Introduction to Competition Policy & Law Cornelius Dube National Training Workshop under the 7up4 Project

What is Competition? The process of rivalry between firms striving to gain sales and make profits Motive: self-interest, but outcome mostly beneficial for the society Competition is not just an event, but a process It is not automatic – needs to be nurtured

Benefits from Competition Efficiency and Innovation Economic growth (private sector development) Consumer welfare gains Lower prices, better quality, More choice Easy access

What is competitiveness? It is a comparative concept Refers to ability and performance of a firm, sub-sector or country to sell and supply goods and/or services in a given market. Focus is not on how that ability arose, whether fair or unfair becomes a competition issue. Firm competitiveness compares a firm with its rivals in terms of ability and supply terms for goods. National competitiveness captures the awareness and preparedness of a country to challenges posed by global competition

Promoting Competition Curbing Anti-competitive Practices Competition Reforms COMPETITION REFORMS Promoting Competition Curbing Anti-competitive Practices COMPETITION POLICY COMPETITION LAW

Impediments to Competition? Government Policy Difficult entry/exit conditions Non-transparent public procurement Implications of other policies Anti-competitive Practices Restrictive Business Practices Unfair Trade Practices (misleading advert, tied-selling, false claims, etc.) Lack of awareness and understanding Lack of buy-in among policymakers Absence of public demand and support

Competition Policy National Competition Policy Statement Government commitment to promote competition in all sectors Could result in refinement of other policies (trade policy, industrial policy, investment policy, public procurement policy, etc.) Ideally, a precursor to a competition law Very few countries have a national competition policy (e.g., Australia, Botswana, Mozambique, etc.)

Competition Law Sub-set of Competition Policy Aims to protect process of competition and not competitors Consist of a set of rules to curb ACPs Sets up the Competition Authority Over 120 countries have adopted National and Regional Competition Law Often Competition Policy and Competition Law used interchangeably – NOT CORRECT

Provisions under a Competition Law Anti-competitive practices prohibited fall under three categories: Anticompetitive agreements (all laws) Abuse of Dominance (all laws) Anticompetitive Mergers (most laws) Competition Advocacy is also provided for (many laws) Competition authorities are also set up under a competition law Administrative issues governing the operations of the competition authorities

Competition Authority Agency created as per the provisions of the Competition Law Legislated structure and functions Main functions – investigative (Competition Commission) and sometimes adjudicative (Competition Tribunal) Need to maintain functional autonomy, and be accountable Try to gain public support for its actions Perform the function of competition advocacy effectively and promote competition culture Cooperate with other regulatory agencies

Anticompetitive agreements Are of two types: Horizontal agreements and Vertical agreements Horizontal agreements- firms in same business (competitors) agreeing not to compete Includes cartel agreements which are prohibited Bid rigging agreements Output restrictions Price fixing Market allocation Vertical agreements involve firms enjoying a supplier customer relationship Exclusive supply/purchase agreements Tie-ins Resale price maintenance

Abuse of dominance A firm in a dominant position prohibited from abusing the position Occurs in two ways: Exploitative and exclusionary practices Exploitative practices are those meant to exploit customers of the dominant firm Excessive pricing Discrimination Tied selling Exclusionary practices are those aimed at driving competitors out of business Predatory pricing Refusal to deal Hoarding raw materials

Anticompetitive mergers and Acquisition Firms may try to cheat competition through mergers. Three types of mergers: Horizontal; vertical and conglomerate Horizontal mergers involve competitors and most harmful to competition as they reduce the number of players Vertical mergers include firms in a supplier-customer relationship and can result in foreclosure Conglomerate mergers involve firms in different lines of business, and the fear is the “deep pockets” concern where firms become so huge with big financial resources which they can abuse.

Competition Enforcement and Consumer Welfare QUALITY ACCESS CHOICE PRICE Market Allocation Cartel restricting access Poor quality goods/services by a firm abusing dominant position Tied-selling restricting consumer choice Price-fixing cartel leading to excessive prices Competition Authority’s Enforcement Actions

Conclusions Competition enforcement leads to consumer welfare National stakeholders need to recognise their role in promoting competition Competition agencies in DC and LDCs need to strengthen their communication/dissemination functions Policymakers/Government need to prioritise competition reforms Development partners/donors need to support the process

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