The Fair Trading Commission (FTC) reports that it recently concluded its investigations into three allegations of predatory pricing. The allegations were made against enterprises in the cable television sector, construction and metal products sector and the supermarket sector. In each of the cases, the FTC found no evidence of predatory pricing.
Predation constitutes a class of anti-competitive behaviours in which prices are set so low so as to eliminate some competing undertakings and threaten the competitive process itself. Such behaviour are usually engaged in by a dominant enterprise; and are prohibited under section 20 of the Fair Competition Act. The section recognizes that predatory pricing impedes the maintenance or development of effective competition in the market. Even though in the short term, consumers might benefit from lower prices, in the longer term, weakened competition will lead to higher prices, reduced quality and less choice.
Set out below are synopses of the cases investigated:
- In the cable television sector, the allegation was against Telstar Cable Ltd., which published an advertisement in December 1999, offering three months of free cable service to subscribers who would switch from another cable company to Telstar within that month. The behaviour was alleged to be predatory. Essential to the Commission’s investigation, was the answer to the following question: if Telstar were to offer all its subscribers three months free rental, i.e., a reduction in revenues by 25%, would it still be profitable? If profits were still found to be positive even with a 25% reduction in revenues, then the special offer would not be below cost.
Using financial data provided by Telstar, the Commission ascertained that a reduction of Telstar’s revenue by 25% would not result in negative profits. It therefore concluded that the offer is not likely to have been below cost pricing. Furthermore, the duration of the offer was too short to have had any appreciable effect on competition.
- The complaint in the construction and metal products sector was against Tank Weld Metals Ltd. The Informant alleged unfair pricing of wire nails, zinc and alu-steel roofing sheets and welded wire fabric. Due to the limited amount of information provided in support of the allegation, an investigation was carried out with respect to nails only.
For the year 1999 and the period January to October 2000 Tank Weld’s estimated share of the Jamaican wholesale nails market was sufficiently large for it to be classified as dominant in that market. An analysis of Tank Weld’s prices and costs for two years up to the time of complaint, however, suggests very little evidence that its prices were below purchase costs. There was some indication of below cost pricing in only two months of the period analyzed. Even so, it was explainable by other factors.
- The allegation in the supermarket sector was against Super Plus Food Store and related to promotions in the form of a coupon scheme advertised in The Gleaner and The Observer, offering a variety of goods at discounted prices. In order to benefit from these discounted prices, the consumer must take the coupons to the participating stores. It was alleged that the discounted prices were below cost and therefore constituted predatory behaviour. An initial study of the promotion scheme in question, however, indicated that it does not meet the criteria of predatory pricing as it is not applicable to a sufficiently wide range of the product lines relevant to the market, i.e., the discounted goods constitute a small proportion of all goods sold in the supermarket. The Commission therefore did not take the investigation any further.
Although the FTC has found in all three cases, that the allegation of predatory pricing was unsupportable it has warned that it will continue to monitor the markets and will initiate investigations if there is any sign in the future that sustained below cost pricing is being practiced in a predatory fashion. A finding of predation or any other breach of the Fair Competition Act could lead to a penalty of up to one million dollars in the case of an individual or five million dollars in the case of a person other than an individual.