Competition Tribunal finds against Computicket (Pty) Ltd fining it R20 million for having abused its dominant position by entering into exclusionary exclusive agreements

23 January 2019|In Competition Briefs eBriefs

Competition Tribunal finds against Computicket (Pty) Ltd fining it R20 million for having abused its dominant position by entering into exclusionary exclusive agreements

On 21 January 2019 the Competition Tribunal of South Africa (“the Tribunal”) found that over the period 2005 to 2010, Computicket (Pty) Ltd (Computicket), a subsidiary of Shoprite Checkers Group, had abused its dominant position in the market for outsourced ticket distribution services by entering into contracts with providers which contained exclusionary exclusivity provisions, in contravention of section 8(d)(i) of the Competition Act.  Computicket had a market share of between 95% to 99.1% over the complaint period.  As a result, the Tribunal has levied a penalty of R20 million, approximately 9% of Computicket’s turnover in 2017.

The Complaint was first submitted to the Competition Commission by Strictly Tickets CC in February 2008 and preceded subsequent similar complaints by Soundalite CC, KZN Entertainment New and Reviews CC, L Square Technologies, and Ezimidlalo Technologies CC between 2008 and 2009.  In terms of these complaints, Computicket, which had at one stage been seen as an innovator through the introduction of the concept of outsourced ticket distribution services, was alleged to have used exclusivity provisions in order to prevent more innovative competitors from gaining a foothold in the market because Computicket had not kept up with technological developments that threatened its business model.

Although Computicket had first been established in 1971, it only introduced exclusivity provisions in 1999, in response to the entry of a competitor, Ticket Web, a company which it subsequently acquired in 2002.  According to a former employee of Ticket Web, Computicket acquired this business in order “to maintain its dominant position in the market and to deter future potential competition such as Ticketweb”.  The Tribunal noted that when Computicket had first introduced exclusivity agreements, these “first generation” contracts had been for a limited period of up to 4 months and were event specific.  However, as the Tribunal noted, the position changed significantly after Shoprite Checkers acquired Computicket in 2005 from Naspers.

The Tribunal noted that following the acquisition of Computicket by Shoprite Checkers, the role and scope of engagement of the parent shareholder changed significantly.  In addition, the nature of the exclusivity contracts changed significantly in several respects.  For example, while the first generation contracts had been limited not only by a duration of four months, but also by being specific to a single event, the new contracts had a minimum duration of at least three years and covered all events at a particular venue.  A further point which was noted by the Tribunal was the fact that following the acquisition by Shoprite Checkers the number of exclusive contracts, which Computicket had entered into, increased from 58 in 2005 to 431 in 2008.

Important features of the conduct of Computicket which have been highlighted by the Tribunal included the “‘all or nothing’ policy adopted by Computicket.  In terms of this policy unless the client agreed to the exclusivity there would be no agreement available to them”.  This is an important feature because the Tribunal found that it points to the ability of a large dominant supplier to dictate terms to a customer.  Additional features pertained to the termination conditions, which required three months’ notice, failing which an automatic renewal of one year would kick in as well as the staggering of termination dates of contracts with various clients such that not more than one contract would ever be up for renewal at any given point in time.  According to the Tribunal, this conduct had the effect of ensuring that competitors of Computicket could never win over a significant amount of its customer base at any point in time, thus strategically raising barriers to entry.

In arriving at its decision, the Tribunal found that there was sufficient evidence to suggest that the exclusive contracts which Computicket had entered into with various providers had resulted in anticompetitive effects.  In this respect, the Tribunal noted that “[t]he strongest evidence was that of foreclosure of the market to effective competition during the complaint period.  Evidence concerning supra competitive pricing effects, a decrease in supply by inventory providers, a reluctance by Computicket to timeously make use of available advances in technology and innovation and a lack of choices for end customers, was consistent with the Commission’s theory of harm.  The cumulative effect of all these factors suggest that the Commission has established a case of anticompettive effect on a balance of probabilities.

We understand that Shoprite Checkers is likely to take the Tribunal decision on appeal to the Competition Appeal Court.

Changes to Competition Commission Departmental Heads

The following recent changes to departmental heads have taken place at the Competition Commission:

  • Lebohang Mabidikane, the former manager of Mergers and Acquisitions, is the new manager of the Cartels Division
  • Magale Mohlala, the former manager of Cartels, is the new manager of the Mergers and Acquisitions Division