarily a reasonable forecast”. He said the tribunal could not use Media24’s budget to work out if it was running at a loss. A reasonable forecast was a better measure.