Rationale for Rationale for Competition PolicyCompetition Policy

PresentationPresentation

Presentation by: Busi NgwenyaPresentation by: Busi NgwenyaCompetition Commission SACompetition Commission SA

Purpose of the PresentationPurpose of the Presentation

What is Competition Policy and how What is Competition Policy and how is it different from Competition Law?is it different from Competition Law?

Objectives and Scope of Competition Objectives and Scope of Competition Policy and LawPolicy and Law

What are Anti-competitive Practices What are Anti-competitive Practices and how do they affect consumers?and how do they affect consumers?

A Merger AnalysisA Merger Analysis

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What is Competition?What is Competition?

Competition is defined as:Competition is defined as:““Rivalry between suppliers providing goods or services for Rivalry between suppliers providing goods or services for a market”a market”““The situation when anybody who wants to buy or sell has The situation when anybody who wants to buy or sell has a choice of possible suppliers or customers”a choice of possible suppliers or customers”

Policy is defined as:Policy is defined as:"Policy can be viewed basically as a course of action or inaction towards the accomplishment of some intended or desired end.  It embraces both what is actually intended and what occurs as the result of the intention" (Harman, 1978), http://www.slaq.org.au/SubCommittees/Murrumba/PD/whatispolicy.htm

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What is Competition Policy?What is Competition Policy?

Competition Policy:Competition Policy:The design, effective implementation and enforcement of The design, effective implementation and enforcement of competition lawcompetition law

Competition Law:Competition Law:To remove or prohibit (eliminate or curtail) restrictive To remove or prohibit (eliminate or curtail) restrictive business practices which hinder or prevent firms from business practices which hinder or prevent firms from competing freely with one another in domestic marketscompeting freely with one another in domestic markets

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Objectives and ScopeObjectives and Scope

Principle Objectives of Competition Law and Principle Objectives of Competition Law and Policy:Policy:

To improve economic efficiencyTo improve economic efficiency

To contribute to economic development, through To contribute to economic development, through innovationinnovation

Reduction of barriers to entryReduction of barriers to entry

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Objectives and ScopeObjectives and Scope

Secondary Objectives of Competition Law Secondary Objectives of Competition Law and Policy:and Policy:

Limit further increases in the concentration of Limit further increases in the concentration of economic power;economic power;

Create an enabling environment for small and Create an enabling environment for small and medium-sized companiesmedium-sized companies

Provide consumer choice and competitive pricingProvide consumer choice and competitive pricing

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Objectives and ScopeObjectives and Scope

Scope:Scope:

It applies or should apply to all economic It applies or should apply to all economic activities within the country or member states activities within the country or member states (Europe);(Europe);

Create an enabling environment for small and Create an enabling environment for small and medium-sized companiesmedium-sized companies

Provide consumer choice and competitive pricingProvide consumer choice and competitive pricing

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Objectives and ScopeObjectives and Scope

Malawian Act’s objectives:Malawian Act’s objectives:

To encourage competition in the economy by prohibiting To encourage competition in the economy by prohibiting anti-competitive trade practices;anti-competitive trade practices;To establish the Competition & Fair Trading CommissionTo establish the Competition & Fair Trading CommissionTo regulate & monitor monopolies & concentrations of To regulate & monitor monopolies & concentrations of economic power;economic power;To protect consumer welfare;To protect consumer welfare;To strengthen the efficiency of production & distribution To strengthen the efficiency of production & distribution of goods & services;of goods & services;To secure the best possible conditions for the freedom of To secure the best possible conditions for the freedom of trade;trade;To facilitate the expansion of the base of To facilitate the expansion of the base of entrepreneurship; andentrepreneurship; andTo provide for matters incidental thereto or connected To provide for matters incidental thereto or connected therewiththerewith

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Anticompetitive PracticesAnticompetitive Practices

Malawian Act’s definition:Malawian Act’s definition:

““Any category of agreements, decisions and concerted Any category of agreements, decisions and concerted practices which are likely to result in the prevention, practices which are likely to result in the prevention, restriction or discretion of competition to an appreciable restriction or discretion of competition to an appreciable extent in Malawi or in any substantial part of it”extent in Malawi or in any substantial part of it”

AgreementAgreement will include a contract, arrangement or will include a contract, arrangement or understanding, whether or not legally enforceableunderstanding, whether or not legally enforceable

Concerted practice Concerted practice means co-operative, or co-ordinated means co-operative, or co-ordinated conduct between firms, achieved through direct or indirect conduct between firms, achieved through direct or indirect contact, that replaces their independent action, but which contact, that replaces their independent action, but which does amount an agreement (SA Act)does amount an agreement (SA Act)

What the Law deals withWhat the Law deals with

Prohibited PracticesProhibited Practices Restrictive Horizontal Practices Restrictive Horizontal Practices Restrictive Vertical Practices Restrictive Vertical Practices Abuse of DominanceAbuse of Dominance

ExemptionsExemptions

Merger ControlMerger Control

Prohibited PracticesProhibited Practices

Two approachesTwo approaches

Rule of Reason ProhibitionRule of Reason Prohibition Adverse effects of restriction on Adverse effects of restriction on competition weighed against possible competition weighed against possible efficiency/pro-competitive gainsefficiency/pro-competitive gains

Per Se ProhibitionsPer Se Prohibitions No defense once provenNo defense once proven

Prohibited PracticesProhibited Practices

Two approachesTwo approaches

Rule of Reason ProhibitionRule of Reason Prohibition Horizontal and vertical Horizontal and vertical agreementsagreements

Per Se ProhibitionsPer Se Prohibitions Price fixingPrice fixing Division of marketsDivision of markets Collusive tenderingCollusive tendering Minimum resale price Minimum resale price maintenancemaintenance

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The Commission concluded a consent agreement with United South African Pharmacies (“USAP”), an association of retail pharmacies, in respect of conduct in terms of which USAP decided on a ‘group boycott’ against Anglo American Corporation Medical Scheme (“AACMED”) and Engen Medical Fund in contravention of the Competition Act. Complaints were lodged by AACMED and Engen Medical Fund respectively alleging that USAP, after the two schemes individually failed to agree to the discount offered by USAP on chronic and acute medication, ordered a ‘boycott’ to the effect that its retail pharmacies would not supply chronic and acute medication to AACMED and Engen Medical Fund. USAP further put the two schemes on its “C” list, which means ‘not recommended’, a list that USAP circulated to all its members. USAP also refused to give AACMED and Engen Medical Fund credit, thus requiring members of the two schemes to pay cash or buy on agreed credit terms.

Effect on consumersEffect on consumersEffect on consumersEffect on consumers

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In December 2006 the Commission referred a milk cartel investigation to the Tribunal for possible prosecution. The investigation had established that milk processors had exchanged sensitive information on production price, colluded to fix the selling price, allocate geographical markets and removal of surplus milk from the market amongst others. As a result most producers and small scale farmers were forced to exit the market as they were paid below market price and could not break-even and were prohibited from finding alternative markets for surplus milk. The country also faced severe milk shortages and retailers did not have milk on their shelves for weeks which had an impact on the economy and consumers, i.e. high prices and limited stock or no stock at all in certain areas.

Effect on consumersEffect on consumersEffect on consumersEffect on consumers

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VITAMIN CARTELSIn 2001, the European Commission fined eight companies (among which Hoffman-La Roche) for their participation in cartels designed to eliminate competition in the vitamin sector. Vitamins are used in a wide variety of products, such as cereals, biscuits, drinks, animal feed, pharmaceuticals and cosmetics. This was reflected in the fine of more than EUR 800 million. For almost 10 years, the companies were able to charge higher prices than if there had been real competition between them, harming consumers and allowing the companies to make illicit profits.

CAR SALES BETWEEN EU MEMBER STATESIn 1998, following many complaints from consumers, the European Commission fined Volkswagen AG EUR 90 million for banning its Italian dealers from meeting orders from German and Austrian customers attracted by lower prices in Italy. It is illegal for car manufacturers to discourage their dealers from selling to customers resident in other EU Member States. The European Commission publishes a six-monthly review of pretax car prices in each of the EU Member States to help consumers to identify the country in which the car they might want to buy is cheapest

Effect on consumersEffect on consumersEffect on consumersEffect on consumers

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Facilitates entry into markets, especially Facilitates entry into markets, especially of new productsof new products

Encourages innovation and efficiencyEncourages innovation and efficiency

Prohibits collusionProhibits collusion

Promotes or encourages expansion within Promotes or encourages expansion within marketsmarkets

Benefits of competitionBenefits of competitionBenefits of competitionBenefits of competition

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Does not seek to change the structure of Does not seek to change the structure of the market;the market;

Monopolies may continue to earn Monopolies may continue to earn monopoly profits;monopoly profits;

Applies to domestic markets only;Applies to domestic markets only;

Must not contradict other economic Must not contradict other economic policies affecting competitionpolicies affecting competition

Some limitations on Some limitations on Competition LawCompetition Law

Some limitations on Some limitations on Competition LawCompetition Law

ZIKOMO/THANK YOUZIKOMO/THANK YOU

QuestionsQuestions

DiscussionDiscussion

ClarificationClarification