Administrative penalties: Impact and alternatives

Abstract

Administrative penalties are imposed in South Africa for a specified set of prohibited practices. These are typically the most egregious anti-competitive acts, and therefore the main purpose of administrative penalties is to act as a deterrent, both to the offending firm and to other firms that may consider engaging in similar behaviour. With a spate of high-profile cases resulting in fines, there has been much discussion over fines and their ultimate impact on businesses and consumers. We discuss three arguments that have been raised. Firstly, we consider whether companies simply pass the cost of their fine through to consumers in the form of higher prices. Secondly, we look at the validity of the complaint that high fines could lead to poorer competitive outcomes due to firm exit. Thirdly, we assess suggested alternative mechanisms for disbursing the fine such as paying the fine in the form of lower prices.