reference guide final - sadc

CAPACITY BUILDING TRAINING & TECHNICAL ASSISTANCE TO THE REGIONAL COMPETITION AUTHORITIES IN THE SADC REGION Project 9.ACP.RPR.007 – Contract No. 59/TA/TradeCom/P77

Competition Policy in the SADC Region A Reference Guide Massimiliano Gangi/Derk Bienen March 2010

Submitted by

bkp DEVELOPMENT RESEARCH & CONSULTING

CAPACITY BUILDING TRAINING & TECHNICAL ASSISTANCE TO THE REFERENCE GUIDE REGIONAL COMPETITION AUTHORITIES IN THE SADC REGION (AOR.67-P77) PAGE i

REPORT COVER PAGE

Project Title: Capacity Building Training & Technical Assistance to the Regional Competition Authorities in the SADC Region

Project No. Project 9.ACP.RPR.007 – Contract No. 59/TA/TradeCom/P77

Country: SADC Member States

Contracting Authority Project Partner Contractor Name: PMU of the Tradecom Facility

Programme Southern African Development Community Secretariat

BKP Development Research & Consulting GmbH

Address:

Av. des Gaulois N° 20 B-1000 Brussels Belgium

Private Bag 0095 Gaborone Botswana

Romanstr. 74 80639 Munich Germany

Tel. number:

+32 2 743 00 20 +267 395 1863 +49 89 52 300 694

Fax number:

+32 2 743 00 29 +267 397 2848 / 318 1070

+49 89 52 300 696

Email address:

[email protected] Chris.Addy-Nayo@ tradecom-acpeu.org Kervin.Kumapley@ tradecom-acpeu.org

[email protected] [email protected]

[email protected]

Contact persons:

Mr. Chris Addy Nayo Mr. Kervin Kumapley

Ms. Boitumelo Gofhamadino Mr. Gladmore Mamhare

Ms. Ramona Kettenstock Dr. Derk Bienen

Date of report: 25 March 2010 Authors of report: Massimiliano Gangi, Derk Bienen Acknowledgements This reference guide has been prepared as part of a project funded by the ACP-EU TradeCom Facility. The authors are grateful to the participants of the Regional Seminar on Competition Law and Policy organised by the SADC Secretariat in Gaborone, Botswana, in August 2009. The following persons have provided most helpful comments to an earlier version of this document: Chris Addy Nayo (TradeCom), Trudi Hartzenberg (tralac), George Lipimile (UNCTAD), Thula G. Kaira (Zambia Competition Commission), Alexander Kububa (Competition and Tariff Commission of Zimbabwe), and Gladmore Mamhare (SADC). Many thanks to all of you! The content of this report is the sole responsibility of the authors/BKP Development and can in no way be taken to reflect the views of the Southern African Development Community, the European Union or the TradeCom Facility.

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TABLE OF CONTENTS

LIST OF BOXES, CASES, CHECKLISTS, TABLES AND FIGURES................................ VI

ACRONYMS ........................................................................................................ VII

INTRODUCTION ............................................................................................ 1

Object and Purpose of the Reference Guide ................................................... 2

Organisation and Structure of the Guide ........................................................ 2

Use of the Reference Guide ........................................................................... 4

PART I: COMPETITION LAW AND POLICY – AN INTRODUCTION ................ 5

1 INTRODUCTION ........................................................................................... 7

2 OBJECTIVES OF COMPETITION LAW AND POLICY ......................................... 9

3 ANTICOMPETITIVE PRACTICES .................................................................... 14

3.1 Collusion and Horizontal Agreements .................................................... 15

3.2 Vertical Restraints ................................................................................ 19

3.3 Abuse of Dominance ............................................................................ 23

4 MARKET STRUCTURES AFFECTING COMPETITION: CONCENTRATION ........... 28

4.1 Horizontal Concentrations .................................................................... 31

4.2 Vertical Concentrations ........................................................................ 33

4.3 Conglomerate concentrations ............................................................... 33

5 SUMMARY ................................................................................................... 35

6 SUGGESTED READINGS ............................................................................... 36

PART II: COMPETITION LAW ENFORCEMENT ............................................ 39

1 INTRODUCTION .......................................................................................... 41

1.1 Principles for Competition Law Enforcement .......................................... 41

1.2 Enforcement Tools ............................................................................... 42 1.2.1 Market Observation and Inquiry ................................................................... 43 1.2.2 Data Collection Methods during Investigations ............................................... 44

1.3 The Standard Investigation Process ...................................................... 46

1.4 Remedies and Penalties ....................................................................... 48 1.4.1 Remedies .................................................................................................. 49 1.4.2 Penalties ................................................................................................... 49

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2 THE ASSESSMENT OF MARKET POWER AND DOMINANCE ............................. 53

2.1 Definition of the Relevant Market .......................................................... 53 2.1.1 Conceptual Issues ...................................................................................... 54 2.1.2 Methods and Sources of Information ............................................................ 58

2.2 The Determination of Market Power and Dominance .............................. 60 2.2.1 Conceptual Issues and Indicators ................................................................. 60 2.2.2 Procedure, Methods and Sources of Information ............................................ 62

3 COLLUSION AND HORIZONTAL AGREEMENTS .............................................. 70

3.1 Cartel Agreements ............................................................................... 70 3.1.1 Identification of Cartels – What Needs to be Determined? ............................... 70 3.1.2 Types of Evidence ...................................................................................... 71 3.1.3 Discovering Cartels – Issues to be Considered ............................................... 76 3.1.4 Alleged Justifications for Cartel Conduct ........................................................ 79

3.2 Other Forms of Horizontal Agreements ................................................. 80 3.2.1 Examples of Non-Collusive Horizontal Agreements ......................................... 81 3.2.2 Treatment of Non-Collusive Agreements by Competition Authorities ................. 82

3.3 Suggested Readings ............................................................................ 84

4 VERTICAL RESTRAINTS ............................................................................... 85

4.1 Effects of Vertical Restraints ................................................................. 86 4.1.1 Avoidance of Double Price Mark-up .............................................................. 86 4.1.2 Prevention of Free-riding in the Distribution (Downstream) Sector ................... 87 4.1.3 Prevention of Free-riding in the Manufacturing (Upstream) Sector ................... 89 4.1.4 Market Foreclosure ..................................................................................... 90 4.1.5 Facilitation of Collusive Behaviour ................................................................ 91

4.2 Assessment of Vertical Restraints ......................................................... 92

4.3 Suggested Readings ............................................................................ 94

5 ABUSE OF MARKET DOMINANCE .................................................................. 96

5.1 Treatment of Exploitative Practices ....................................................... 96 5.1.1 Excessive Pricing ........................................................................................ 96 5.1.2 Price Discrimination .................................................................................... 98

5.2 Treatment of Exclusionary Practices .................................................... 100 5.2.1 Predatory Pricing ...................................................................................... 100 5.2.2 Refusal to Deal and Denial of Access to Essential Facilities ............................ 103 5.2.3 Tie-ins .................................................................................................... 104 5.2.4 Price Discrimination .................................................................................. 106

5.3 Suggested Readings .......................................................................... 106

6 REVIEW OF MARKET CONCENTRATIONS .................................................... 108

6.1 Approaches to Merger Control ............................................................ 108

6.2 Assessment of Concentrations – the Process ....................................... 112 6.2.1 Definition of the Relevant Market ............................................................... 112 6.2.2 Assessment of Competition Effects ............................................................. 114

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6.2.3 Assessment of Efficiency Effects................................................................. 115

6.3 Information Needs and Sources for the Assessment of Concentrations .................................................................................. 117 6.3.1 Types of Information Required .................................................................. 117 6.3.2 Sources of Information ............................................................................. 117

6.4 Effective Remedies for Mergers .......................................................... 119

6.5 Suggested Readings .......................................................................... 122

PART III: OTHER RESPONSIBILITIES OF COMPETITION AUTHORITIES 123

1 COMPETITION ADVOCACY ......................................................................... 125

2 COMPETITION POLICY AND CONSUMER PROTECTION ................................ 133

REFERENCES ............................................................................................. 136

SUBJECT INDEX ........................................................................................ 139

ANNEX: EXCERPTS OF SADC COMPETITION LAWS .................................. 141

Objectives of Competition Law ................................................................... 143

Definitions of Dominant Position ................................................................. 144

Abuse of Dominance .................................................................................. 146

Regulation of Horizontal Agreements .......................................................... 150

Regulation of Vertical Agreements .............................................................. 154

Regulation of Market Concentration/Mergers ............................................... 159

Remedies and Penalties ............................................................................. 177

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LIST OF BOXES, CASES, CHECKLISTS, TABLES AND FIGURES

Boxes Box 1: The relationship between total economic welfare and consumer welfare .............................. 10 Box 2: Protection of competition vs. protection of competitors – an example from Italy ................... 12 Box 3: Determination of the relevant product market based on demand substitutability – an

example: the soft-drink industry ...................................................................................... 56 Box 4: Determination of the relevant product market based on supply-side substitutability – an

example: the paper industry ............................................................................................ 57 Box 5: Direct measurement of market power .............................................................................. 64 Box 6: Calculating market shares – the role of the informal sector ................................................ 65 Box 7: Concentration ratio and HHI – calculation and comparison ................................................. 67 Box 8: The South African Corporate Leniency Policy (CLP) ........................................................... 73 Box 9: The Areeda/Turner rule ............................................................................................... 102 Box 10: Merger thresholds in US competition law ...................................................................... 109 Box 11: Defining the relevant market in merger cases – a soft drink industry example .................. 113 Box 12: Advocacy activities of the Zambian Competition Commission aimed at the public .............. 125 Box 13: Cooperation between the competition authority and regulators – the South African

experience .................................................................................................................. 129

Case Summaries Case 1: Cartel among suppliers of vitamins in the European Union ................................................ 16 Case 2: Prohibited resale price maintenance in the South African car industry ................................ 19 Case 3: Market foreclosure effects of exclusive dealing in the German ice cream market ................. 21 Case 4: Merger review in the market for the retail supply of jet fuel in Zambia ............................... 31 Case 5: General Electric Company/Honeywell International Merger – Different interpretations of

a conglomerate merger by competition authorities ............................................................. 34 Case 6: Cartel agreement in the pre-cast concrete industry in South Africa – the role of leniency

programmes in cartel detection ........................................................................................ 74 Case 7: Price parallelism and concerted practices in the wood pulp market in the European

Union ............................................................................................................................ 75 Case 8: Collusive arrangements in the Zimbabwean Dry Cleaning and Laundry Services Sector –

cartel detection in the absence of a competition culture ...................................................... 76 Case 9: Cartel agreement in the Italian market for boat paint – market characteristics

facilitating collusion ........................................................................................................ 78 Case 10: Foreclosing vertical restraints/abuse of dominance in fast moving consumer goods,

Mauritius ....................................................................................................................... 85 Case 11: Excessive pricing in the South African steel industry ....................................................... 98 Case 12: Predatory pricing in the organic peroxide market in Europe (the AKZO case) .................. 102 Case 13: Refusal to deal as an abuse of dominant position in the market for airport-related

services in the European Union ...................................................................................... 103 Case 14: Tying by a non-dominant firm: the Ilford case, UK ....................................................... 106 Case 15: Price discrimination as an exclusionary device – replacement tyres in France (the

Michelin case) .............................................................................................................. 107 Case 16: Horizontal and conglomerate effects in a merger in the personal care products in the

European Union ........................................................................................................... 112 Case 17: Unsubstantiated claims of merger efficiencies in a merger case in the market for the

supply of soft-drink beverages in Zimbabwe .................................................................... 116

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Case 18: Merger between national retail chains of sport and outdoor apparel and equipment in South Africa – use of different sources of information ....................................................... 118

Case 19: Merger assessment in the nickel and cobalt product markets by the European Commission – the importance of remedies ...................................................................... 120

Case 20: Complementarity between competition enforcement and advocacy - Discriminatory and excessive pricing in the Zambian sugar market .......................................................... 126

Checklists Checklist 1: Competition policy objectives .................................................................................. 13 Checklist 2: Analysis of competition laws .................................................................................... 35 Checklist 3: Determination of the relevant market ....................................................................... 60 Checklist 4: Identifying dominance ............................................................................................ 69 Checklist 5: Identifying and assessing cartels ............................................................................. 80 Checklist 6: Competition advocacy .......................................................................................... 132 Checklist 7: Consumer protection – the role of competition authorities ........................................ 135

Tables Table 1: Objectives of competition policy in selected SADC and other countries .............................. 11 Table 2: Treatment of horizontal agreements in selected SADC countries ...................................... 18 Table 3: Treatment of vertical restraints in selected SADC countries .............................................. 23 Table 4: Specific practices of abuse of dominance listed in selected SADC country competition

laws ............................................................................................................................. 25 Table 5: Merger definitions in selected SADC country competition laws.......................................... 29 Table 6: Data collection methods and anticompetitive practices .................................................... 45 Table 7: Remedies foreseen in selected SADC Member States ...................................................... 49 Table 8: Use of penalties against competition law violations in selected SADC countries .................. 51 Table 9: Market share thresholds for assumption of dominance in selected jurisdictions .................. 61 Table 10: Importance of efficiency effects of vertical restraints depending on product and

market characteristics ..................................................................................................... 93 Table 11: Provisions on competition advocacy in selected SADC countries ................................... 127

Figures Figure 1: Focus areas of competition policy/law ............................................................................ 7 Figure 2: Market structure, anticompetitive and unfair trade practices ........................................... 15 Figure 3: Typology of abuse of dominance ................................................................................. 23 Figure 4: Competition law addresses structural and behavioural threats to competition ................... 41 Figure 5: The standard process of investigations against potential anticompetitive practices ............ 47 Figure 6: Competition law sanctions .......................................................................................... 48 Figure 7: SSNIP test flowchart .................................................................................................. 55 Figure 8: Determination of dominance – procedure ..................................................................... 63 Figure 9: Types of evidence usable in cartel detection ................................................................. 72 Figure 10: Treatment of non-collusive horizontal agreements – procedure ..................................... 83 Figure 11: Determination of predatory pricing – procedure ......................................................... 101 Figure 12: Merger assessment procedure – overview................................................................. 111

ACRONYMS CLP Corporate Leniency Policy

CR Concentration Ration

EC European Commission

HHI Hirschman-Herfindahl Index

ICN International Competition Network

OECD Organisation for Economic Cooperation and Development

RPM Resale Price Maintenance

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SADC Southern African Development Community

SLC Substantial Lessening of Competition

SSNIP Small but Significant Non-transitory Increase in Price

UNCTAD United Nations Conference on Trade and Development

WTO World Trade Organisation

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INTRODUCTION The promotion of trade and investment within SADC regional integration arrangements has placed increasing emphasis on the development of appropriate competition policy regimes. Article 25 of the SADC Protocol on Trade provides that Member States shall implement measures within the Community that prohibit unfair business practices and promote competition. Also, the Protocol acknowledges that the establishment of a framework of trade co-operation among Member States based on equity, fair competition and mutual benefit will contribute to the creation of a viable Development Community in Southern Africa. The desire to establish effective national competition law and policy regimes in all SADC Member States is also one facet of the Regional Indicative Strategic Development Plan adopted by SADC Heads of State and Government in Dar-es-Salaam in August 2003. One of the obstacles still to be overcome is that SADC Members are at different stages of development and implementation of competition policy, with some countries (e.g. South Africa, Tanzania, Zambia and Zimbabwe) having ten years and more of experience and others still in the process of enacting competition laws or establishing authorities to enforce those laws (e.g. Angola, Botswana, Lesotho, Madagascar, Mozambique and Seychelles). In 2008, the SADC Committee of Trade Ministers adopted the SADC Declaration on Regional Cooperation in Competition and Consumer Policies (Co-operation Model). The Declaration provides for effective co-operation, establishment of the Competition and Consumer Law and Policy Committee and functions of the SADC Secretariat. The SADC Member States committed themselves to cooperate in the development and implementation of competition laws. The SADC Secretariat prepared a Regional Competition and Consumer Policy Programme Roadmap which was adopted by the Competition Committee at its inaugural meeting in August 2008. Stage 1 of the Programme (2008/9) focused on adoption of the model, establishment of the Competition and Consumer Committee and developing a work programme. The first stage took place from April 2008 to March 2009. Stages 2-4 cover the period from April 2009 to March 2012, and the focus is on capacity building, cooperation in the enforcement and harmonisation and soft convergence of laws. This reference guide hopes to contribute to the harmonisation process by strengthening the skills of officials in new competition authorities as well as newly hired officials in established competition authorities in the SADC region. If competition officials across countries undergo joint training, learning from each other, and are exposed to the same training documents this should contribute to a more harmonised enforcement practice in the region. Furthermore, the guide presents laws, enforcement practices and cases applied in SADC countries in a comparative perspective, thus showing areas of variance and opportunities for convergence within the region.

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Object and Purpose of the Reference Guide There is a vast literature on competition law and policy, including case study collections, tool books and textbooks. This reference guide is prepared for newly appointed competition officers to assist them with the implementation of competition law. It therefore approaches the topic from the point of view of the competition officer and attempts to provide pragmatic, hands on support to his or her tasks. This approach has several implications: � The reference guide does not assume extensive knowledge of competition

matters. It only requires knowledge of vary basic concepts of competition issues, and a background in law or economics;

� The guide does not discuss the economic rationale for competition law. A number of excellent textbooks are available, details of which are provided in the references section.

� Legal drafting issues are not covered in this document. It focuses on the enforcement of laws. Excellent support for the development of laws and regulations is available from other sources, such as UNCTAD, the World Bank, OECD or the International Competition Network (ICN), usually in the form of model laws and toolkits. Again bibliographical details and websites are provided in the reference section.

Competition law enforcement requires knowledge of the competition laws and by-laws of the country. This reference guide does not go into enforcement details for each SADC Member State, nor is it an enforcement manual. Rather, it explains the typical concepts, tools and procedures which are applied by competition authorities as part of their competition law enforcement mandate. For users of this guide this means that they need to get well acquainted with the provisions of their competition laws, regulations and guidelines, and keep them in mind when working through the document. The document has benefited from the contributions made by representatives of SADC competition authorities at a Regional Seminar on Competition Law and Policy organised by the SADC Secretariat in Gaborone, Botswana in August 2009. During the seminar, recent investigations of cartel agreements, abuses of dominant positions and competition-restricting mergers were presented by Competition Authorities in SADC Member States and discussed in order to exchange national experiences and lessons learnt. Some of the cases presented at the seminar have been used in this reference guide for illustrative purposes.

Organisation and Structure of the Guide The reference guide consists of three main parts. Part I recalls the basic concepts of competition law and policy, by drawing some examples from SADC Members and other jurisdictions. However, keeping in mind that the focus of this reference guide is on enforcement issues, Part I has been kept short and is no substitute for legal books and training manuals on competition issues. For the purpose of getting a deeper insight into competition concepts, officials should consult the specialised literature. Useful readings are provided in the reference section.

Coverage of this reference guide, comparison with text books and model laws

This document is to be read in conjunction with national competition laws, regulations and guidelines

Part I: Basic concepts


Part II addresses enforcement issues in more detail. It starts with a general introduction of principles, enforcement tools, and remedies and penalties usually applied under competition laws. It also describes the standard process applied by competition authorities in most cases of investigations against restrictive practices. Chapter 2 presents in more detail the assessment of market power and dominance. The remaining chapters in part II address the different types of anti-competitive behaviour – collusion and horizontal agreements (chapter 3), vertical restraints (chapter 4) and abuse of dominance (chapter 5) – as well as the treatment of mergers and acquisitions (chapter 6). A large section of the guide deals with cartel agreements, which are considered the most harmful forms of anti-competitive practices, with serious consequences for consumer welfare and economic development, in all jurisdictions in both developing and developed countries. The global emphasis of anti-trust enforcement on the repression of cartel arrangements appears to have become a policy priority also in some SADC Member States, such as South Africa and Zambia. Finally, Part III addresses certain responsibilities of competition authorities other than the treatment of restrictive practices and market concentration: Competition advocacy is addressed in chapter 1. The relationship between competition and consumer protection policy has been included in the guide (chapter 2) because the linkages between competition and consumer protection are increasingly important, particularly in the Southern African Region. At the end of main chapters as well as at the end of the guide, we provide lists of important references including, wherever possible, web links to facilitate access to the documents. References have been selected in order to guide users of the document in their further study of the subject. Therefore, a limited number of text books (for further study of economic issues behind competition policy), model laws (further study of legal issues) is listed, complemented by some further suggested readings. A list of useful websites is also provided. A subject index helps the reader to find key terms used in the document. A glossary of terms has not been included – the reader is referred to the excellent “Glossary of Industrial Organisation Economics and Competition Law” prepared by the OECD (1993).1 Last but not least, the annex provides excerpts of competition laws and draft competition laws organised by subject. The status of these laws is as per end of 2009. The purpose of the annex is to provide a comparative overview of the similarities and differences between SADC Members’ competition laws, not to provide the basis for any enforcement activity. It goes without saying that any enforcement activity of competition authorities must always be in compliance with the competition law and by-laws in force at the time of activity.

1 Full bibliographical details (and web links, where available) for all sources mentioned in this guide are provided in the References section.

Part II: Enforcement issues

Part III: Other responsibilities of competition authorities

References for further study

Subject index

Annex: Competition law excerpts


Use of the Reference Guide The guide aims to both be an instrument for self-study and facilitate formal training sessions. In the case of self study, users can read through the document from beginning to end or focus on those chapters and sections of interest. Case studies, examples and exercises have been separated from the main text and can be studied with the main text or separately. At the end of many sections a checklist of issues treated helps the user to revisit main concepts; we suggest that the user should answer the issues listed in the checklist for himself/herself and discuss them with colleagues. For further study of cases, it is suggested that the original case descriptions consulted (for European, American and South African cases these are available freely on the internet). The document can also be consulted as a reference book, by using the subject index. For formal training of competition officials the reference guide can be used as a text book, complemented by additional material for case studies. A course would typically last one full week and could be structured as follows:

Time Topic Training material

Day 1 – morning Course overview, introduction to competition law and policy Introduction to enforcement issues

Part I Part II chapter 1

Day 1 – afternoon Definition of the relevant market Assessment of market power

Part II chapter 2

Day 2 – morning Collusion and horizontal agreements Part II chapter 3 Day 2 – afternoon Collusion and horizontal agreements – exercises

and cases Additional case studies (trainee contributions)

Day 3 – morning Vertical restraints Part II chapter 4 Day 3 – afternoon Abuse of dominance Part II chapter 5 Day 4 – morning Abuse of dominance – exercises and cases Additional case studies (trainee

contributions) Day 4 – afternoon Review of market concentrations Part II chapter 6 Day 5 – morning Review of market concentrations – exercises and

cases Additional case studies (trainee) contributions

Day 5 – afternoon Other responsibilities of competition authorities Part III

Self-study

Classroom Training


PART I: COMPETITION LAW AND POLICY – AN INTRODUCTION


1 INTRODUCTION Competition in a market-driven economy can be defined, by and large, as the struggle among supplying firms to obtain buyers’ patronage for their goods and services. Competition can be compared to rivalry. According to the characteristics of the specific market, such rivalry can take many different forms: firms may compete on the basis of several variables, such as price, quality levels, range of products, etc. Vigorous competitive pressures most often generate incentives for firms to operate in the most efficient manner. Firms are forced to minimise costs and to offer their goods and services at the lowest possible prices and best quality levels in order to maintain or increase their share of the market. Failing to do that, they risk losing part or all their clientele to rival firms. Also, competition can be expected to contribute to advance technological innovation and to promote the introduction of new products and services to the benefit of industrial users and final consumers. Firms, however, may consider it preferable to obtain the ability to exercise market power, i.e. the ability to hold discretionary power with respect to the prices charged or to the other strategic variables through means other than normal market rivalry. In particular, they may be able to avoid competing by resorting to restrictive business practices, such as, for example, engaging in price-fixing cartel agreements. They might also abuse an existing dominant position in the market in order to exploit customers or exclude competitors from the market. Finally, firms might change the market structure in such a way as to reduce competition, through mergers and acquisitions. Figure 1: Focus areas of competition policy/law

Competition policy and law

Abuse of dominance Restrictive practices

(collusion)

Mergers & acquisitions

(concentration)

Exploitat ive pract ices (excessive pricing...)

Exclusionary pract ices (predatory pricing, refusal

to deal...)

Hard-core cartels (price fixing, bid rigging,

market allocation...)

Horizontal mergers

Vert ical restraints(resale price maintenance,

exclusivity agreements…)

Vert ical mergers

Conglomerate

mergers

Other horizontal

agreements(R&D joint ventures…)

Such competition-distorting business practices can be viewed as market failures often causing substantial losses in terms of economic efficiency and consumer welfare for the involved markets as well as for the economy as a whole. In


particular, by resorting to anti-competitive practices, firms may reduce output compared to a competitive situation and therefore succeed to increase prices, transferring resources away from consumers to the benefit of producers. Competition policy is the public instrument aimed at the elimination of such types of market failures. In line with the three types of behaviour just mentioned, the key focus areas of competition areas are restrictive practices, abuse of dominance and merger control (Figure 1). In the following sections, we provide a brief summary of competition policy objectives, the types of anti-competitive practices and the response of competition law.


2 OBJECTIVES OF COMPETITION LAW AND POLICY

A spectrum of different views exists across countries and often within countries with respect to defining precisely the objective, or objectives, of competition policy. At one end of the spectrum, proponents of an economic or market efficiency approach to competition policy, believe that the pursuit of economic efficiency – understood as either total economic welfare or consumer welfare – should be the main objective of competition policy. Although total welfare and consumer welfare often go hand in hand, there are certain cases – most often occurring in mergers – where an increase in total welfare may come at the expense of a reduction in consumer welfare. Box 1 provides further details on this issue. Competition laws should be – but rarely are – clear which of the two welfare concepts is to be considered superior. This is also true in the SADC region where most competition laws seem to indicate in the statement of their purpose that they put more weight on consumer welfare but remain essentially vague as to which of the two concepts has priority. If laws do not provide adequate guidance about the underlying objectives to be pursued, then the competition authority should devise a policy on how to deal with cases of conflict between total and consumer welfare. Again, this is not often the case. Nevertheless, judging by case law and practice, most countries assign greater importance to the obtainment of consumer welfare than to total welfare: in many jurisdictions, business practices which may reduce consumer welfare are not justified on the ground that they bring overall benefits to the economy as a whole. At the other end of the spectrum, proponents of the need to take into account other objectives for competition policy in addition to economic efficiency and welfare, believe it is important to take into account other social and political goals as well, on the basis of each particular national legal and economic structure. These other objectives often include the pursuit of “public interest”, “equity” or “fairness” through the enforcement of competition policy. Other examples are the support of small businesses and the maintenance of fairness and honesty in the marketplace. In addition, particularly with regard to the control of mergers, some jurisdictions have pointed to the need to take into account the effects that changing market structures can have on employment levels and on the development of local communities, particularly in terms of plant closures and relocation of production facilities.

Core objective of competition policy: efficiency. Total welfare vs. consumer welfare

Other objectives of competition policy


Box 1: The relationship between total economic welfare and consumer welfare

Economists do not always agree on how to judge possible different allocations of the gains from economic efficiency. In some cases, enhanced efficiency may bring about an increase in total economic welfare, because the increase in producer surplus and profits counterweighs reductions in consumer welfare. A typical example is a merger which allows the merging parties to significantly reduce their fixed costs while at the same time decreasing consumer welfare because of higher prices arising from increased concentration, might still increase total welfare (because the increased profits outweigh the consumer welfare losses). The following table shows typical effects of different anti-competitive practices on consumer and total welfare. Practice Effect on consumer welfare Effect on total welfare

Collusion/restrictive practices Tacit collusion negative, although firms are not able to set

the monopoly price neutral

Explicit collusion negative, firms set their profit maximising price

negative due to deadweight losses from cartel members' coordination activities

Abuse of dominance Exploitative practices

Excessive pricing, rationing, etc.

negative, firm sets profit maximising price neutral

Price discrimination � Quantity discounts: positive � 3rd degree price discrimination:

ambiguous (some lose, some gain)

� Quantity discounts: positive � 3rd degree price discrimination:

ambiguous Exclusionary practices Predatory pricing � Short-run (predation period): positive

� Long-run: negative � Short-run (predation period): positive � Long-run: negative

Strategic investments Ambiguous (efficiency gains from investment prevail)

Ambiguous

Tying � Positive if efficiency tying � Ambiguous if tying as price discrimination � Negative if exclusionary tying

� Positive if efficiency tying � Tying as price discrimination:

ambiguous - positive if total sales increase, negative otherwise

� Negative if exclusionary tying

Refusal to deal Negative. Negative

Exclusionary price discrimination

Negative (long-term) Negative

Mergers Ambiguous:

� Negative: increased market power increases prices

� Positive: efficiency effects (economies of scale, synergies in administration, R&D, etc.)

Ambiguous (depending on efficiency gains)

Vertical restraints

Ambiguous: � positive: efficiency effects of vertical

restraints � negative: exclusionary vertical restraints,

strategic use of vertical restraints for collusion, vertical restraints solving commitment problem

Ambiguous.


Table 1: Objectives of competition policy in selected SADC and other countries

Country Enhance

competition

Pro

mote

efficiency

Pro

mote

competitivene

ss of th

e

economy

Pro

mote

innovation/

adapta

bility

Enhance

welfare

of th

e

people/

consumers

Pro

tect

consumers

Pro

mote

employment

Pro

mote

national

pro

ducts

Pro

mote

SMEs

Pro

mote

spre

ad of

ownership

Economic

Fre

edom

SADC Lesotho �

Malawi � � � � �

Mauritius �

Mozambique � � � � � � � � �

Namibia � � � � � � �

Seychelles �

South Africa � � � � � � � � �

Tanzania � � � � �

Zambia � � �

Zimbabwe � Other countries EC � � �

India � � �

Hungary � �

Spain � �

Sweden �

USA � � �

Venezuela � � � �

Sources: SADC Members’ competition laws (see Annex 1.1); for non SADC Members: Lee (2007). Over the course of the years, many jurisdictions have considered other competition policy objectives in addition to economic efficiency and enhanced consumer welfare. Table 1 shows the objectives mentioned in some of the SADC Members’ competition laws and compares them with the objectives in selected other countries. It can be seen that SADC Members tend to pursue more objectives than countries elsewhere. Nevertheless, most competition laws in the SADC region appear to indicate the protection of workable competition to the benefit of consumers and market efficiency, as the main objective to be pursued by competition law enforcement (see Annex 1.1). Proponents of the “narrow” approach point out a number of disadvantages of having too many different objectives of competition policy. To start with, the role and relative importance attributed to other objectives in various jurisdictions is often unclear. What is typically lacking is a clear ranking of the different objectives which would guide the competition authorities in those cases where conflicts exist between objectives. Also, some concepts of cited as objectives, such as fairness and equity, cannot easily be operationalised. Attempts to incorporate and supplement them to the economic efficiency objective may give rise to lack of consistency in decision-making and prevent the development of clear standards. As noted earlier, it is important to be aware of policy overload – what can competition policy do and what policy interventions may be able to, more directly, address other challenges.

A critique of having multiple objectives


Cases of conflict between objectives are more likely, the more objectives are defined. Often, the pursuit of supplementary objectives may conflict with the pursuit of economic efficiency. The classical distinction made is the one between protection of competition and protection of competitors. For example, protecting small enterprises may contrast with achieving market efficiency and the welfare of consumers. It appears certainly useful for the economy at large to protect small enterprises from abusive practices by dominant firms or help them overcome their disadvantage with respect to access to credit or infrastructure. However, artificially maintaining firms alive that are unable to operate at an efficient scale of operation in view of available technologies and modes of production would lead to an efficient allocation of resources, ultimately translating into higher prices for consumers and expensive inputs for manufacturing enterprises. In addition, other public policy interventions, for example promoting the development of public infrastructure or the establishment of financial institutions targeted for small and medium size enterprises, are probably more efficient tools in order to help small enterprises to operate more proficiently in the marketplace compared to competition policy interventions. Box 2: Protection of competition vs. protection of competitors – an example

from Italy

An example for the protection of small firms is the law enacted in the past years in Italy shielding small shops from the entry of large supermarket chains. Observers noted that such laws constrained the development of strong and internationally competitive Italian supermarket chains. In fact, ultimately, foreign chains, taking advantage of economies of scale developed in their home markets, were able to gain large shares of the Italian market as more and more consumers find it more convenient to shop in large shopping surfaces which can take advantage of economies of scale and scope in procurement and distribution activities.

On the other hand, proponents of multiple objectives argue that competition policy should encompass more than the simple objective of economic efficiency because economists often disagree on the market structures and the business practices which are more conducive to economic efficiency. Therefore, additional guiding criteria for competition authorities are needed. Once competition policy objectives are defined, there are often diverging views with respect to the modalities of application. Particularly, tension between law and economics may arise. On the one hand, clear legal rules may be viewed as preferable in order to ensure legal certainty to business activity. On the other hand, a case-by-case analysis is considered necessary in order to take into account the specific scenario. While clearly defined legal rules can be easily applied to some types of anti-competitive practices such as cartels, for other practices strict provisions cannot be efficiently applied and risk prohibiting competitive conduct or alternatively prescribe anti-competitive practices. Another source of tension in the application of competition law and policy is the interface with other public policies. In most jurisdictions, competition legislation applies to all economic activities and industries, unless specific exemptions are explicitly foreseen.

Protection of competition vs. protection of competitors

An argument in favour of multiple objectives

Rules vs. discretionary decisions

Conflicts between competition law and other public policies


However, frictions may arise when different public policies interact. In view of the across-the board application to all industries, competition policy clearly has strong interactions with other policies such as trade policy, industrial policy, intellectual property policy, etc. Interaction may be sometimes problematic and diverging. For example, while deregulation and privatisation policies may be complementary to competition policy, other public policies, for example the promotion of regional development or industrial policies, may have conflicting objectives and effects. Originally, the main objective of competition policy has been the removal of private restraints to competition. During the last decades, competition policy has also concentrated on reducing government’s restraints to competition deriving from laws or regulations which restricted competition. Competition authorities do not have direct responsibilities with respect to regulatory, trade or privatisation policies. However, they are often charged with the responsibility to provide contributions to policymakers about the possible negative effects on competition deriving from legislative or regulatory intervention. These issues call for advocacy activities of competition authorities, i.e. the promotion of competition policy objectives in other policies. Competition advocacy issues are addressed in some more detail in chapter 1 of Part III of this document. In response to the issues discussed above, competition authorities and their staff usually develop a practice of implementation. New competition officials need to familiarise themselves with this institutional practice as well as with the underlying policies, laws and regulations. Officials in newly established competition authorities are faced with the challenge of developing a new practice reflecting the spirit of the law. Checklist 1: Competition policy objectives

Answering the following questions will help competition authorities and officials to develop a framework on which to base enforcement duties: 1. Core objective: Does our competition law give priority to total welfare of consumer welfare? What is the

relationship between static and dynamic welfare? 2. Which additional objectives does our competition law specify? 3. Do the law, regulations or guidelines establish a clear ranking between core and additional objectives,

and among additional objectives? Has such a ranking been established through institutional practice or case law?

4. What is the ranking between competition policy objectives and other policy objectives? Are there certain exemptions in the scope of competition law which indicate that other policies have priority? Have there been cases where competition policy considerations have been superseded by other policy decisions?

Tasks for new competition officials


3 ANTICOMPETITIVE PRACTICES In brief, competition policy focuses on the firm and the market – these are the essential units of analysis. As regards the market, structure is an important issue in SADC. Some countries have emerged or are still emerging from recent experience with extensive role for government in the economy, then deregulation and privatisation (often in the context of Structural Adjustment Programmes). The remnants of this history are still to be found in some markets. Some examples are: � The role of government as a direct service provider, e.g. as owner of fixed line

telephone companies etc.; � High levels of concentration with often foreign owned large firms (sometimes

multinationals) and many smaller firms which are indigenously owned; � Reliance on FDI – where incentives are often offered to foreign investors to

the disadvantage of local firms (national treatment issues arise). Competition can be undermined by both market structures and anticompetitive behaviour (Figure 2). Usually, three types of anticompetitive behaviour are distinguished: horizontal collusion or cartels, i.e. agreements between competitors or potential competitors; vertical restraints, i.e. agreements between firms at different stages of the value chain; and the abuse of a dominant position. These anticompetitive practices are described in some more detail in this chapter. Since specific market structures facilitate anticompetitive practices, competition authorities usually try to avoid their coming into existence. As a result, one of the key practices leading to concentration or dominance, i.e. mergers and acquisitions, is normally controlled by competition authorities. We will deal with concentrated markets in the next chapter. Finally, there is a third type of business practice which is often included in competition laws, i.e. unfair trade practices. These are practices which do not require any degree of market power and usually do not aim at reducing competition but at damaging specific competitors or at increasing own profits. Examples of such unfair trade practices include the provision of misleading information about own or competitors’ products, exclusion of liability for goods sold, etc. As these practices do not affect competition per se, they are not addressed further in this guide. Behavioural issues are not only shaped by market structure but often also reflect business practices developed under a certain economic paradigm. In economies which have only recently undergone the change to a market economy, there is often a lack of competition culture. In such a context, companies may not be aware of the negative consequences of their behaviour on competition. This highlights the importance of competition advocacy activities, which is dealt with in part III of this document.

Market structures

Anticompetitive practices

Practices causing market concentration or dominance

Unfair trade practices


Figure 2: Market structure, anticompetitive and unfair trade practices2

PerformanceBehaviourStructure

(Potent ial ly)

ant icompet it ive

market st ructures

Ant icompet it ive

pract ices

Macroeconomic

ef fects

Dominance Abuse of

dominance

Loss of ef f iciency,

consumer welfare...

Concentrat ion

Collusion

Mergers &

acquisit ions

Unfair t rade pract ices

Vert ical restraints

Any type of market

st ructureFirm-level ef fects

3.1 Collusion and Horizontal Agreements Agreements among actual or potential competitors, so-called “horizontal” agreements or collusion, restrict firms’ ability to act independently in the marketplace to different degrees while maintaining the legal independence of the parties to such agreements.3 By engaging in collusive practices firms gain market power which they would not have acting independently, and thereby artificially restrict competition. Collusion can be explicit (formal or informal) or tacit. Formal agreements can be written or oral, containing clear rules to be observed by all cartel participants in the marketplace. Informal agreements, on the other hand, may include discussions as trade associations, communications through suppliers and customers, or public announcements of future prices or conduct used as a means to communicate with competitors. Finally, tacit collusion takes place when there is no communication among the companies. Not all horizontal agreements produce an overall adverse impact on competition and welfare. Some may be competitively neutral or even strengthen competition; others may produce some negative effects on competition which are, however, (over)compensated by beneficial effects, such as a reduction in market risk and the achievement of scale economies. For example, firms may agree to jointly build a production facility which they would not be in the position to assemble alone; engage in a common research and development (R&D) project they could not

2 This figure is an adaptation of the well-known Structure-Conduct-Performance paradigm. A brief summary of this is provided in Viscusi et al. (2005: 62ff). 3 If one or more of the parties to such an agreement loses its legal independence, this is treated under the label of “concentration” or “mergers and acquisitions”; see section 4 below.

Horizontal agreements with ambiguous effects


afford to launch independently; jointly purchase supplies, thereby reducing acquisition costs. Several other types of agreements, on the other hand, significantly distort competition at all times while not producing positive effects for market efficiency and consumer welfare: they merely determine a transfer of resources away from consumers to the benefit of producers (Case 1 describes a well-known cartel). This is what competition policy usually addresses under the label of “collusion” or “cartel agreements” (also “naked” or “hard-core” cartel agreements). Cartel agreements lead to an overall decrease in the total welfare of those economies in which they operate. In fact, cartels do not involve the synergistic integration of complementary production or distribution activities, which could result in economies of scale and other advantages: they only allow the firms which are party to a cartel to act vis-à-vis customers like a monopolist or dominant actor, in terms of reduced output and increased prices compared to a competitive situation. Because of the suppression of competition, firms are no longer under pressure to minimise costs. Similarly, members of a cartel are not faced with sufficient incentives to promote the development of new products and processes, in order to gain a competitive advantage vis-à-vis competitors, since any competitive gain is shared with competitors. Cartel agreements may not totally eliminate competition. For example, while firms may agree on the prices they will charge consumers, competition may still prevail with respect to other competitive variables such as quality levels, product ranges, etc. Nonetheless, serious competition distortions can also be caused by cartels which are limited in scope. Case 1: Cartel among suppliers of vitamins in the European Union

The European Commission prosecuted a cartel agreement among the main producers of the most widely used types of vitamins. The cartel had extensive worldwide ramifications. The relevant markets, which had global dimensions, were highly concentrated, with the three largest producers holding combined market shares comprising from 65% to 95%, depending on the specific type of vitamin. Most of the companies submitted, voluntarily or after a request for information, evidence about the secret arrangement to the European Commission in the course of the proceeding. The cartel members had agreed on prices to charge customers, sales quotas and on market share allocation among themselves. They had also established a complex machinery for the collective monitoring and reporting of the implementation according to the plans of the collusive arrangements. Frequent meetings were held among the highest ranking managers of the firms involved to develop common strategies and to control compliance with the agreed terms of the collusive arrangement. The Commission clarified in the final decision, which determined an infringement of EU competition rules, that proving the existence of a cartel does not presuppose a formal written agreement among the parties. The collusive arrangement can be based on informal arrangements, without detailed contractual measures. Also, the Commission does not need to prove the participation of all cartel members to each and every single activity carried out by the cartel. It is sufficient for the enforcement agency to prove that overall the involved parties consciously agreed to participate in a common plan which, in practice, limited each party’s autonomous participation in the market. The fines imposed were the highest ever with regard to a single case, equalling over 800 million EUR.

Hard-core cartels

Economic effects of cartels


In addition, parties to a cartel may cheat on the agreement and sell, at least to some customers, at a lower price compared to the cartel-agreed price. In fact, cartels may be unstable because of the incentive to cheat faced by any cartel participant and because of the problems and constraints involved with monitoring compliance with the agreement. Firms cheating on a cartel agreement by selling at a price above the competitive level but below the cartel price may be able to significantly expand their sales and profit, if they manage to remain hidden and do not have to face retaliation from the other cartel members. Several categories of cartel agreements can be distinguished. The most common forms of cartels are price-fixing agreements, customer or territorial allocation agreements, output-reducing agreements and bid-rigging agreements. Often, however, cartel agreements are mixed arrangements, combining features of the different mentioned categories. With regard to price-fixing, this usually involves agreements among competitors with regard to the common price to charge to final consumers. Other forms of price-fixing arrangements include agreements to ban or limit price discounts, agreements to introduce common price increases or to adopt the same standard formula for determining prices. Particularly when substitute products are not available and consumers cannot reduce consumption of the good or service, cartel price levels can be significantly higher compared to the price expected to prevail under normal competitive conditions. Through market-sharing cartels, firms collude to divide up geographic or product markets or categories of customers, therefore eliminating the problem often occurring in the context of price-fixing cartel agreements, of monitoring cheating by cartel members with respect to the agreed price. A third form of cartel is an agreement aimed at maintaining levels of output lower than in a normal, competitive situation. Clearly, reduced output levels lead to higher prices. A fourth type of cartel arrangement, bid rigging, involves an agreement among firms on which firm is expected to win a tender, often taking place in the context of public procurement by national or local public administrations. Different forms of bid-rigging arrangements exist. For example, firms may agree among themselves on the winning bid price by a chosen firm, with all other firms bidding at higher prices in order to obtain the agreed upon outcome for the rigged tender. The winning firm would rotate, in order to ensure a “fair” allocation of tenders among all bid-riggers. Alternatively, bidding firms may rotate in the presentation of the bids, taking turns in excluding themselves from submitting an offer. All competition laws contain provisions against anti-competitive practices by two or more market players acting jointly. In many countries, including the EU, the USA and several SADC Members, cartels are considered a “per se” violation of the competition legislation: such practices are condemned outright, with no need for

Types of cartels

Price fixing

Market allocation

Quantity fixing

Bid rigging

The treatment of cartels in competition law


the competition authority or the plaintiff to prove they have been actually put into practice or that they have actually produced harmful effects on prices or other adverse market conditions. Also, in most jurisdictions, provisions against restrictive agreements cover both formal or explicit and informal or implicit agreements, as their negative effects on the market are similar. Some countries even consider it as a criminal offence, which is punishable with fines or imprisonment for the responsible individuals, in addition to company liability. If a certain practice is prohibited per se, it is sufficient for the competition authority to prove the existence of the cartel arrangement. The per se approach ensures a more efficient and rapid prosecution of cartels, allowing competition authorities to save up scarce resources while at the same time providing clear guidance to the legal and business communities. The other main approach to anticompetitive practice applied by competition authorities is the “rule of reason”. Under this approach, the competition authority evaluates the positive and negative effects of a certain business practice on a case by case basis. Table 2 provides a comparison of the treatment of horizontal agreements in SADC countries. As can be seen, in most countries the above mentioned types of hard core cartels – price and quantity fixing, market allocation and bid rigging – are prohibited per se, whereas for other horizontal agreement typically the rules of reason applies. Mauritius, Mozambique and Seychelles apply a somewhat more lenient approach. In Mauritius, a horizontal agreement is only considered collusive if it “significantly prevents, restricts or distorts competition”. In Mozambique, horizontal agreements may be justified if they contribute to

“enhancing the supply chain or production conditions of goods and services; reducing prices for the consumers; fostering economic development; promoting technological development and innovation of local enterprises; better allocation of resources; promoting national goods or services; promoting exports; promoting competitiveness of local small and medium enterprises; promoting local entrepreneurship.”

However, they must be exempted by the competition authority in advance. Table 2: Treatment of horizontal agreements in selected SADC countries

Country Price fixing Market allocation Quantity fixing Bid rigging Other horizontal

agreements

Lesotho per se per se not addressed per se rule of reason Malawi rule of reason per se per se per se per se or

rule of reason Mauritius rule of reason rule of reason rule of reason per se rule of reason Mozambique rule of reason rule of reason rule of reason rule of reason per se or

rule of reason Namibia per se per se per se per se rule of reason Seychelles rule of reason rule of reason rule of reason rule of reason rule of reason South Africa per se per se rule of reason per se rule of reason Tanzania per se per se per se per se rule of reason Zambia per se per se per se per se per se or

rule of reason Zimbabwe per se per se per se per se rule of reason

Source: SADC Members’ competition laws (see Annex 1.4). In the Seychelles, any kind of horizontal agreement can be permitted if the competition authority is convinced that the agreement

Per se prohibition vs. rule of reason


“(i) contributes to the improvement of production or distribution of goods and services or the promotion of technical or economic progress, while allowing consumers a fair share of the resulting benefit; (ii) imposes on the enterprises concerned only such restrictions as are indispensable to the attainment of the objectives mentioned in sub-paragraph (i); or (iii) does not afford such enterprises the possibility of eliminating competition in respect of a substantial part of the goods or services concerned.”

3.2 Vertical Restraints Vertical restraints are defined as agreements or contracts between firms at different stages of the production process which replace market transactions. Vertical restraints are thus restrictions imposed by an upstream firm on downstream firms or vice-versa, for example by processing firms on their raw material suppliers, or by manufacturers on their wholesale or retail distributors. Some types of vertical restraints can also be regarded as abuses of dominance (usually of the upstream firm). Vertical restraints include formal or informal arrangements: they may range from contractual agreements regulating parties’ respective obligations in great detail, to verbal arrangements. Different types of vertical restraints exist. Common ones are resale price maintenance (RPM), exclusivity clauses, quantity fixing and tie-ins. Under RPM, upstream firms limit the retailer’s freedom to define its own pricing policy for the upstream firm’s products. RPM schemes can allow different degrees of flexibility: � Under strict resale price maintenance the supplier imposes the resale price

which downstream enterprises must respect; � A less strict variant is the recommended retail price which leaves the final

pricing decision to the retailer but provides a norm; � Upstream firms can also set minimum retail prices (price floors) or maximum

prices (price ceilings) which distributors must respect. Case 2: Prohibited resale price maintenance in the South African car industry

In 2003, a complaint was filed with the South African Competition Commission against the car manufacturer Toyota based on the fact that various dealers offered identical discounts. It was alleged that this constituted a practice of resale price maintenance which is prohibited according to section 5(2) of South Africa’s Competition Act. The Commission obtained documentation on Toyota’s pricing discount strategy, summoned various dealers to hearings and provide written documentation, and engaged in discussions with the manufacturer as well as obtained a written statement from it. Based on the investigations it was shown that Toyota had established a maximum discount policy and enforced it through fines levied on dealers who did not comply. Following the initiation of the investigation, Toyota stopped the practice and repaid fines which had been collected from dealers. In addition to various remedial measures, the Competition Tribunal established a fine of ZAR 12 million was imposed on Toyota for dictating maximum discounts which dealers were allowed to give out to customers in respect of certain models of Toyota cars.

Source: Competition Tribunal of South Africa.

Types of vertical restraints

Resale price maintenance

Exclusivity clauses


Two types of exclusivity clauses can be distinguished, depending on whether the upstream firm or the downstream firm commits to it: either the upstream firms sells its product exclusively through a single distributor � Under exclusivity agreements the upstream firm assigns exclusivity to a single

distributor with respect to a specific geographic area, a class of customers or product category.

� Conversely, under exclusive dealing arrangements the upstream firm requires downstream firms to carry only its products and not those of other competing upstream firms.

The upstream firm can also limit the downstream firm’s freedom to choose the quantity of products it wants to purchase: � Under quantity forcing, downstream firms are required to buy minimum

quantities of goods; � Conversely, under rationing the upstream firm sets a maximum quantity

which downstream firms may purchase. This type of restraint is typically found in the marketing of exclusive products.

Finally, under tie-ins downstream firms are supplied with products as long as they agree to also distribute another product of the upstream firm. Bundling is a form of tie-in as downstream firms are required to deal with a whole range of products. This list is not complete – many types of restraints exist and new ones are constantly devised because of change in business practices. Often, different restraints are used at the same time. Franchising, for example, often involves various vertical restraints used together for the standardisation of outlet formats. Most types of vertical restraints can be substituted with each other. Thus, an upstream firm may resort to rationing or setting price floors in order to ensure that downstream firms charge a certain minimum price. This flexibility allows the upstream firm to influence the downstream firms’ decisions in different market contexts. For example, if retailers’ prices of a certain good cannot be monitored by the upstream firm (e.g. as a result of product differentiation), they may resort to another type of vertical restraint which does not require price monitoring, e.g. quantity restraints. For competition authorities (and the underlying laws) this means that all types of vertical restraints should be treated alike, as otherwise circumvention is likely to occur. As we will see below is this not always the case in SADC countries. Depending on market circumstances, vertical restraints may produce two main anti-competitive effects: they may lead to market foreclosure through the establishment of artificial barriers to entry or they may contribute to the organisation and maintenance of collusive practices. Market foreclosure (exclusionary conduct) effects may arise for example when a dominant firm requires its retailers to distribute only its products and prevents them from carrying competitors’ products – this is the typical type of vertical restraint competition authorities deal with. Such exclusivity requirements may constrain the viability of existing competitors and raise market entry barriers for new firms. Similar effects can occur in markets where no dominant firm is present

Quantity restraints

Tie-ins

Substitutability of different types of vertical restraints and lessons for competition law

Potential anti-competitive effects of vertical restraints

Market foreclosure effects


when all or most of the incumbent firms engage in exclusive dealing arrangements which lead to significant entry barriers (Case 3). When exclusive dealing agreements exist, competitors may be significantly constrained in getting access to an adequate distribution network to reach final consumers. They may be left with no choice but developing their own alternative distribution networks or promoting the development of independent networks willing to distribute alternative products other than the incumbent’s. Such options, however, require significant investments and therefore constitute important barriers to entry. Case 3: Market foreclosure effects of exclusive dealing in the German ice

cream market

In 1991, Mars complained to the European Commission that the two industry leaders on the German ice cream market precluded Mars’ market entry through exclusive agreements with retailers. In 1992 the Commission decided that these agreements infringed Art. 81 of the EC Treaty, and the decision was later upheld by the courts. The German market for industrial ice cream at the time consisted of some 15 suppliers, the two largest of which, Langnese-Iglo and Schöller, had market shares of 45% and 20%, respectively. Both had their own distribution systems which involved providing freezers to retailers on the condition that retailers would not sell competing brands. The Commission argued that this practice effectively excluded market entry of new competitors. Even without exclusive dealing entry barriers would have been high, given the investment costs into the distribution system (trucks, freezers, etc.) and brand image, and space limitations of retailers. The defendants had brought forward efficiency reasons for the exclusive agreements: Without the exclusivity agreements, they argued, their investments into the distribution system would have been unprofitable: “If every outlet were free to purchase at will at varying proportions their stock from third parties, the pattern of supplies would be seriously disturbed”. The Commission considered this efficiency argument but doubted that efficiency effects outweighed the foreclosure effects of the practice.

Source: Motta (2004: 391ff). Nevertheless, exclusive dealing arrangements may produce anti-competitive market foreclosure effects only in certain circumstances. First, the exclusivity requirement must concern a significant share of retailers. Otherwise competitors would still be able to use the untied distribution outlets and be able to distribute their goods. Also, significant barriers to entry into distribution must exist. Alternatively, new retail firms would be able to enter into the market and engage in the distribution of competitors’ products. Another potentially harmful effect on competition may occur in markets with oligopolistic features. When all, or most, market suppliers engage in resale price maintenance at the distribution level, collusive arrangements may become more easily devised and monitored. Upstream manufacturers would be better able to monitor the conduct of competitors and identify pricing diverging from collusive arrangements. Similar effects can arise with territorial exclusivities. It should be stressed that vertical restraints often also produce positive effects on market efficiency and competition. Particularly, they allow manufacturers to guarantee their retailers a degree of protection from other distributors and increase downstream firms’ margins, so that retailers receive a greater incentive to promote the goods they distribute and therefore ultimately contribute to increase competition between competing brands.

Pro-collusive effects

Positive effects of vertical restraints


In general, vertical restraints can raise competition concerns only when either upstream firms or downstream firms can exercise market power, due to the presence of a dominant position or oligopolistic markets. In fact, harm to competition can be generally excluded when neither market has such features. Given the above considerations, most competition laws apply a rule of reason approach when assessing the impact of vertical restraints, with the exception of resale price maintenance, which is usually prohibited per se at least in its strict form. In the SADC region, this approach is not too common, however. One example that does follow this approach is the Competition Law of South Africa which prohibits vertical restraints when they have the effect of substantially preventing or lessening competition in a market, unless parties to the agreements can prove that any technological, efficiency or other pro-competitive gains resulting from those agreements outweigh the anti-competitive effects. However, South Africa prohibits resale price maintenance (i.e. vertical price-fixing) as a per se law violation, with no need to look at market effects. Recommended retail prices suggested by manufacturers and wholesalers, on the other hand, are legal. Some SADC Members (such as Tanzania) do not have specific provisions for the treatment of vertical restraints and simply apply the general provisions for anticompetitive agreements contained in their competition laws. At the other extreme, some SADC countries have a more rigid approach to vertical restraints than is commonly applied. An example is the competition law of Mozambique which prohibits a number of vertical agreements:

“Agreements between enterprises or any other entity involved in a vertical relationship (i.e. supplier-producer-customer) are prohibited whenever they result in: a - applying, systematically or occasionally, discriminatory pricing or any other conditions regarding equivalent sale of products or provision of services; b - denying, directly or indirectly, the sale of a some products or services; c - making the closing of contracts conditional to the acceptance by other parties of supplementary conditions which by their nature or according to commercial usage have no connection with the subject-matter of the contracts; d - making the supply of particular goods or services dependent upon the acceptance of different payment conditions or contrary to the normal commercial uses and customs; e - making the commercial relationship dependent upon acceptance of clauses and unjustifiable and/ or anti-competitive commercial conditions; f - imposing on distributors, retailers and distributors of products or services, retail prices, discounts, payment conditions, minimum or maximum volumes, profit margins, or any other marketing conditions related to their business with third parties; g - discriminating against purchasers or suppliers of given products or services by establishing price differentials or discriminatory operating conditions for the sale or performance of services; h - conditioning the sale of a product to the acquisition of another or contracting of a service, or to condition the provision of a service to contracting of another or the subsequent purchase of a product; i - imposing abusive prices, or unreasonably increasing the price of a product or service.” (§10)

Table 3 provides a summary of the treatment of vertical restraints in the SADC region. It shows that SADC Members competition laws in this regard are still far from being harmonised.

The treatment of vertical restraints in competition law


Table 3: Treatment of vertical restraints in selected SADC countries

Country Resale Price Maintenance Other vertical agreements

Lesotho Per se Rule of reason only if one party to the agreement has at least 30% market share; otherwise permitted

Malawi Rule of reason Rule of reason Mauritius Per se Rule of reason Mozambique Per se Price discrimination, refusal to deal, tie-ins and other competition

distorting vertical agreements: per se Namibia Per se (excl. recommended

retail prices) Price discrimination, refusal to deal, tie-ins and other competition

distorting vertical agreements: per se Seychelles Per se (excl. recommended

retail prices) Price discrimination, refusal to deal, tie-ins and other competition

distorting vertical agreements: per se South Africa Per se (excl. recommended

retail prices) Rule of reason

Tanzania No specific rules for vertical agreements Zambia Rule of reason Price discrimination, refusal to deal, tie-ins and other vertical

restraints: rule of reason Zimbabwe Per se Excusive dealing: per se; other vertical agreements: rule of reason

Source: SADC Members’ competition laws (see Annex 1.5).

3.3 Abuse of Dominance The prohibition of abuse of a dominant position, present, with different wording, in almost all jurisdictions, is probably the most complex area of competition law enforcement, both for developed and for emerging economies. There are two broad categories of abusive practices by dominant firms under competition legislation: exclusionary and exploitative practices (Figure 3). Exploitative types of abuses involve the direct exploitation of customers and consumers. The main examples are the charging of excessively high or discriminatory prices. Figure 3: Typology of abuse of dominance

Abuse of dominance

Exclusionary practices Exploitative practices

Excessive pricing

Price discrimination

Predatory pricing

Refusal to deal/denial of

access to essential facilities

Bundling and tying

Exclusionary abuses, on the other hand, are practices by dominant firms that take advantage of their position to significantly distort the competitive process, usually with the aim of preventing market entry by potential competitors or forcing the

Exploitative practices

Exclusionary practices


exit of actual competitors. A wide range of exclusionary practices exists, including the charging or artificially low prices (predatory prices), denying competitors to access an essential facility, refusal to deal with competitors etc. Some vertical restraints – notably exclusive dealing agreements – are also often used by dominant firms as exclusionary devices. The most important types of exclusionary practices are defined as follows (for more details we refer to the discussion in chapter 5 of part II of this guide: � Predatory pricing refers to the practice by a dominant firm to charge very

low prices during a certain period – so low that competitors are driven out of the market, new firms are prevented to enter, and the market is ultimately monopolised or cartelised as remaining competitors adopt a more collusive conduct. In case the predatory strategy is successful, the dominant firm will then be able to increase prices and reduce output. The greater amount of profits accruing to the firm after the price increase will more than compensate for the losses incurred during the predatory phase.

� Refusal to deal and denial of access to essential facilities: Under competition law, no general obligation exists for firms, including dominant ones, to deal with other firms. Under some circumstances, however, dominant firms’ refusal to deal with other firms situated in a vertical relationship may cause anticompetitive effects. This occurs when dominant firms deny access to essential infrastructures which are truly indispensable to operate in downstream markets and which cannot be duplicated by competitors because of economic and technical constraints.

� Bundling and tying: Tie-in refers to the sale of a product (the “tying product”) on the condition that a second product (the “tied product”) is purchased as well. If the two products are sold in fixed proportions, the practice is referred to as “bundling”; conversely, if the goods are sold in variable proportions – the typical example being consumables or spare parts which must be purchased from the supplier of the main product –, this is called “requirements tying”. Although many tie-ins do not produce anti-competitive effects when applied by dominant firms tying can also be used as an exclusionary device in the market of the tied product.

� Price discrimination refers to the practice by a supplier of selling the same product at different prices to customers, for example according to their willingness to pay. This practice can be used as an exploitative practice or with exclusionary purpose.

Finally, in some cases dominant firms may resort to outright acts of violence against competitors or individuals representing them. In such cases, the competition authority should probably better ask for the intervention of the police to conduct investigation of possible criminal violations. Complaints against abusive conduct and particularly excessive prices by dominant firms are very frequent in industries which feature natural monopoly conditions, i.e. when the entire market supply can be provided at lower costs by a single supplier, because of the presence of significant economies of scale and scope. Examples include electricity transmission, gas distribution, etc. Competition cannot work in these markets: direct regulation is therefore necessary in order to avoid monopolistic pricing.

Definition of important exclusionary practices

Natural monopolies and abuse of dominance


Regulation of natural monopolies is, however, better carried out by assigning responsibilities to a regulatory agency, rather than to the competition authority.4 The application of competition legislation is still important in these markets, particularly to prevent firms leveraging their dominant or monopolistic position in contiguous but separate markets. Competition law usually addresses the various forms of abuse of dominance but not the dominant market position as such. This is an important point – there is usually no presumption against dominance. Although all SADC Members prohibit the abuse of dominance in general there is considerable variation between different jurisdictions in the treatment of specific abusive practices. Table 4 provides an overview of how SADC competition laws address such specific practices. The following paragraphs present more details regarding the treatment of different abusive practices. The treatment of excessive pricing or other forms of direct exploitation of consumers, such as price discrimination, is an area of divergence among jurisdictions. Some jurisdictions investigate and condemn excessive prices as a form of abuse of dominant position. For other jurisdictions, on the other hand, the focus of enforcement is only on exclusionary abusive practices by dominant firms. In the United States, for example, excessive pricing damaging consumers is not considered an anti-trust offence. In the SADC region, most countries have provisions on excessive pricing. For example, the Competition Act of South Africa prohibits dominant firms “to charge an excessive price to the detriment of consumers” (§7a). Most other countries prohibit the imposition of “unfair purchase or selling prices” without specifying if these refer to unfairly high or low prices. Table 4: Specific practices of abuse of dominance listed in selected SADC

country competition laws

Country General prohibition of

abuse of dominance

Excessive pricing

Price discrimination

Predatory pricing

Refusal to deal/ denial of access

to essential facilities

Tie-ins

Lesotho � � � � - �

Malawi � - - - - - Mauritius � - - - - - Mozambique � � � � � �

Namibia � � � � - �

Seychelles � � � � - �

South Africa � � � � � �

Tanzania � - - - - - Zambia � - � � - �

Zimbabwe � � - � � -

Source: SADC Members’ competition laws (see Annex 1.3).

4 Regulatory instruments typically differ from competition policy instruments by interfering directly in the monopolist’s corporate decisions, e.g. by setting prices, determining output etc. In some countries (including in the SADC region), competition authorities also have regulatory responsibilities, but international best practice suggests to separate these functions; this reference guide does not address any regulatory issues.

The treatment of abuse of dominance in competition law

Treatment of exploitative practices


Many competition laws within SADC and in other jurisdictions also expressly refer to price discrimination as a possible form of abuse of dominant position when certain circumstances occur. For example, South Africa’s Competition Act prohibits price discrimination by a dominant firm if:

“(a) it is likely to have the effect of substantially preventing or lessening competition; (b) it relates to the sale, in equivalent transactions, of goods or services of like grade and quality to different purchasers; and; (c) it involves discriminating between those purchasers in terms of the price charged for the goods and services or the forms of discounts, rebate and allowances given or allowed in relation to the supply of goods and services” (§9(1))

South Africa’s law thus specifically addresses both exploitative and exclusionary purposes of price discrimination (Mozambique’s law does the same). It also addresses some conditions under which price discrimination is not prohibited (§9(2)). Other countries in the region provide for an even stricter prohibition of price discrimination. For example, Zambia’s competition legislation prohibits

“discriminatory pricing and discrimination, in terms and conditions, in the supply or purchase of goods or services, including by means of pricing policies in transactions between affiliated enterprises which overcharge or undercharge for goods or services purchased or supplied as compared with prices for similar or comparable transactions outside the affiliated enterprises.” (§7)

On the other hand, Malawi, Tanzania and Zimbabwe do not specifically address price discrimination (although they do cover it under the general prohibition of abusive practices). Exclusionary practices are addressed in somewhat more detail in SADC competition laws, in line with international practice and based on the understanding that exclusionary effects are more harmful than exploitative effects. Thus, most laws expressly address predatory pricing. For example, the competition law of Zimbabwe prohibits predatory pricing defined as “selling at very low prices or at below production costs as a deliberate strategy of driving competitors off the market” (§8 of the First Schedule of the Competition Act). Analogously, the Competition Act of South Africa prohibits the sale of “goods or services below their marginal or average variable cost” (§8(d)(iv)). Likewise, many competition laws including within SADC consider tying by dominant firm as an abusive practice. In the US, it was prohibited per se during a long period although now a rule of reason approach is used. The competition law of South Africa prohibits

“the selling of goods or services on condition that the buyer purchases separate goods or services unrelated to the object of a contract, or forcing a buyer to accept a condition unrelated to the object of a contract” “unless the firm concerned can show technological, efficiency or other pro-competitive gains which outweigh the anti-competitive effect of its act” (§8(d)).

Also, the Competition and Fair Trading Act of Zambia considers as unfair business practice “making the supply of particular goods or services dependent upon the purchase of other goods or services from the supplier to the consignee” (§7(d)). Most other SADC countries have similar provisions in their competition laws.

Treatment of exclusionary practices


Finally, the denial of access to non-replicable essential facilities can have significant negative effects on competition. Therefore, internationally many competition laws explicitly prohibit it when certain circumstances arise. However, in the SADC region, relatively few laws specifically address this issue. For example, the competition law of Mozambique considers an abuse of dominance the practice of

“Denying, against fair remuneration, to any other enterprise, access to a network or other controlled infrastructures and assets, if that conduct hampers the opportunity to the third party to compete with the dominant firm at any stage of the production and retailer chain” (§11(3)b).

Likewise, the Competition Act of South Africa prohibits “to refuse to give a competitor access to an essential facility when it is economically feasible to do so” (§8b).


4 MARKET STRUCTURES AFFECTING COMPETITION: CONCENTRATION

Under competition policy, the different forms of lasting alteration of the market structure and decrease in the number of independent market players are referred to with the general term of “merger”, or, within the European Union, of “concentrations”. Different types of market structures exist: they range from the competitive market, where many firms operate in the market, with each of them not having any ability to influence prices, to oligopolistic markets where firms have some leeway on market prices while also facing constraints from their competitors, to monopolistic markets where a single supplier sets autonomously market output and price. Competitive market structures, as previously pointed out, are those more conducive to promote static and dynamic efficiency. The rationale for assigning the power to scrutinize and authorize mergers to competition authorities under competition policy is to prevent the creation of market structures which are conducive to the exercise of market power. The reasoning behind this is that it is more effective to prevent the ability to exercise market power by impeding the creation of market structures preventing competition (i.e. monopolistic and oligopolistic structures) rather than to intervene later to prevent the abusive behaviour made possible by market power. An enterprise may join with another enterprise and the two become a single economic entity in several ways. A company may for example purchase or lease the totality or the majority of the shares or assets of another one (acquisition). Another form of company combination occurs when independent firms also exchange shares with each other, creating a new consolidated company (merger). In some cases, the acquisition of less than half of the shares or ownership in a company may be sufficient as well for the firm acquiring the shares to exercise a decisive influence, particularly when the outstanding shares are diluted in the hands of numerous investors. From a competition policy point of view, what is important is that two or more hitherto independent firms come under joint control – whether this takes place through acquisitions, takeovers, ‘true’ mergers, joint ventures or other forms of combination. Depending on the effects they may be expected to produce on market structure and competition, concentrations may be divided up in three main categories: horizontal, vertical and conglomerate concentrations. Horizontal concentrations are those taking place among companies which are actual or potential competitors in the same relevant market. For example, two producers of the same quality of cement supplying the same geographic area, or

Different market structures

Rationale for correcting market structures

Means of combining firms

Types of mergers: horizontal, vertical, conglomerate


two retailers of consumer electronic products distributing in the same neighbourhood. Vertical concentrations are those occurring between firms operating at different levels of the supply chain, for example, a beer brewer and beer wholesale distributor, which are actually or potentially in a buyer-seller relationship. The third category of concentrations, those between firms which are neither potential or actual competitors in the same market nor in a buyer-seller relationship, are called conglomerate concentrations. Often, concentrations among firms active at the same time in several industries and producing a variety of products may fall within more than one category, being at the same time horizontal, vertical or conglomerate in nature. Competition problems may arise only in some of the affected markets, while no significant market effects are produced in the others. In competition law, the basis for defining concentrations is usually the control aspect; this is also the case in the SADC countries (Table 5). To this, the two typical means of establishing joint control over two or more firms are added, i.e. acquisition and merger of firms. Table 5: Merger definitions in selected SADC country competition laws

Country Definition

Lesotho, Namibia,

South Africa

(1)(a) [...] a merger occurs when one or more firms directly or indirectly acquire or establish direct or indirect control over the whole or part of the business of another firm.

(b) A merger […] may be achieved in any manner, including through - (i) purchase or lease of the shares, an interest or assets of the other firm in question; or (ii) amalgamation or other combination with the other firm in question.

(2) A person controls a firm if that person— (a) beneficially owns more than one half of the issued share capital of the firm; (b) is entitled to vote a majority of the votes that may be cast at a general meeting of the firm,

or has the ability to control the voting of a majority of those votes, either directly or through a controlled entity of that person;

(c) is able to appoint or to veto the appointment of a majority of the directors of the firm; (d) is a holding company, and the firm is a subsidiary of that company as contemplated in the

[relevant law]; (e) in the case of a firm that is a trust, has the ability to control the majority of the votes of the

trustees, to appoint the majority of the trustees or to appoint or change the majority of the beneficiaries of the trust;

(f) in the case of a close corporation, owns the majority of members’ interest or controls directly or has the right to control the majority of members’ votes in the close corporation; or

(g) has the ability to materially influence the policy of the firm in a manner comparable to a person who, in ordinary commercial practice, can exercise an element of control referred to in paragraphs (a) to (f).

Malawi ‘merger’ means— (a) the acquisition of a controlling interest in— (i) any trade involved in the production or distribution of any goods or services; (ii) an asset which is or may be utilized for or in connection with the production or distribution

of any commodity, where the person who acquires the controlling interest already has a controlling interest in any undertaking involved in the production or distribution of the same goods or services; or

(b) the acquisition of a controlling interest in any trade whose business consists wholly or

Definition of concentrations in competition law


substantially in— (i) supplying goods or services to the person who acquires the controlling interest; (ii) distributing goods or services produced by the person who acquires the controlling interest

Country Definition

Mauritius (1) [...] a merger situation means the bringing together under common ownership and control of 2 or more enterprises of which one at least carries its activities, in Mauritius, or through a company incorporated in Mauritius. (2) For the purpose of subsection (1), enterprises shall be regarded as being under common control where they are –

(a) enterprises of interconnected bodies corporate; (b) enterprises carried on by 2 or more bodies corporate of which one person has or

groups of persons have control; or (c) 2 distinct enterprises, one carried on by a body corporate and the other carried on

by a person having control of that body corporate. (3) Any person may be treated as bringing an enterprise under his control where –

(a) he becomes able to control or materially to influence the policy of the enterprise, but without having a controlling interest in it;

(b) being already able to control or materially to influence the policy of the enterprise, he acquires a controlling interest in it; or

(c) being already able materially to influence the policy of the enterprise, he becomes able to control that policy.

Mozambique 1 - [...] a merger occurs when: a - there is amalgamation (fusion) of two or more independent firms; b - one or more firms acquire or establish direct or indirect control over the whole or

party of the assets and businesses of another firm. 2 - For the purpose of this law, the control may be achieved in any manner, whatever its form, as soon as it derives - considering the factual and legal circumstances - a controlling influence in the business of that other firm, including through:

a - purchase of the whole or party of the shares; b - purchase of the whole or party of the assets or related rights of the firm; c - purchase of voting rights or entering into contracts that derives in the ability to

influence in the composition or decisions of the firm Seychelles ‘merger’ means the acquisition or establishment, direct or indirect, by one or more persons

or enterprises, whether by purchase of shares or assets or by lease of assets, by amalgamation or by combination or otherwise, of control over the whole part or a part of the business of an immediate competitor, supplier, customer, or other enterprise

Tanzania ‘merger’ means an acquisition of shares, a business or other assets, whether inside or outside Tanzania, resulting in the change of control of a business, part of a business or an asset of a business in Tanzania

Zimbabwe ‘merger’ means the direct or indirect acquisition or establishment of a controlling interest by one or more persons in the whole or part of the business of a competitor, supplier, customer or other person whether that controlling interest is achieved as a result of-

(a) the purchase or lease of the shares or assets of a competitor, supplier, customer or other person;

(b) the amalgamation or combination with a competitor, supplier, customer or other person; or

(c) any means other than as specified in paragraph (a) or (b)

Source; SADC Members’ competition laws; see Annex 1.6. Most concentrations are carried out by enterprises for reasons not related to the desire to lessen competition and therefore acquire and exploit market power. Rather, they are carried out for legitimate purposes, for example, the desire to pull together complementary resources and achieve efficiencies. For example, a company with strong marketing and distribution capabilities may desire to purchase a company manufacturing a product with poor marketing capabilities in

Reasons for firms to merge


order to realize significant market synergies. The experience everywhere is that only a minority of concentrations produces significant effects on market competition and requires a close scrutiny by the competition authority. The different types of mergers have different potential effects on competition; these are addressed in the following sections.

4.1 Horizontal Concentrations Compared to vertical or conglomerate concentrations, horizontal mergers are more likely to restrict competition because they reduce the number of independent competitors present in the market. Two different types of anti-competitive effects can originate from horizontal mergers: so-called “unilateral” effects and “coordinated” (or “pro-collusive”) effects. Unilateral effects derive when a concentration leads to the creation of a dominant position, or to the strengthening of an already established dominant position, in the concerned market such as to significantly lessen competition. After the concentration, the dominant firm will be able to act to a significant extent independently from actual and potential competitors and from customers. Therefore it will be able, for example, to impose higher prices compared to the competitive levels (Case 4). Case 4: Merger review in the market for the retail supply of jet fuel in Zambia

In 2007, the Zambian Competition Commission (“ZCC”) reviewed and objected to a planned merger considered to significantly reduce competition in the market for the supply of jet fuel at the Lusaka International Airport. Prior to the reviewed transaction, only two Zambian subsidiaries of multinational oil companies were operating in the airport. Both companies supplied the market by means of storage infrastructure jointly owned through an enterprise whose shares were equally divided between the two controlling companies. The reviewed transaction concerned the sale of the 50% shares owned by one company to the other. As a consequence of the transaction, the joint-venture company would have gone from a joint to an exclusive ownership. Had the transaction gone through, the market would have become monopolised, as only one jet fuel supplier would have remained in the market. The ZCC considered the supply of jet fuel to airlines in the Lusaka International Airport as the relevant market for the reviewed operation. The geographic extension of the relevant market was considered to be limited to the airport area because airlines could not procure the fuel elsewhere. The ZCC was able to assess that market competition was already quite limited, with only two suppliers operating in the market and the inability of other suppliers to enter the market, as the construction of additional storage capacity was considered too costly. During the proceeding, the ZCC was able to conclude that jet fuel prices in Zambia were already significantly higher compared to neighbouring countries such as South Africa. This price differential translated into higher costs for airlines, also producing negative consequences for final consumers and for the efficiency of the Zambian economy. The additional reduction in competition, from a duopoly to a monopoly, was likely to produce additional adverse effects on consumer welfare. Consequently, the ZCC blocked the proposed transaction, requesting the sale of the shares to another oil company, in order to ensure that a second supplier would access the market.

Unilateral effects of horizontal mergers


In order for a firm to reach and sustain a dominant position, in addition to a significant increase in market concentration, barriers to entry into the market must be significant. In fact, when barriers to market entry are low, any attempt by the alleged dominant firm to behave anti-competitively, for example, by excessively raising prices, would ultimately lead to new firms entering the market. The dominant firm will then lose market shares or will be forced to act competitively. In order for market entry to be able to constrain the conduct of the dominant firm, firms should be able to enter the market within a relatively short time, usually within two years or less, and with enough market capacity to exercise sufficient pressure on the dominant incumbent firm. Another form of anti-competitive unilateral effects following a merger, this time without the creation of a dominant position, may arise in markets featuring heterogeneous products, with distinct consumer preferences in terms of product quality and brand recognition. In fact, differentiated markets often comprise products which represent closer substitutes according to consumers’ preferences. Therefore, a merger between producers of products considered close substitutes by a significant share of consumers may allow the merged firm to raise prices substantially without running the risk to lose customers switching to more distant products, even though no dominant position is created. Coordinated effects may arise after a merger when the remaining companies in a concentrated market are better placed to reach and maintain implicit or explicit coordination in the market. Prices will then be the result of collusive arrangements, without the need for an explicit or implicit agreement among the parties, rather than the outcome of market competition. Collusive arrangements require a high degree of market transparency so that firms are able to monitor compliance with the collusive arrangement and punish firms deviating from the common strategy. In fact, cheating firms may be able to profit significantly if they lower the price compared to the cartel price but they still maintain it higher compared to the competitive price. Also, collusion can prevail only if barriers to entry are high enough to prevent the entry of new firms which are not willing to follow the collusive conduct. A reduction in the number of competitors in markets with features that make collusive arrangements easy may lead to serious competition distortions. Several market features make collusive arrangements among firms more likely. Collusive arrangements can be expected to be more successful when the number of firms in the market is reduced. In addition, the greater the market transparency is, the easier is the monitoring of market conduct and deviation from a collusive behaviour. Homogenous products, stable demand conditions, similar cost structures and low technological developments will also facilitate agreements among firms.

Coordinated (pro-collusive) effects


4.2 Vertical Concentrations Vertical concentrations are generally less likely to produce harmful effects on competition compared to horizontal concentrations, as they do not bring about an immediate reduction in the number of independent competitors present in a market. Economic research in recent years has contributed to demonstrate the beneficial effects of vertical integration of different activities in the production-distribution chain. In particular, significant economies of scope and more investment incentives were often achieved through vertical integration. However, vertical concentrations by firms holding a dominant position can significantly reduce competition in some circumstances. This can occur when vertical integration by dominant firms has the effect of foreclosing access by actual or potential competitors to important inputs, therefore substantially raising barriers to market entry. In such cases, therefore, vertical concentrations require a close scrutiny by Competition Authorities. For example, a dominant firm may acquire a supplier of scarce raw material which is an important input for the dominant firm’s production or an important retailer with a significant distribution network. After the acquisition, the dominant firm may stop providing access to those essential inputs or may give access at discriminatory or unfair conditions. Also, a potential entrant interested in challenging the dominant firm’s position may find it more difficult to access the market because of the need to procure the raw material from more distant (and maybe costly) sources or to develop its own distribution network, in case the dominant company denies access. As a consequence, market entry may be made more difficult and risky. In very limited circumstances, the facilitation of collusive arrangements has been considered another potentially negative effect of vertical integration. Anti-competitive agreements among manufacturers with respect to prices may be difficult to monitor because distributors may engage in price-cutting. Manufacturers would then be unable to determine whether lower prices are due to cheating by manufacturers or, alternatively, due to the distributors’ conduct. Vertical integration into distribution by the major supplier would then make the collusive behaviour more transparent and predictable.

4.3 Conglomerate concentrations Often, competition authorities do not consider conglomerate concentrations worthwhile of attention since by definition they bring together firms which operate in unrelated markets. However, especially in developing or emerging economies, which may be dominated by few conglomerate corporations operating in a great deal of sectors, conglomerate mergers may raise concerns. In these economies, such corporations may be able to develop competitive advantage because of their financial strength (“deep pockets” or “long purses”): they may, for example, be able to sustain long advertising campaigns or engage in tough

Vertical mergers often not anticompetitive

Anticompetitive effects of vertical mergers

Generally limited importance of conglomerate mergers for competition


price wars, up to predation. This is an important issue in SADC countries where conglomerate mergers may be part of longer-term firm strategy. Hence, monitoring of post-merger behaviour is very important. If capital markets work efficiently, smaller firms should be able to obtain adequate financial backup, survive the predation strategy, and be able to compete on equal terms. Unfortunately, however, developing economies often have weakly developed financial markets so that conglomerate corporations may indeed raise competition problems if they are able to control the majority of financial institutions and banks. Other companies may then be at a competitive disadvantage if they are able to have access to credit only at disadvantaged terms. Such situations could then be similar to cases of vertical integration into essential inputs, in this case financial resources. Even in developed countries, while there is no serious interest in the United States of America in the competitive effects of conglomerate mergers, the European Commission has in recent years expressed concern over the ‘portfolio’ or ‘range’ effects of conglomerate mergers. A case in point is the 2001 General Electric Company/Honeywell International Merger on which the North American and European competition authorities reached diametrically opposed conclusions about the likelihood of anti-competitive effects of the conglomerate merger (Case 5). Case 5: General Electric Company/Honeywell International Merger –

Different interpretations of a conglomerate merger by competition authorities

In the autumn of 2000, General Electric (GE) announced its proposed acquisition of Honeywell. GE is a leading producer of jet engines for large commercial aircraft and large regional jets. Honeywell is a leading producer of engines for small regional and corporate jets and of avionics and nonavionics systems, such as landing gear and auxiliary power units. The US Department of Justice’s investigation of the merger concluded that GE and Honeywell operated in separate and intensely competitive markets, with the exception of horizontal overlaps in US military helicopter engines and in repair and overhaul services for certain Honeywell aircraft engines. The Department of Justice therefore allowed the transaction to proceed under the condition that GE divest Honeywell's helicopter engine business and license a new competitor to maintain and repair certain Honeywell engines. In contrast, the European Commission prohibited the merger. The European Commission’s blocking of the merger was based on conglomerate concerns derived from its ‘portfolio effects’ approach. The Commission’s investigation which demonstrated that GE alone already had a dominant position in the markets for jet engines for large commercial and large regional aircraft. Its strong market position combined with its financial strength and vertical integration into aircraft leasing were among the factors that led to the finding of GE's dominance in these markets. The investigation also showed that Honeywell was the leading supplier of avionics and non-avionics products, as well as of engines for corporate jets and of engine starters (i.e., a key input in the manufacturing of engines). The combination of the two companies' activities would have resulted, according to the Commission’s assessment in the creation of dominant positions in the markets for the supply of avionics, non-avionics and corporate jet engines, as well as to the strengthening of GE's existing dominant positions in jet engines for large commercial and large regional jets. The dominance would have been created or strengthened as a result of horizontal overlaps in some markets as well as through the extension of GE's financial power and vertical integration to Honeywell activities and of the combination of their respective complementary products. Such integration would enable the merged entity to leverage the respective market power of the two companies into the products of one another. This would have the effect of foreclosing competitors, thereby eliminating competition in these markets, ultimately affecting adversely product quality, service and consumers' prices. Given the nature of the competition concerns resulting from the proposed merger and the fact that the GE

Different interpretations of conglomerate mergers


was unable to propose undertakings that would have removed all competition concerns, the Commission prohibited the merger.

5 SUMMARY The brief discussions in this part of the reference guide have introduced the basic concepts of competition law and provided an overview of competition policies in the SADC region. We should like to emphasise that new competition officials should also go through the basic literature related to competition issues (glossary, text books), as well as analyse previous cases of “his” or “her” competition authority. Finally, before engaging in enforcement activities new competition officials need to thoroughly get to know the relevant laws. Checklist 2 provides a structure for analysing competition laws. Checklist 2: Analysis of competition laws

A competition law should regulate, as a minimum, the following issues. The reader should take his/her national competition law and see how it addresses each of the following issues. Ideally, it should be compared with the corresponding regulations in another competition law (of a SADC Member, or one of the model laws): 1. Objectives

� Are objectives clearly stated? � Is there a clear reference to whether the law aims at enhancing efficiency (overall welfare) or

consumer welfare? 2. Definitions

� Are key terms clearly defined? 3. Scope

� Which limitations to the scope of application exist (e.g. sectors, government owned firms, labour market, SMEs)?

� Are these limitations justified by economic reasoning? 4. Practices addressed, and how (per se/rule of reason):

a. Abuse of dominance b. Collusion/restrictive (horizontal) agreements c. Vertical restraints d. Mergers (horizontal/vertical)

� Which definitions apply to each practice? � Which specific behaviours are addressed? � Is the practice and legal response sensible from an economic point of view?

5. Institutional setting � Structure

a. Institutions (one many, sector based, etc.)? b. Degree of autonomy of institutions (structural, budgetary)? c. Internal structure of institutions? d. Appointment, tenure?

� Powers and functions a. Investigation b. Prosecution c. Adjudication d. Advocacy e. Degree of separation of powers

6. Enforcement procedures � Investigations (relevant market determination) � Penalties and remedies


� Conflict of interest and confidentiality � Judicial review

6 SUGGESTED READINGS First introductions into competition policy issues are: CUTS 2001: Competition Policy and Law Made Easy, Monographs on Investment and

Competition Policy #8, Jaipur. Available online: http://www.cuts-ccier.org/pdf/cplme.pdf

OECD 1993: Glossary of Industrial Organisation Economics and Competition Law, Paris. Available online: www.oecd.org/dataoecd/8/61/2376087.pdf

Two essential and comprehensive text books on competition policy are: Motta, Massimo 2004: Competition Policy. Theory and Practice, Cambridge et al.: Cambridge UP.

Viscusi, W. Kip/Harrington, Joseph E. Jr./Vernon, John M. 2005: Economics of Regulation and Antitrust, 4th ed., Cambridge, Mass. & London: MIT Press. – Part I.

Documents with a particular focus on important issues for developing and small economies are: Cook, Paul/Fabella, Raul/Lee, Cassey (eds.) 2007: Competitive Advantage and Competition Policy

in Developing Countries, Cheltenham/Northampton, MA: Edward Elgar.

Gal, Michal S. 2003: Competition Policy for Small Market Economies, Cambridge/Mass & London: Harvard UP.

Mehta, Udai S./Sengupta, Rijit 2008: Competition Policy: Essential Element for Private Sector Development in Eastern and Southern Africa, Jaipur: CUTS International, http://www.cuts-ccier.org/7up3/pdf/Comp_Policy_and_PSD_in_ESAfrica.pdf

Qaqaya, Hassan/Lipimile, George (eds.) 2008: The effects of anti-competitive business practices on developing countries and their development prospects, New York/Geneva: UN, http://www.unctad.org/en/docs/ditcclp20082_en.pdf

Singh, Ajit 2002: Competition and Competition Policy in Emerging Markets: International and Developmental Dimensions, G-24 Discussion Paper Series No. 18, UNCTAD/Center for International Development Harvard University, New York/Geneva: UN, http://www.unctad.org/en/docs/gdsmdpbg2418_en.pdf

UNCTAD 2004: Competition, Competitiveness and Development: Lessons from Developing Countries, UNCTAD/DITC/CLP/2004/1, New York/Geneva: UN, http://www.unctad.org/en/docs//ditcclp20041ch1_en.pdf

UNCTAD 2009: The relationship between competition and industrial policies in promoting economic development, TD/B/C.I/CLP/3, 27 April 2009, http://www.unctad.org/en/docs/ciclpd3_en.pdf

Legal aspects are addressed by the following documents: OECD 2007: Competition Assessment Toolkit, Paris: OECD,

http://www.oecd.org/competition/toolkit

UNCTAD 2000: The United Nations Set of Principles and Rules on Competition, TD/RBP/CONF/10/Rev.2, Geneva: UN, http://www.unctad.org/en/docs/tdrbpconf10r2.en.pdf

UNCTAD 2007: Model Law on Competition, TD/RBP/CONF.5/7/Rev.3, New York and Geneva: UN, http://www.unctad.org/en/docs/tdrbpconf5d7rev3_en.pdf


World Bank/OECD 1997: A Framework for the Design and Implementation of Competition Law and Policy, http://www.oecd.org/document/24/0,3343,en_2649_34535_1916760_1_1_1_1,00.html


PART II: COMPETITION LAW ENFORCEMENT


1 INTRODUCTION

1.1 Principles for Competition Law Enforcement As we have seen in part II, all competition laws agree on the fact that the protection and enhancement of competition is a key objective of competition law. This requires competition authorities to act on two levels (Figure 4): on the one hand, anti-competitive behaviour or practices of firms must be prevented. Anti-competitive practices can be applied by individual firms if they dominate the market (abuse of dominance), or collectively by a number of smaller firms acting jointly (collusion or cartels). On the other hand, the creation of market structures which are conducive to anti-competitive behaviour must be prevented. Therefore, competition authorities also usually control acts of concentration in the market which are caused by mergers and acquisitions. Other market processes leading to dominance or concentration in markets – such as bankruptcies of firms or conversely, company growth caused by success in the business – are not usually addressed by competition authorities, nor is the mere existence of a dominant firm a sufficient cause for action of competition authorities. Figure 4: Competition law addresses structural and behavioural threats to

competition

Market structure Behaviour of f irms Market performance

Compet it ion law

DominanceAbuse of

dominanceLoss of ef f iciency,

consumer welfare...

Concentrat ion Collusion

Mergers &

acquisi t ions

In theory, the scope for a competition authority’s enforcement activities is quite clear. In practice, however, substantial difficulties arise from the fact that most types of firm behaviour which are known as anti-competitive practices may also be normal competitive behaviour, and it is often difficult to distinguish the two. Furthermore, anti-competitive practices may also have positive effects which outweigh the negative effects. The lesson for competition authorities is that in many cases (except hard-core cartels and other practices prohibited per se) they have to consider the negative and

Anti-competitive behaviour and anti-competitive structures

Type I and Type II errors


positive implications of a certain firm behaviour. This entails two risks of arriving at “wrong” results: � A competition authority may be too strict when it finds an anti-competitive

practice and rules against it although there was none, or the positive effects of the practice outweigh the negative results. This type of mistake is called Type I error5 (or over-enforcement). An example could be, applying the total welfare criterion, the prohibition of a merger in which efficiency gains are larger than costs to consumers in terms of higher prices.

� Conversely, a competition authority may also be too lenient if it does not address anti-competitive practices where they occur, or discharge an undertaking that has effectively applied such a practice. This type of mistake is called Type II error (or under-enforcement).

The question of whether over-enforcement or under-enforcement is the graver mistake cannot easily be answered. Ultimately, it depends on the objectives of competition law and the economic ideology behind it. Thus, in the US, where economic freedom is an important objective of competition policy, Type I errors are considered to be worse, whereas the EC has the opposite point of view. For young competition authorities, the choice between the risk of making type I and type II errors can (or must) often be answered quite pragmatically. With limited resources there is usually a pressing need to prioritise the use of resources. This usually leads to a focus on important and clear cases while at the same time many other cases of less grave potential violations of competition law will not be addressed. Many young competition authorities therefore commit Type II errors. Knowledge of this should not induce a competition authority to try and be particularly strict in the cases it does act upon however. The rule that the negative and positive effects need to be considered and weighed against each other should be applied at all times. As part of its work – in particular during investigations – a competition authority typically will get access to confidential business information. Preserving the confidentiality of such information is essential for ensuring impartial and successful investigations and, hence, achieving and maintaining credibility of the competition authority. Therefore, in many laws, including in the SADC region, breach of confidentiality by competition authority staff is considered an offence. This is important to show the business community that confidential business information is not made available to competitors in the context of investigations.

1.2 Enforcement Tools In order to effectively enforce competition law, competition authorities need to have the appropriate tools. In particular they need to be able to monitor markets in order to identify potential problematic issues for competition, collect relevant data and information in the context of specific investigations and analyse and

5 The terms “Type I error” and “Type II error” are borrowed from statistics, where the former refers to the error of rejecting a null hypothesis when it is actually true, and the latter to the error of failing to reject a null hypothesis when it is in fact not true.

The importance of confidentiality


interpret the collected data and information. These types of tools are addressed in this section. More details are also provided when discussing specific anti-competitive practices in the following chapters. Of course, enforcement does not end with the completion of an investigation. Adjudication and the application of remedies and penalties are as important phases in the enforcement process. However, as these are not usually handled by enforcement officers, and largely depend on national laws, these are not addressed in this document in great detail.

1.2.1 Market Observation and Inquiry In order to address anti-competitive practices, the competition authority must first identify them. In principle, two methods for the detection of anticompetitive practices exist. First, persons aggrieved by the practice may complain to the competition authority. Second, the completion authority may undertake its own observations and inquiries of market structures and firm behaviour. Today, most competition laws world-wide consider both methods. Complaints to competition authorities can usually be filed by any person, whether or not they are personally aggrieved. In practice, complaints are often submitted by other firms – competitors, suppliers, buyers – or consumer organisations. Market observation and inquiries are important instruments of competition authorities especially in countries where there is little awareness among the business community and the public in general. Under such conditions, complaints to the competition authority are likely to be rare and/or driven by perceived unfair or anticompetitive treatment of the complainant by the defendant. On the other hand, important cases of anticompetitive behaviour might not be complained about. Therefore, the competition authority should undertake its own investigations into different markets in order to identify potential anticompetitive structures and practices. Competition laws usually do not address market observation and inquiries in detail. An exception is South Africa which has established rather detailed rules on market inquiries in the Competition Amendment Act 2009 (Chapter 4A). Market observation refers to a constant monitoring of markets. Its purpose is to identify sectors and markets which have features which may prevent, distort or restrict competition. If there is reason to believe that anticompetitive practices may exist in a market, the competition authority could undertake a more detailed study or market inquiry. The South African law defines market inquiry as “a formal inquiry in respect of the general state of competition in a market for particular goods or services, without necessarily referring to the conduct or activities of any particular named firm” (§43A). Market observation can take many different forms. The competition authority may monitor prices and other business practices, especially in markets which are characterised by high degrees of concentration and/or characteristics known to have a negative impact on competition.

Complaints

The need for market observation and inquiries

Defining market observation and inquiry

Observing markets and the need for co-operation


In view of the limited resources which competition authorities have, establishing networks with other institutions, including in the private sector and consumer associations (where they exist) will be helpful to get a first indication of potential competition issues in certain markets. Sometimes, consumer associations run their own competition observatory and make information available to the competition authority6, although this may be difficult in most SADC countries where consumer associations are institutionally weak. Furthermore, an intensified and ongoing co-operation among competition authorities in the SADC region will help overcome certain resource limitations. Such co-operation is also required in view of the growing regional integration. For example, with the representation of South African firms in most SADC countries data related to those industries where South African firms are present may be more readily available in South Africa than in other SADC countries. If market observation indicates that a market may have anticompetitive features, the competition authority can engage in a more detailed study of the structure and business practices in that market, i.e. undertake a market inquiry. This can be understood as a market study focussing on competition aspects. Technically, the market inquiry will be similar to a formal investigation (see below) but it will be less detailed and not focus on the behaviour of specific firms. Nevertheless, depending on the findings it may lead to the initiation of a formal investigation into the practices of specific firms. When undertaking a market inquiry, it is helpful to clearly define the scope, timeframe and expected results prior to the start. Usually, the inquiry will result in a written report summarising the findings. If published, the report will help raise awareness for competition issues and hence also constitute an element of the authority’s advocacy mandate (see chapter 1 in part III below).

1.2.2 Data Collection Methods during Investigations There are a number of instruments for data collection which competition authorities apply during investigations. Not all instruments are useful in each situation. As a general rule, the investigative powers of the authority need to be stronger, and instruments need to be more pervasive, for the detection of practices which are prohibited per se, as these are usually undertaken secretly. The main instruments include: � Collection of market data provided by the national statistics authority,

associations, research institutions, or own market observation (see section 1.2.1 above);

� Hearings and interviews of firms under investigation and other interested parties (competitors, clients, consumer organisations, etc.);

� On-site inspections on the premises of firms under investigation;

6 A good example for this practice is the CUTS Centre for Competition, Investment and Economic Regulation (CCIER) which, among other activities, collects and disseminates information and data relevant for competition in India. See http://www.cuts-ccier.org.

Undertaking market inquiries


� Leniency programmes in which firms provide information about prohibited practices in exchange for immunity (see section 3.1.2.1 for details);

� Notifications, especially in the context of merger treatment: Firms themselves provide relevant information as part of their (voluntary or mandatory) notifications to the competition authority.

Each investigation will typically be based on a mixture of these data collection tools. Furthermore, not each method is applicable in each context (Table 6). E.g. notification requirements for the detection of cartels would be useless. Generally, the most interventionist methods – on-site inspections and leniency programmes – are applied only in investigations of prohibited practices. Table 6: Data collection methods and anticompetitive practices

Method Mergers Vertical restraints Abuse of dominance Cartels

Notifications � - - Collection of market data � � � �

Hearings & interviews � � � �

Inspections - - � �

Leniency programmes - - - �

Hearings and interviews often take place in order to complement written materials with oral information. Interviews can take place either on the premises of companies (for example in the context of an inspection) or of the competition authority. Hearings usually convene several stakeholders and are undertaken under court like proceedings. The competition law or regulations usually provides for the procedural rules. Where this is not the case the competition authority should develop them. In many jurisdictions, surprise inspections at companies’ locations are a powerful tool of competition authorities to uncover prohibited anti-competitive practices, in particular hidden cartels. These inspections are also called “dawn raids”, as they usually take place early in the morning. Surprise inspections are carried out to collect direct evidence of secret cartel agreements or abuse of dominance, usually found in mission reports, meeting notes, email messages, etc. Therefore, during an inspection, copies of documents are taken and interviews with companies’ employees are conducted. At the end of the surprise inspection, a report is produced with the list of all copies of documents taken and replies to questions made during the inspection annexed. In some countries the competition authority can independently authorise surprise inspections whereas in others it needs to obtain court authorisation before conducting a surprise inspection. Such inspections may also extend to company managers’ homes in case there is suspicion that relevant evidence about cartels could only be found there. In the SADC region, in all countries except Zimbabwe a search warrant is needed. However, in Namibia and South Africa, a search of premises (other than private dwellings) without a warrant is allowed if certain conditions are fulfilled, notably if the delay in obtaining a warrant would defeat the object of the entry and search.

Hearings and interviews

On-site inspections


In countries where court authorisation for surprise inspection is required, the procedures in place should ensure that this is processed in a very short time, within hours from the request. Surprise inspections need to be carried out with little advance notice to minimise the risk that companies may hide away any evidence about cartel arrangements. Often, during surprise inspections, competition authority officials are joined by police officers in order to deal with situations where companies try to impede the inspection, opposing resistance or trying to mislead inspection operations. In recent years, information technology experts have played an increasingly greater role during inspections, as most information, including cartel arrangements, is now stored by electronic means. Therefore, copies of electronic files containing relevant information are taken by the competition authority. Within the European Union, surprise inspections are typically carried out in either one or two working days. European Commission officials have been granted the power to put seals on business premises at the end of the working day, to ensure no documents are removed overnight. It is sound practice for a competition authority to ensure that surprise inspections disrupt companies’ regular activities as little as possible and legal safeguards for the involved companies and for their employees are guaranteed. Usually, lawyers are allowed to assist companies during surprise inspections. However, the presence of lawyers is habitually not required for the inspection to start.

1.3 The Standard Investigation Process Most investigations into the potential use of anticompetitive practices by firms follow roughly the same procedure (at least the main stages). This is schematically presented in Figure 5. First, the relevant market has to be determined – both geographically and in terms of the products which it includes. This forms the basis for the second stage (which is not always required in the case of anti-competitive agreements), i.e. the determination of the market power of the firms allegedly engaging in the anti-competitive behaviour. At the end of the second stage, usually the decision is taken of whether or not to proceed with the investigation. If the market power of the firms under investigation is found to be limited, the case will usually be closed. Only if firms are powerful players in the relevant market the investigation will continue. This selection process has two advantages: First, it helps the competition authority to focus on important cases of anti-competitive behaviour that have a true impact on the market and possibly the economy in general. Second, it helps competition authorities avoid overstretching their limited resources to too many cases.

Stage I: Definition of the relevant market Stage II: Assessment of market power


If the case continues, the competition authority will in the next stage assess both the anti-competitive effects as well as – unless the practice is prohibited categorically – the potential positive effects (usually efficiency gains) of the practice under investigation. If positive effects outweigh the negative effects, i.e. the net effect of the practice is positive, the case will be closed. Determining the net effect of a business practice is not easy. First, weighting criteria must be applied. Thus, if consumer welfare is the key objective of competition policy, efficiency gains which only accrue to producers but are not passed on two consumers (in terms of lower prices) will not play an important role in the competition authority’s considerations. Conversely, if overall economic efficiency is the key objective such efficiency gains will be important. Figure 5: The standard process of investigations against potential

anticompetitive practices

Market share

below “ safe harbour”

threshold?

yes

no

Close case

Determine market power of

f irm(s) being invest igated

Determine relevant market

Assess ant icompet it ive

ef fect of pract ice

Assess potent ial posi t ive

ef fects of pract ice

Posit ive ef fects >

negat ive ef fects

yesClose case

Prohibit pract ice

or order remedies

no

Public interest

mot ives to exempt

pract ice?

yes Grant

exempt ion

no

Stage III: Assessment of anti-competitive and positive effects


Secondly, due to information constraints precise measurement of anti-competitive and efficiency effects will usually not be possible so that the competition authority will have to use its subjective professional judgement to a considerable extent. Finally, a last check before a business practice is prohibited and/or remedial actions are taken, concerns issues which are outside of the realm of competition policy (understood in a strict sense). Public interest motives may induce the competition authority to clear a business practice even when it produces harmful effects for competition, consumers or the economy in general.

1.4 Remedies and Penalties Effective enforcement of competition law requires that certain sanctions can be levied in response to non-compliance (Figure 6). Non-compliance can occur in two contexts. Either, undertakings can violate the substantive provisions of the law, i.e. engage in anticompetitive practices prohibited by the law, or they can violate procedural aspects, i.e. obstruct the work of the competition authority in various means. With regard to substantive issues, if an anticompetitive practice has been determined by the completion authority or tribunal, usually two sanctions follow: remedies and/or penalties. The objective of remedies is to stop the anticompetitive practice and make its effects undone. The main purpose of penalties is to deter firms from engaging in practices which are prohibited per se. Different types of remedies and penalties can be found in different jurisdictions. In the following sub-sections, we discuss some more details and present a closer look at the practice in SADC Members States. Figure 6: Competition law sanctions

Compet it ion law

enforcement

Substantive issuesEnforcement and

procedural issues

Remedies Penalties

Behavioural remedies

Structural remedies

Fines

Penalties

Prison sentences

Damage payments

Stage IV: Public interest motives


1.4.1 Remedies A key objective of virtually all competition laws worldwide is to protect and enhance competition. Therefore, the first and foremost response of the competition authority to an anticompetitive practice is to stop the practice and its effects on the market. In order to so, two types of remedies exist, structural and behavioural ones. Restrictive business practices are usually dealt with through the use of behavioural remedies, i.e. requiring firms to cease certain conduct or impose positive steps to restore competition. Examples of behavioural remedies are: � Termination or amendment of an agreement between firms; � Cessation or amendment of a practice or course of conduct; � Observation of conditions specified by the competition authority in relation

to the continuation of an agreement or conduct; � Supply of goods or services, or granting of access to facilities, either generally

or to named parties; � Development of formal corporate procedures to avoid a certain conduct in

the future; � Provision of specified information to the competition authority on a

continuing basis. In some jurisdictions, structural remedies can also be imposed, for example requiring divestitures of parts of dominant firms in order to introduce an adequate level of competition. Usually, structural remedies are imposed only when other solutions are not available, i.e. when behavioural measures cannot be a viable solution to the anti-competitive practices. In the SADC region, behavioural remedies are more commonly used. Table 7 provides a summary. Table 7: Remedies foreseen in selected SADC Member States

Behavioural remedies Structural remedies

Lesotho � �

Malawi Through civil action - Mauritius � �

Mozambique � - Namibia � - Seychelles � - South Africa � �

Tanzania � - (only for mergers) Zimbabwe � - (only for mergers)

Source: SADC Members’ competition laws (see Annex 1.7). It should be noted that remedies in the context of merger assessment follow a slightly different rationale. Therefore, we discuss them in section 6.4 below.

1.4.2 Penalties As mentioned above, in competition law penalties are usually applied in two contexts:

Remedies for restrictive business practices

Behavioural remedies

Structural remedies


� Substantively, against firms having engaged in prohibited practices, especially membership in cartels; and

� Procedurally, against firms and individuals in case of non-cooperation during investigations.

Penalties for hindering competition law enforcement are an important instrument to allow the effective operation of competition authorities. Both investigation and adjudication require that concerned parties cooperate with the competition authority and tribunal. Therefore, procedural penalties are commonly foreseen when firms or their representatives obstruct investigations, provide false information, etc., or fail to implement orders of the competition authority or tribunal. In most jurisdictions, including in the SADC region, such behaviour is considered as an offence and will be treated as such, i.e. by imposing fines or prison sentences (Table 8). Where laws distinguish between the failure to implement orders and the obstruction of investigations (such as in Namibia or South Africa) penalties for the former are substantially higher (see annex 1.7). Fines or criminal charges are often not considered appropriate for abuse of dominance violations, particularly for practices commonly employed in an industry or if it can be concluded that the intent of the firm was not to hurt competition. Clearly, fines should be nonetheless applied in all cases of non-compliance with the decisions to stop anti-competitive practices and in cases of repeat transgressions. Cartels constitute the only business practice which can clearly be determined as prohibited without much room for interpretation. All other potentially anti-competitive practices can either not be determined easily (abuse of dominance) or have mixed effects (vertical restraints, mergers, other types of agreements). Therefore, penalties are most often applied in cartel cases. The most common type of penalties used in these cases is a fine – all SADC countries (and virtually all countries with competition laws world-wide) foresee financial penalties. It is often difficult to uncover cartels due to the fact that the colluding firms go to great lengths to make sure their arrangements are kept secret, in order to avoid being faced with legal action. Even in countries with a consolidated enforcement experience, cartels having lasted many years are continuously being uncovered. This proves the strong financial incentive firms have with respect to participating in cartel agreements. In order for anti-cartel enforcement to ensure effective deterrence competition authorities must be able to impose high enough penalties to firms participating in hidden cartels. In this regard, it is essential that penalties for cartel participants are higher than the expected economic gains accruing to the involved firms from the supra-competitive prices charged to customers. If the expected gains from cartel activity can be predicted to be higher than the imposed fines, firms may always find it preferable to run the risk of being sanctioned, in view of the expected greater gains. As an example, if the gains from a cartel would be expected to amount to one million Euro and the probability of being caught 20%, then fine levels which ensure adequate deterrence should be no less than five million Euros.

Penalties against obstruction of competition law enforcement

Penalties against abuse of dominance

Penalties against cartels and other practices

Fines


Some countries – including about half of the SADC Members with competition laws (Table 8) – explicitly foresee, in addition to fines, compensation of damages to injured parties by means of civil action against cartel members. As there is no maximum limit to these damages the effect of this penalty can be expected to be more deterrent than that of fines. Civil action is usually started once the competition authority or tribunal concludes the investigations with a positive finding. Table 8: Use of penalties against competition law violations in selected SADC countries

Country

Substantive violations Procedural violations

Fines Damage payments

Imprisonment Fines Imprisonment

Lesotho � (max 10% of turnover during period of breach)

- - To be determined.

Malawi � (max MWK 500,000)

� � (max 5 years) � (max MWK 10,000)

� (max 2 years)

Mauritius � (max 10% of turnover in Mauritius for max. 5 years)

- - � (max MUR 500,000)

� (max 2 years)

Mozambique � (max 10% of annual turnover)

- - � (max 1% of annual turnover)

-

Namibia � (max 10% of annual turnover)

� - � (max NAD 200,000/50,000/

500,000)

� (max 1/3/10 years)

Seychelles � (max tbd) � � (max 6 months) � (max tbd) � (max tbd) South Africa � (max 10%

of annual turnover)

� � (max 10 years) � (max ZAR 2,000/500,000)

� (max 6 months/ 10 years)

Tanzania � (max 10% of annual turnover)

� - � (max TZS 5 M)

-

Zambia � (max ZMK 10 M)

- � (max 5 years) � (max ZMK 10 M)

� (max 5 years)

Zimbabwe � (max USD 150,000)

� � (max 2 years) � (max USD 5,000)

� (max 6 months)

Source: SADC Members’ competition laws (see Annex 1.7). Finally, in some jurisdictions, such as in the United States, enforcement authorities may impose jail terms to individuals responsible for the establishment of cartel conduct, in addition to pecuniary sanctions to individuals and firms. Clearly, the possibility to impose jail sentences and fines to individuals greatly increases deterrence against cartel conduct. The number of countries imposing criminal sanctions on cartel participation has been increasing in recent years. This also seems to be the case in the SADC Region where South Africa recently introduced criminal sanctions to cartel activity. Nevertheless, the majority of SADC Members still does not foresee prison sentences in their competition laws. South Africa has amended the 1998 Competition Act in 2008 introducing liabilities against a director or executive of a firm who causes the firm to engage, or knowingly acquiesce in a firm engaging in cartel conduct, in contravention of Section 4(1)(b) of the Act. The director or executive can only be prosecuted for this offence if his or her firm has been found guilty of engaging in a cartel. A

Damages to private parties

Prison sentences


person found guilty of this offence may be liable for a fine up to ZAR 500.000 or for an imprisonment term up to 10 years. The new provision, according to the Commission, “sends a powerful signal that it is now time for directors and executives of firms to ensure that there is compliance with the provisions of the Competition Act”7.

7 Competition News (the official newsletter of the Competition Commission) of December 2008. The newsletter notes that among the reasons for the amendment of the law was the uncovering of widespread cartels by the competition authorities in sectors such as bread and milk. These, understandably, led to a public outrage and a general call for the directors and executives to take personal responsibility for these. Cartels are often equated with theft and sometimes even “day light robbery.”


2 THE ASSESSMENT OF MARKET POWER AND DOMINANCE

Market power relates to the ability of firms to raise prices or to reduce quality levels compared to a competitive situation, without suffering negative consequences, such as a significant share of customers switching to alternative suppliers. Technically, it can be defined as the difference between the price that a firm can charge and the price that a firm could charge under perfect competition. Dominance is a closely related concept. It focuses more on the effect of powerful actors on competition. As such, dominance can be defined as the ability for an undertaking to behave in a market without having to fear the reactions of competitors. In particular, a dominant undertaking is able to raise prices or lower quality levels or range without having to face significant countermeasures by other market players or potential competitors. Dominance thus exists only if a firm surpasses a certain threshold of market power. The assessment of a dominant position is an important element in the application of competition law particularly for the investigation and prosecution of alleged abuses of a dominant position. Appraisals of dominant positions also play an important role in competition authority proceedings related to restrictive agreements and concentrations. The finding of an enterprise holding a dominant position cannot be applied across the board: it is rather a market-specific appraisal. In fact, a competition authority may very well conclude that a firm holds a dominant position within the context of a specific relevant market, while excluding such position in another market for the same firm. Thus, market shares can provide useful information about the presence of market power or dominance only if they are calculated with reference to well-defined markets. Therefore, a correct definition of the relevant market is important for ensuring that market shares or other indicators indeed provide reliable information about the extent of firms’ market power. In all jurisdictions, market share levels, particularly if maintained over the course of the years, are important criteria for the assessment of market power but are usually complemented by other indicators, such as the market structure, existence of other powerful actors (both competitors and buyers), market entry conditions etc. The assessment of market power and dominance is always undertaken in two stages. First, the relevant market is defined. Second, the market power of undertakings under investigation is identified, and a potentially dominant position determined.

2.1 Definition of the Relevant Market The definition of the relevant market, with respect to both its product and geographic dimension, is an essential step in competition law enforcement. It

Definition of market power

Definition of dominance

The importance of the relevant market


involves outlining the boundaries of competition: i.e. the identification of all the firms which represent a direct competitive constraint for the parties involved in an investigation, restricting their ability to exploit market power and to behave independently from competitive pressures. In fact, the definition of the relevant market is a fundamental step for all investigations of alleged abuses of dominance and competition-restricting concentrations conducted by a competition authority because it allows assigning meaningful information to the calculation of market shares, as “proxy” of market power. The importance of defining the relevant market correctly cannot be overstated. It has an important impact on the whole investigation. If the relevant market is defined too widely, the market power of the undertaking under investigation will be understated, and the competition authority may conclude that a case is not worth being pursued further (type II error). Conversely, if the relevant market is defined too narrowly, a type I error might occur, i.e. the competition authority might conclude that the undertaking engaged in anti-competitive practices (e.g. abuse of dominance) even when it was behaving “normally”.

2.1.1 Conceptual Issues The concept of the relevant market for the enforcement of competition legislation is different from that used by firms in other contexts. In fact, firms often use the term “relevant market” to indicate the whole industry in which they operate, or the markets where they supply their goods or services. In contrast, the relevant market as understood by competition law is much narrower in scope. It includes two dimensions: product characteristics and the geographical scope. With regard to the product market, the relevant market refers only to the product or products which directly compete with the product(s) in the investigation. As an example, consider a case involving bananas. Do bananas constitute the relevant market? Do we have to define the market more narrowly by looking only at e.g. organically grown bananas? Or, conversely, should we widen the relevant market definition to also include other fruits such as mangos? With regard to the geographical scope, again the relevant market covers the region in which the product under investigation is sold (or on which the company under investigation is active). Often, the relevant geographical market is defined as the national domestic market. However, especially in cases where transport costs play an important role, such as certain construction materials, or where goods are perishable, such as fresh meat or fish, there may also be sub-national markets. The rationale for determining the relevant market is that undertakings face various types of competitive constraints: demand substitutability, supply substitutability and potential competition. For the definition of the relevant market, the first two are usually considered. The most direct source of competitive constraint, directly relevant for the definition of the relevant market, is demand substitutability. A monopolist is not able to maintain prices above competitive levels if its customers can easily switch

Relevant market definition and type I and II errors

Product market and geographical market

Demand substitutability


to alternative substitute products or alternative geographic areas, therefore making a price increase unprofitable. A useful conceptual framework for the identification of substitute products and alternative suppliers located in other geographic areas which constitute immediate constraints on the involved firm’s conduct is to look at the possible reaction of customers following small increases in the prices of the involved firm’s products. The relevant market will be considered to include all substitute products and all alternative areas to which customers could turn to following the price increase. Based on this consideration, the key instrument to identify the relevant market, used by competition authorities all over the world, is the hypothetical monopolist test, usually called SSNIP test, where SSNIP stands for “small but significant non-transitory increase in prices”. The core idea of the SSNIP test is the following question:

Would a hypothetical monopolist find it profitable to increase the price above the current level in a non-transitory way by a small but significant amount?

The “small but significant amount” should be consistently applied by the competition authority, and in view of harmonisation SADC competition authorities should agree on a common approach. Usually, it is between 5% and 10%. The examination would start from a narrow basis, considering only the products or services supplied by the involved firm or firms (Figure 7). If the above question for these products is answered positively, this means that there is no competitive restraint on the hypothetical monopolist which indeed acts in its own market – which is then taken as the relevant market. Figure 7: SSNIP test flowchart

Price increase

by hypothet ical

monopolist

prof itable?

Widen market (w ider

product def init ion or

larger geographical area)

yes

no

This is the relevant

market !

If the answer is negative, this means that competitors or competing products are in the same market as the hypothetical monopolist, and the market as defined initially is incomplete. Therefore, the relevant market must be wider. Thus, other products – imperfect substitutes – should be included in the market definition, and the SSNIP question asked and answered again. This process of widening the market and answering the question is repeated until the question is answered positively, i.e. up to the point where the price increase would not lead to

The SSNIP test


substitution to alternative products or to suppliers located in alternative areas, therefore making the price increase profitable for the involved firms. Box 3 presents an example for the determination of a relevant product market. Box 3: Determination of the relevant product market based on demand substitutability – an example: the soft-drink industry

Consider the investigation of an alleged abuse of dominance by a producer of soft-drinks with orange flavour. Should the relevant market include only orange-flavoured soft-drinks or, alternatively, should it also include other types of soft-drinks? The competition authority will first look at the likely consequences of a hypothetical small, non-transitory increase in the price of orange flavoured soft-drinks. If it is possible to conclude – on the basis of the available information – that a significant number of customers would no longer buy the orange-flavoured soft-drink but would switch to alternative products, for example grapefruit-flavoured or lemon-flavoured soft-drinks, following the price increase, then the two latter types of soft-drinks would also need to be considered belonging to the relevant market. The competition authority would then repeat the test: would a price increase of flavoured soft-drinks be profitable, or would consumers turn to substitutes (e.g. syrups or mineral water)? If the price increase is found to be profitable for flavoured soft-drinks, then these constitute the relevant product market. The importance of the definition of the relevant market for all competition law investigations is clear. The firm subject to investigation, even if it represents a large share of supply of orange-flavoured soft-drinks, might not be considered dominant if the supply of lemon and grapefruit soft drink needs to be taken into account, because of substitution possibilities, when calculating market shares. Assume that the alleged dominant firm has a market share of 90% in orange-flavoured soft-drinks but only 20% in the flavoured soft-drinks market. If the relevant market was (incorrectly) defined as orange-flavoured soft-drinks, it would be considered as a dominant firm, whereas under the wider definition of relevant market it would hardly be considered dominant.

Supply-side substitutability – the ability of competing firms to start supplying the market - needs to be taken into account in the definition of relevant markets only in those cases in which it produces the same effects in terms of immediacy and strength as demand-side substitutability. Suppliers of close products or suppliers situated in other areas can be included in the relevant market under certain conditions: they must be able to supply the relevant market in a short time (e.g. within a year), without having to incur additional costs or risks. However, if the alternative suppliers would need to incur additional costs, then they most likely should not be considered as belonging to the relevant market. Rather, they would be considered as a less immediate competitive constraint and would be considered in the competition assessment as potential competition. It is possible that supply and demand substitutability considerations lead to different definitions of the relevant market. For example, in Box 4 based on demand substitutability considerations would consist of printing paper whereas supply side substitutability would suggest a wider relevant market comprising different types of paper. In these cases, which approach should prevail?

Supply-side substitutability

Conflicts between demand and supply-side substitutability


Box 4: Determination of the relevant product market based on supply-side substitutability – an example: the paper industry

Consider an investigation against a producer of printing paper. Different types and qualities of paper exist. Clearly, in most cases the different grades and qualities are not considered substitutes by consumers. E.g. consumers would not buy packaging paper when the price of printing paper is increased. Thus, based on demand substitutability considerations alone the competition authority would determine that packaging and printing paper belong to different relevant markets. On the other hand, paper producers can be expected to be able to supply most types of paper, including those they never produced, without having to incur substantial new costs and investments in machinery or marketing. If a hypothetical monopolist increased the price for printing paper and this would lead to profits, it would be rational for a producer of packaging paper to also start producing printing paper. In this case, all paper suppliers’ capacity can be considered part of the same relevant market, i.e. supply substitutability considerations will lead the competition authority to include packaging paper (and other types of paper) in the relevant market.

Usually, the definition of the relevant market should be based on demand substitutability considerations. Then, the definition of the relevant market should be crosschecked with supply substitutability considerations. If these lead to a wider definition of the relevant market (as in Box 4 above), the wider definition should prevail. This procedure will reduce the number of cases to be treated by the competition authority because the wider relevant markets are defined the less often will dominance be found. As a result competition authorities can focus on the worst cases of dominance. This comes at the expense of potentially ignoring certain cases of anti-competitive behaviour, but given the fact that especially young competition authorities usually have a lack of resources and need to concentrate on few, but important cases, the risk of committing type II errors appears to be well worth taking. Although the SSNIP test is applied by many competition authorities around the world, there have been a number of criticisms. The first one relates to data requirements and availability: a strict application of the test requires the availability of comprehensive and high quality data on producer and consumer behaviour (in particular price elasticities) which are difficult to obtain in developed economies and almost impossible to get in developing economies. Furthermore, the SSNIP test is applied starting with actual current price levels: would a hypothetical monopolist find it profitable to increase the price starting from the current actual price level? However, if the current market situation is one of dominance, the current prices charged may well be close to the monopoly price – i.e. a further price increase by a hypothetical monopolist will not be profitable because an actual monopolist already charges prices well above the competitive price. This is what has come to be known as the “cellophane fallacy”8. As a result, the relevant market will be widened to an inappropriate level, increasing the likelihood

8 The name comes from the du Pont case in the US where the Supreme Court argued that the relevant product market comprised all flexible packaging materials rather than just cellophane. Du Pont was a dominant firm in the cellophane market, and the existence of monopoly prices in this market misled the Supreme Court to define the relevant market too widely – a decision which was heavily criticised later on.

The SSNIP test – a critique


that anti-competitive practices (in particular abuse of dominance) will not be detected.

2.1.2 Methods and Sources of Information Note that so far we have addressed the procedures for determining the relevant market – but which methods do we apply? How do we know if a price increase by a hypothetical monopolist is profitable or not? A strict application of the SSNIP test would require us to know various types of price elasticities, in particular own price elasticity and cross price elasticities of demand. However, information and data about reactions to price increases may be available only in rare occasions: nevertheless, the conceptual framework is relevant as it explains to all stakeholders the approach the competition authority would follow when assessing the confines of relevant markets. The competition authority’s starting point would be to investigate firms’ product characteristics and uses. Whenever deemed necessary, additional sources of evidence will be used depending on the specific market characteristics and information available. The additional sources of information may include: a) Evidence of substitution in the past: Information about relative price

movements between two products in the recent past, and the impact such movements produced on relative quantities consumed, can be particularly relevant, when such information is available. Also, information on product substitution trends following the launch in the market of new products can be particularly useful information.

b) Views of customers and competitors: When necessary, the competition

authority may conduct interviews with the main customers and competitors of the firms involved in investigations in order to gain information about the boundaries of the relevant markets.

c) Market studies and consumer surveys: For consumer goods, it may be

difficult to gather direct and reliable information about product substitutability directly from consumers. In this case, the competition authority would carefully consider any existing marketing study or consumer survey providing information about consumer views with respect to relative product preferences.

d) Switching costs: The presence of barriers or costs facing customers when

they want to switch to alternative products will need to be considered because of the relevant consequences for substitutability among products.

e) Price correlation: If prices of similar products move in the same way over time, this may be an indicator that they belong in the same market. However, the price correlation instrument must be applied with care, as parallel price developments may also be the result of general economic factors.

Sources of information for the determination of the product market


With regard to the definition of the relevant geographic market, the evidence the competition authority might rely upon in order to reach conclusions, would include: a) Evidence about past diversion of orders between geographic areas: In

some circumstances, evidence about past movement in relative prices between different areas, and consequent diversion of purchases, may be available.

b) Basic demand characteristics: For certain goods or services, customers may

express preferences for local production because of cultural, language or life-style characteristics. Therefore, consumers might not be ready to replace local supply with foreign one, even if apparently no barriers to trade appear to be present. Also, for many services, a local presence may be necessary.

c) Views of main customers and competitors: When necessary, the

competition authority may contact main customers and competitors in order to gather views about the areas of alternative supply, backed by evidence about the geographic boundaries of markets.

d) Current geographic patterns of purchases: Knowledge about current or

recent purchasing trends can provide useful information about the geographic dimension of markets. Markets can be considered greater than national if customers can get a substantial part of their purchases abroad. Information about trade flows can be particularly useful.

e) Barriers and switching costs to divert purchases in other areas: The

presence of high transport costs, trade barriers, such as import duties, quotas etc., and other regulatory obstacles for customers to procure from abroad needs to be appraised. Such barriers may indicate that competition is only national in scope.

f) Shipment test: Few shipments (of the products in question) between given geographical areas indicate that they constitute separate geographical markets. This implies, when looking at a given area, that there is “little in from outside” and “little out from inside”. Nevertheless, the shipment test has a tendency to define geographical markets too narrowly – even if there is no trade between two regions this is not a conclusive proof that the two regions constitute separate markets – differences in price levels also need to be taken into consideration. Thus, if price levels in the two regions are the same, there will be little trade between them (because of transport costs) but if prices increase in one of the regions this may trigger trade.

Publicity about the methodology used for market definition, such as the adoption and circulation of guidelines, will increase transparency for all stakeholders and will allow firms to anticipate the possible actions of the competition authority, for example when reviewing concentrations or practices by dominant firms.

Sources of information for the determination of the geographical market


Checklist 3: Determination of the relevant market

When determining the relevant market, competition authorities should keep the following issues in mind: 1. The determination of the relevant market has an important impact on the following stages and findings

of an investigation: if defined too broadly, certain cases of anti-competitive behaviour will be ignored (type II error); if defined too narrowly, the competition authority is likely to determine cases of anti-competitive behaviour where there is none (type I error).

2. The conceptual framework for determining the relevant market is the hypothetical monopolist (SSNIP) test – even when its strict application is not possible due to data limitations.

3. The relevant market is defined based on demand and supply substitutability considerations. 4. Two dimensions of the relevant market are distinguished: the relevant product market and the relevant

geographical market. 5. Tools for determining the relevant product market include evidence of substitution in the past, views of

consumers and competitors, market studies and consumer surveys, determination of switching costs, and price correlation.

6. Tools for determining the relevant geographical market include Evidence about past diversion of orders between geographic areas, Basic demand characteristics, views of consumers and competitors, Current geographic patterns of purchases, switching costs, and the shipment test.

The competition authority should have, or develop, guidelines for the determination of relevant markets. Harmonised guidelines for SADC Members are desirable.

2.2 The Determination of Market Power and Dominance

2.2.1 Conceptual Issues and Indicators As mentioned above, market power relates to the ability of a firm to raise the price above the price it could charge under perfect competition.9 In reality, in most markets, each firm has some degree of market power due to various factors such as product differentiation, imperfect information, etc. Thus, with certain levels of market power being pervasive also on competitive markets, there is nothing wrong with market power per se, particularly when it is transitory in time. It may become a problem, however, when a firm (or a group of firms) acquires a degree of market power which allows it to dominate the market for a significant amount of time. Dominance is not identical to a monopoly; rather, the concept of dominance describes the real life expression of the theoretical concept of a monopolist, which is rarely found in unregulated markets. In view of this the finding that an undertaking holds a dominant position does not necessarily require that competition has been completely eliminated from the market: a residual degree of competition is compatible with the presence of a firm able to exercise market power. However, if competitive pressures can be found to operate in the market, so that the undertaking is unable to influence market prices to a significant level, then the undertaking cannot be considered holding a dominant position. Since dominance is defined as a particular type of market power its determination requires, first, the measurement of market power (this will be addressed in detail

9 Remember that this is the economic definition of market power. Legal definitions may be different. For example, South Africa’s competition law defines market power as the power of a firm to control prices – which would fall under the economic definition of dominance.


in the next section) and, second, the establishment of a level or threshold of market power on or above which a firm can be considered as dominant under competition law. With regard to the second issue, two different approaches can be found in jurisdictions. Some countries apply a definition of dominance according to which a firm is considered dominant when it can be proved that it can unilaterally change variables (such as price, output volume) without being significantly restrained by competitors. In such jurisdictions, there is also usually – developed by case law – a presumption of absence of dominance for firms with market shares lower that 15-20%. Other countries, instead, apply a definition whereby a firm is presumed to be dominant if it has a share in the relevant market exceeding a certain threshold value.10 Enforcement practice usually adds to this the requirement that the market share must be maintained for a significant amount of time. Table 9 provides an overview of the indicators applied by selected SADC Members and other countries. Table 9: Market share thresholds for assumption of dominance in selected

jurisdictions

Country Quantitative threshold Qualitative definition/factors

SADC Members Lesotho 30% or CR3 of 60% Yes Malawi None Yes Mauritius 30% or CR3 of 70% No Mozambique None Yes Namibia To be determined by the competition authority Seychelles None Yes South Africa 45% For market shares below 45% Tanzania 35% Yes Zambia CR3 of 50% Yes Zimbabwe None Yes Other countries Colombia None Yes Croatia 40% Yes Egypt 25% Yes Indonesia 50% No Peru None Yes Russian Federation >50% - dominance

<35% - no dominance For market shares between 35% and 50%

Viet Nam 30% Yes

Sources: SADC Members’ competition laws (see Annex 1.2); for non SADC Members: UNCTAD (2008). As can be seen from the table, substantial differences in legal provisions and enforcement practices exist among countries. In some jurisdictions (such as South Africa or Indonesia), the evaluation of the dominant position is exclusively related to market share: above a certain threshold, a dominant position is found, with no need for additional evaluation to take place. Other jurisdictions – including most SADC Members – have no market share threshold in their competition law and exclusively rely on a set of qualitative factors (market concentration, extent of

10 UNCTAD distinguishes between structural and behavioural indicators for determining dominance, where the former refers to market shares (i.e. a quantitative indicator) and the latter to the ability of firms to control the market (i.e. a qualitative indicator). See UNCTAD (2008).

Different legal standards for dominance


entry barriers, countervailing power of buyers, etc.). Only a minority of countries relies exclusively on market share indicators (Indonesia being the only one among the countries covered by Table 9). Most jurisdictions (including those which do not specify a market share threshold in their competition law) in practice apply a combination of market share and other factors. It is common practice for the competition authority to start with the determination of the market share and use this as a screening device. For this purpose it is useful if the competition authority specifies one or two thresholds in their internal guidelines (unless such thresholds are already defined in the law, such as in Lesotho, South Africa, Tanzania or Zambia), where: � A lower threshold constitutes a “safe harbour”, i.e. an undertaking whose

market share is below this threshold is presumed not to be dominant; � An upper threshold above which a firm is presumed dominant (with the

burden of proof that the firm is not dominant in spite of its high market share falling on the firm);

� The assessment of dominance of firms which have a market share falling between the two thresholds would largely rely on qualitative indicators.

Qualitative factors to be taken into consideration include the market position of competitors, market entry conditions, buyer power and others; these are discussed in more detail in the following section. Dominance can be held by a single undertaking (“single dominance”), or jointly by two or more undertakings (“collective dominance”). Collective dominance exists when the involved undertakings present themselves in the market in a joint manner acting in a parallel way with regard to the most important competitive parameters (prices, output, etc.) without having reached any form of implicit or explicit agreement. It is not necessary that the undertakings act exactly in the same way: it is sufficient that they have a similar stance on the most important competitive variables. Collective dominance may derive from the presence of structural links between the involved undertakings, for example cross-shareholding or the common ownership of distribution networks. Structural links, however, are not necessary for finding a collective dominance: it also depends on the characteristics of the market. Collective dominance arises in oligopolistic markets, where the undertakings do not need an explicit agreement in order to maintain price or reduce output compared to competitive levels. In these conditions, collective dominance is identical to (tacit) collusion. We will therefore address the abuse of collective dominance under collusion and horizontal agreements.

2.2.2 Procedure, Methods and Sources of Information Once the relevant market has been defined, the assessment of dominance will continue by evaluating whether the undertaking(s) is able to behave independently from competitors and consumers.

Combining qualitative and quantitative indicators; thresholds

Single dominance and collective dominance


As mentioned above, the dominance assessment is usually undertaken in two stages (Figure 8). First, the market share of the firm(s) under investigation is determined as a proxy for market power. If this exceeds a certain minimum threshold, various other qualitative indicators are assessed, in particular: � The market position of competitors (i.e. the structure of the market); � Market entry conditions, i.e. barriers to market entry and market expansion;

and � The countervailing power held by buyers. Figure 8: Determination of dominance – procedure

Market share

below “ safe

harbour”

threshold?

Assess qualitat ive factors* ,

including:

yes

no

Close case

Determine market share of


Powerful

compet itors?

Barriers to

market entry?

Powerful

buyers?

yes

yes

yes no

no

no

Close caseProceed w ith

invest igat ion

* Weight ing of t hese factors t o be def ined by t he compet it ion authorit y on a case-by-case basis


In principle, there is a fundamental alternative to measure market power, i.e. the direct measurement of the difference between the price charged by the firm under investigation and the price of the same good or service in a perfectly competitive market. However, this direct measurement of market power is usually impossible

Direct measurement of market power


in developing countries due to data constraints – in fact it is seldom applied even in developed economies. Box 5 summarises this method. Box 5: Direct measurement of market power

In a perfectly competitive market, each firm sells its product at its marginal cost and makes a profit of zero (the assumptions are that there is just one homogeneous product, all firms are identical, i.e. have the same cost function, and all firms are price takers). The resulting price in the market is thus equal to the marginal cost. Market power of a firm is defined as its capability to raise the sales price above its marginal cost (equal to the price under perfect competition). The Lerner index measures the extent to which a firm can raise the sales price p above its marginal cost MC. It is defined as

Lerner index of firm i:

The Lerner index can range from 0 (under perfect competition, where the firm has no market power at all) to 1 (maximum market power). For the assessment of dominance, a threshold value for the Lerner index would need to be applied by the competition authority. However, the practical value of the Lerner index for the measurement of market power or assessment of dominance is very limited. This stems from the fact that it is very difficult if not impossible to determine the marginal costs of a firm (or the hypothetical price under perfect competition in the relevant market). Therefore competition authorities usually use indirect measures of market power, based on market shares, and a careful analysis of additional factors.

2.2.2.1 Calculation of Market Shares The analysis usually starts with an examination of the market position of the allegedly dominant undertaking. The market share held by the undertaking provides important first information about whether the firm holds market power. If the market share indicates that the firm under investigation does not have substantial market power, the investigation may stop here – without too many resources having been consumed. The current market share held by the undertaking will be the reference value. However, in case of markets characterised by large, lumpy orders, the market share held in the course of recent years will be also taken into account. High market shares, particularly when they have been held continuously for some time, are a clear indication of market power. On the other hand, significant fluctuations in market shares should be considered as an indication for the absence of market power. For example, assume a firm currently holds 60% of the market. However, if the same firm had a market share of 90% in the previous year doubts may be raised about its ability to exercise dominance in the relevant market. In fact, the firm appears unable to dictate market conditions to consumers and competitors, in view of the significant market share decrease: consumers were able to switch to alternative suppliers. Usually, calculating the market share in terms of industry output or revenues is the starting point, because the market data required for calculation of these market shares are easily available (typically from the enterprises operating in the relevant market as well as industry associations, possibly also public bodies) and obtainable by the competition authority. However, in SADC Member States, as in most


developing countries, the role of the informal sector may have to be taken into account (Box 6).11 Box 6: Calculating market shares – the role of the informal sector

In many developing countries, including in the SADC region, the informal sector is pervasive. Competition authorities therefore need to devise a policy on how to address the informal sector in their enforcement activities. At a general level, it must be clarified whether informal sector activities are included in the considerations of the competition authority at all. There are two schools of thought about the impact of the informal sector on competition. The first one argues that informal sector firms exert a competitive restraint on the formal sector in the same market by providing goods and services at low prices (due to the fact that they evade taxes and regulations). The second school of thought argues that unfairly low prices of the informal sector prevent formal sector firms from making investments in order to increase productivity, offer better quality products, etc. According to this school of thought, hence, the informal sector has a negative impact on competition in the long run. In the analysis of market dominance, the inclusion or not of the informal sector in the assessment can have a decisive impact on the competition authority’s findings. Assume a furniture market with a total formal sector output of 100 units, of which the firm under investigation produces 50. Informal sector firms produce another 100 units of furniture. If the informal sector is excluded from the analysis, the firm’s market share is 50% and it is likely to be found dominant. Conversely, if the informal sector is included, the firm’s market share is only 25% (50 units / (100 + 100 units)), and a finding of dominance is much less likely, even more so as market entry barriers in the informal sectors tend to be very low. In sum, the competition authority should devise guidelines on how to deal with informal sector activity. One option would be to consider, on a case by case basis, if formal and informal sectors are indeed active in the same relevant market. Alternatively, a policy could be devised which either generally includes or excludes consideration of the informal sector.

In certain cases other bases for the calculation of market shares than current output may be more appropriate. For example, in some industries, particularly in the primary sector, reserves may be a more appropriate indicator for market power than current output. A mining company that holds a high market share in current output but will have exhausted its reserves in the near future is unlikely to be a dominant actor.

2.2.2.2 Market Position of Competitors Obviously, the market position of a firm also depends on the market power of competitors. For example, a 50% market share may be a sign of dominance if competitors are small but if there is only one competitor who also has 50% market share the situation is totally different – then the existence of collective dominance needs to be explored. Both the number and size of competitors play a role in this regard. Competition authorities usually resort to two indicators to capture and measure this information: the concentration ratio (CR) and the Hirschman-Herfindahl Index (HHI).

11 The role of the informal sector for competition policy was discussed in Session II of the Eighth Global Forum on Competition organised by the OECD in February 2009. Contributions to the session are available on the internet at: http://www.oecd.org/document/33/0,3343,en_40382599_40393105_41512929_1_1_1_1,00.html


The concentration ratio expands the market share concept to several companies by adding their market shares. Thus, the m-concentration ratio is defined as the combined market share of the m-largest firms in the relevant market. An often used concentration ratio is the four-firm concentration ratio, CR4, although given the (draft) laws of Lesotho and Zambia the CR3 is more suitable in these specific contexts. Compared with the concentration ratio the HHI provides more information but it is also more demanding in terms of data requirements. The HHI captures both the number and size of all firms in the relevant market. Consequently, in order to calculate it the competition authority must know both the number of firms in the market and the market share of each firm. Box 7 provides more information on the concentration ratio and the HHI, their calculation and comparative weaknesses. In view of the strengths and weaknesses of the two indicators it is best to always calculate both if data availability permits it.

2.2.2.3 Barriers to Expansion and Market Entry If barriers to expansion of existing capacity by rivals and barriers to market entry by potential rivals are sufficiently limited, an undertaking might not be considered dominant (from an economic point of view) and viewed as able to exercise market power, even if it holds a large market share. With low barriers to expansion and market entry, in fact, any attempt by the undertaking to raise price above the competitive level can be expected to attract expansion of capacity by existing competitors and entry by new undertakings, forcing the firm to choose between losing customers or reducing prices back to the competitive level. However, in order for expansion and market entry to be really able to constrain the incumbent firm, they must occur within a short time. If capacity expansion or new market entry do not occur within a short time, then they cannot be considered to exercise a credible constraint on the incumbent firm. Several types of barriers to entry and expansion exist. A general distinction can be made between structural and behavioural entry barriers. Structural barriers are those that are due solely to conditions outside the control of market participants. Behavioural barriers are those erected by incumbents to protect themselves against the market entry of competitors – i.e. they are erected by incumbents through exclusionary practices. Accordingly, we deal with them as abuses of dominance in section 5 below.

Concentration ratio

Hirschman-Herfindahl Index

Structural and behavioural barriers to entry


Box 7: Concentration ratio and HHI – calculation and comparison

Definitions Concentration ratio: The m-concentration ratio is defined as the combined market share of the m-largest firms in the relevant market:

with = market share of i-largest firm Hirschman-Herfindahl Index (HHI): The HHI is calculated by adding the squared market shares of all n firms in the relevant market:

with = market share of firm i HHI values range from 0 (perfect competition) to 10,000 (monopoly). Comparative assessment of advantages and disadvantages

Indicator Advantage Disadvantage

CR � Limited data needs � Easy to calculate

� Only captures information about the included m firms

� Results depend on choice of m (see numerical example below)

HHI � Captures information about number and size of all firms in the market

� Requires knowledge of the market share of all firms in the market

Numerical example The following table presents concentration ratios and HHI for two industry structures. The first one consists of five identical firms, the second one of seven firms with relatively high asymmetrical size. Which industry structure is concentrated more? In which industry structure is there a higher competitive constraint on the largest firm? Industry 1 Industry 2

Firm Market shares

Cumulated market share (CR)

HHI Market shares

Cumulated market share (CR)

HHI

1 (largest) 20% 20% 400 50% 50% 2500 2 20% 40% 400 11% 61% 121 3 20% 60% 400 10% 71% 100 4 20% 80% 400 9% 80% 81

5 20% 100% 400 8% 88% 64 6 - - - 7% 95% 49 7 - - - 5% 100% 25

Total 100% 100% 2000 100% 100% 2940

Applying the concentration ratio, the answer to these questions will depend on the number of firms integrated in the analysis. CR2 and CR3 tell us that industry 1 is less concentrated than industry 2; according to CR4 both industries have the same degree of concentration, and CR5 tells us that industry 1 has a higher concentration than industry 2 (the concentration curve below illustrates this)! In contrast, the HHI of industry 2 is almost 50% higher than that of industry 1, indicating a much stronger concentration and corresponding lower competitive restraint on the dominant firm.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

CR1 CR2 CR3 CR4 CR5 CR6 CR7

Mark

et

share

Industry 1

Industry 2


The most frequent types of structural barriers to entry and expansion are: a) Legal barriers: The legislative framework related to the industry may

determine impediments or an outright ban on market entry. Exclusive or special rights may limit the number of undertakings allowed to operate in a market. Such exclusive rights may therefore grant to undertakings(s) the possibility to exercise market power and constitute important barriers to entry.

b) Capacity constraints or excess capacity of competitors: The competition

authority would assess the possible constraints to expansion of capacity facing existing rivals. In particular, the need for significant investments which could not be recovered in case of exit from the market need to be taken into account, as these constraints may disadvantage existing rivals.

c) Economies of scale and scope: Economies of scale and scope occur in

markets where large-scale production or distribution allows for a spreading of fixed costs over a larger amount of output or over a wider range of products so that average costs are lower when the efficient minimum dimension of operations is reached. In such markets, allegedly dominant firms may have an advantage because entry by new firms needs to occur at a large scale, to ensure new entrants are able to match the incumbent’s cost structure. When the minimum efficient scale is large compared to the size of the market, entry may be more difficult.

d) Absolute cost advantages: In some markets, the allegedly dominant firms

may have preferential access to natural resources, essential facilities, know-how which may be difficult to be replicated by new entrants. This makes it more difficult for rivals to compete.

e) The consolidated position of incumbents in the market: In some

markets, entry may be more difficult due to the established reputation developed by the incumbent firm in the course of the year, particularly through advertising and promotion. Advertising and promotion investments occurred in the course of years may represent relevant obstacles to entry for newcomers, particularly because they represent costs which cannot be recovered when exiting the market.

f) Vertical integration: The allegedly dominant firm may be vertically

integrated so that entry by new firms may be made more difficult. For example, the incumbent may control a strong distribution network not accessible to rivals which can be replicated only through major investment costs.

The competition authority would look at the recent history of the examined industry. If frequent market entry has occurred in recent times, then barriers to entry can be presumed to be low. On the other hand, if the industry has not witnessed significant market entry, then it is likely that barriers to entry are high. Also, persistently high profit levels can be a sign of high entry barriers. Normally, in fact, undertakings are expected to reach profit levels higher than normal for a

Types of structural entry barriers

Identification of barriers to entry


long period only when they are able to take advantage of a monopoly or dominant position. However, dominance can also be found in the presence of losses. Finally, expansion and market entry can be expected to be more likely in markets experiencing high growth compared to markets witnessing stable or declining demand. Thus, when there has been no significant entry into a fast growing market this is a clear indication of the existence of barriers to entry.

2.2.2.4 Market Position of Buyers The competition authority also needs to take into account the market power by strong and powerful buyers representing a credible constraint on the allegedly dominant undertaking. The constraint consists in the bargaining power of a large buyer who could threaten to switch to another supplier or vertically integrate and start to compete with the dominant firm.

2.2.2.5 Identifying Collective Dominance The identification of collective dominance has some similarities with single dominance determination. Nevertheless, in order to have collective dominance, three conditions must be met:

1. A high degree of transparency must be present in the market so that undertakings are able to monitor the conduct of rivals so that they can respond to them.

2. Undertakings must be able to punish rivals acting independently and not following a joint approach.

3. An absence of other actual or potential competitors able to undermine the common approach of the undertakings holding a collective dominant position.

Apart from these conditions, the procedures and methods used for the identification of collective dominance are the same as for single dominance. Checklist 4: Identifying dominance

1. Determine the relevant product and geographical market; 2. Determine market share of allegedly dominant firm:

a. Choose appropriate basis for market share calculation (output, capacity); b. Calculate market share; c. Determine if market share exceeds threshold.

3. If the market share is above a minimum threshold: estimate the impact of qualitative factors on market power of allegedly dominant firm: a. Are there powerful competitors in the market? Calculate Concentration ratios and HHI; b. Are there structural barriers to entry into the market? Does the allegedly dominant firm apply

exclusionary practices? c. Does the allegedly dominant firm face powerful buyers?

4. If the firm under investigation is not found to be dominant on its own, is there evidence for collective dominance?

If not already determined by law or in regulations the competition authority should establish a minimum threshold for the market share below which the investigation would stop. In view of harmonising SADC Members’ competition laws, a common threshold applied by all Members would be preferable.


3 COLLUSION AND HORIZONTAL AGREEMENTS

As we have seen, there are different types of horizontal agreements which competition authorities need to distinguish and treat differently: 1) Agreements which always restrict competition and reduce welfare (“hard-core

cartels”); and 2) Agreements which are competitively neutral or have both negative (restriction

of competition) and positive (efficiency gains) effects. We have also seen that competition laws usually prohibit hard-core cartels per se while applying the rule of reason to other horizontal agreements. In this context, competition authorities face two types of difficulties: first, in practice it is not always straightforward to distinguish a hard-core cartel from a “normal” horizontal agreement, as the latter may also have provisions which have anticompetitive effects, or vice versa. If competition authorities follow a strong interventionist approach, there is a risk that conduct with little effect on competition is prohibited. On the other hand, a too lax stance could lead to allowing agreements producing significant harm to competition and to consumers’ welfare. The second difficulty arises from the fact that firms engaging in hard-core cartels will try to keep these cartels secret. Hard-core cartels therefore are difficult to detect, and it is even more difficult to collect substantive evidence for their anticompetitive practices. In the following sections we first look at hard-core cartels, putting the emphasis on their detection and investigation issues. Thereafter, we briefly address competition issues arising from other types of horizontal agreements.

3.1 Cartel Agreements

3.1.1 Identification of Cartels – What Needs to be Determined?

In order to identify and rule against anticompetitive horizontal agreements competition authorities need to determine at least the following information: � First of all, the existence of a cartel/anticompetitive horizontal agreement

needs to be proven; � The members of the cartel need to be identified; � The purpose of the cartel; and � The type of agreement or practice needs to be determined in detail. It may seem quite obvious that a cartel needs to be identified first before it can be acted upon. Yet, in practice this is often a difficult task: precisely because hard-core cartels are illegal and the members of the cartel are well aware of this, cartel

Identification of cartel


activities are usually carried out secretly. The competition authority therefore needs to apply means to identify cartel activities, and distinguish them from normal business behaviour. A number of tools for doing so exist, including market observation and leniency programmes; these have been partly addressed in section 1.2.2 above, and some considerations are presented in the following sections. Cartels are often long-lasting and complex arrangements. During their life, some firms may be more active than others in cartel activities. Some firms may even suspend temporarily their participation to the cartel and then join again later. Only on some occasions, in fact, all cartel members participate in the same meetings or activities. Many jurisdictions do not require the competition authority to prove participation of cartel members to all different actions during the course of the life of the cartel. It is generally sufficient to prove the overall conscious collaboration to the collusive plan. Such approach has been followed in order not to impose an excessive burden of proof on Competition Authorities, which, otherwise, would need to prove the relationship between each cartel member and each component of the cartel arrangement. Competition law provisions dealing with anti-competitive agreements between companies can be applied only when sufficient evidence is collected proving that companies replaced autonomous market conduct with a conscious commitment to a common strategy. If no conscious adherence to a common conduct is proved, then rules against restrictive agreements would not normally apply. Finally, the type of anticompetitive practice(s) applied by the cartel must be determined and proven. Here, it is important only to determine which practice (price fixing, market allocation, bid rigging, etc.) is used but also the details, e.g. which prices have been fixed over which period, how did they differ from prices during (non-cartelised) periods and/or from firms not participating in the cartel? The competition authority always needs to present its case as convincingly and with as much substance as possible. As cases are usually referred to the courts – often with inexperienced judges – the substance of evidence and findings should always be checked and checked again!

3.1.2 Types of Evidence In order to prove the existence of a secret cartel arrangement, different types of evidence can be used by competition authorities (Figure 9). The two main categories are direct evidence and indirect – sometimes called “circumstantial” – evidence. Indirect evidence, in turn, can be divided up in so-called “communication” evidence and economic evidence. In an anti-cartel investigation, the competition authority should collect as much evidence as possible. A combination of direct evidence supported by additional indirect evidence is preferable. Also, the competition authority should be able to “tell a convincing story” about the cartel. In order to do this, the market context and rationale for the cartel should be made clear. Some indications on how this

Identification of cartel members

Purpose of cartel

Type of agreement or practice

Direct and indirect evidence


can be done are presented in the following section, after having presented the different types of evidence in more detail. Figure 9: Types of evidence usable in cartel detection

Evidence for

cartel act ivit ies

Direct evidence,

e.g.

Indirect (circumstantial)

evidence

Communication evidence,

e.g.

Economic evidence,

e.g.

Writ ten statements

proving the cartel

Statements made

by cartel members

Direct communicat ion

between cartel members

Exchange of informat ion

between cartel members

Price parallel ism

3.1.2.1 Direct Evidence Direct evidence refers to evidence which directly and unequivocally contributes to proving the existence of an agreement. This includes written statements, including email, describing the terms of the agreements and identifying the participants to that agreement. Documents directly related to activities of the implementation of the cartel are another example of direct evidence. Direct evidence is clearly the most important type of evidence used. In some jurisdictions, courts have requested competition authorities to decide cartel cases mainly upon direct evidence, even though indirect evidence can be relied upon to a varying degree. Two important instruments for the collection of direct evidence on cartels are leniency programmes and on-site inspections; the latter has been described in the introductory section for competition law enforcement (section 1.2.2) There core idea of leniency programmes is that the competition authority grants full or partial immunity to firms or individuals that are able and willing to provide valuable information for proving the existence of cartels. Leniency programmes are employed in an increasing number of jurisdictions. They have proved particularly useful first in the US, then in the EU, and have also been quite successful in South Africa (Case 6). Many cartels in important industries have been detected and prosecuted on the basis of information provided by firms in exchange of full or partial immunity from prosecution. In order to work well, leniency programmes need to be properly specified. The common practice today is that firms reporting collusive practices before the start of an investigation benefit from automatic leniency while discretionary leniency is

Leniency programmes


granted for cooperation during investigations. Furthermore, the first company to report a cartel activity usually benefits from full immunity. Box 8: The South African Corporate Leniency Policy (CLP)

Within the SADC region, the Competition Commission of South Africa (the Commission) has adopted a leniency policy providing for immunity to a self-confessing cartel member, in exchange for significant evidence about the existence of collusive arrangements. South Africa’s leniency policy has been developed by the Commission building upon the experiences gained in other jurisdictions, such as the EU, the United States, the United Kingdom and Canada. The Commission recognises that in all experienced jurisdictions the application of leniency programmes has proved to be an extremely effective tool for attacking cartels. The Corporate Leniency Policy has the objective of uncovering cartels that would otherwise go undetected and also of making the ensuing investigation more efficient. The immunity granted to the firm that is “the first to the door” to confess and to provide information in respect of cartel activity represents the incentive for firms to come forward with evidence. The firm is first granted conditional immunity and will benefit from total immunity if it complies with all conditions established by the CLP. Firms failing to meet all conditions may still receive favourable treatment on a discretionary basis.

Source: Corporate Leniency Policy issues by the Competition Commission of South Africa, http://www.compcom.co.za/corporate-leniency-policy/ Evidently, leniency programmes can be effective only when they are coupled with strong sanctions with respect to cartel agreements: if no strong sanctions are available, the parties to the cartel will have little incentive to come forward with evidence in order to avoid punishment.

3.1.2.2 Communication Evidence The first mentioned category of indirect evidence, considered the most important one, the so called “communication” evidence, refers to evidence of direct communication or exchange of information between competitors, with no details about collusive arrangements available to the competition authority about the content of such communication. A typical example of communication evidence includes information about meetings between competitors where prices, outputs and other confidential data were discussed. Also, communication evidence would include internal documents proving access to information by firms about competitors’ future prices or strategies.

3.1.2.3 Economic Evidence Economic evidence refers to the detection of market conduct or performance which does not appear consistent with independent conduct, from which collusive behaviour can be inferred. The most relevant form of economic evidence is evidence related to conduct which appears in contrast with a firm’s unilateral self-interest. Economic evidence which can be useful information includes excessively high prices, abnormally high profit levels or stable market shares over the years. Nevertheless, none of these indicators can conclusively prove the existence of a cartel, and most of them face a number of measurement and interpretation problems. For example, with regard to excessive price levels, the definition of excessive prices will always be difficult. Still, these indicators may be usefully

Economic indicators: some examples


employed by the competition authority to get a preliminary impression prior to the launch of a formal investigation. Another type of conduct evidence could be the suspicious participation in tenders which does not appear justified by unilateral self-interest. Case 6: Cartel agreement in the pre-cast concrete industry in South Africa – the role of leniency programmes in cartel detection

In February 2009, the Competition Commission of South Africa (“CCSA”) referred nine firms to the Competition Tribunal because of their involvement in a cartel agreement covering a wide range of precast concrete products, including pipes, culverts and manholes, railway sleepers, etc. The buyers of precast concrete products are mainly construction enterprises or state agencies which usually purchase their supplies through tenders. The cartel involved a series of complex arrangements, including price-fixing and bid-rigging, which aimed at preserving a well-defined market allocation among cartel participants. The cartel also included collusive arrangements with respect to other countries in the Southern African region. The CCSA was able to ascertain that the cartel had been operating for over 35 years. The cartel was uncovered on the basis of information provided by one of the involved firms which had submitted a corporate leniency application to the CCSA. The precast concrete market had been identified by the CCSA as one amongst the construction and infrastructure industries to be examined more closely because of past suspicions of collusive behaviour. The prioritisation of the industry by the CCCSA had clearly put pressure on the cartel members to seriously consider submitting evidence to the competition enforcement agency, in order to benefit from a more lenient treatment. During the proceeding it was possible to uncover that cartel members held frequent secret meetings, during which all expected contracts and tenders were allocated on the basis of an agreed upon market share allocation among firms. Firms then participated in individual tenders taking into account the agreed repartition of the contracts, presenting bids which ensured compliance with the previously agreed market arrangement: all firms participating in a tender allocated to a specific firm would bid higher prices. The cartel members had also agreed on price levels. However, they tried hard to maintain a certain degree of price diversity, in order to disguise their secret arrangements. The industry association had played an active role in organising and maintaining the cartel: several meetings took place during industry association events. The cartel had also established a monitoring mechanism to ensure compliance with the common rules. A system of compensation was also in place in case of deviations from the agreed market allocation. This case shows the importance of strong penalties coupled with leniency programmes for the fight against cartels. Unfortunately, as this case shows, cartels can have a very long life.

The most common type of conduct which is not in line with the unilateral self interest of a firm involves simultaneous price increases by all – or most – market participants not justified by plausible explanations, such as increases in the price of some important inputs. In some cases indirect evidence can be an important source of information about cartels which complements direct evidence. However, it is important to correctly evaluate such information in order not to come to erroneous conclusions. For example, simultaneous price increases recorded in a market may have other explanations other than a cartel agreement. For example:

Price parallelism

Causes for price parallelism other than cartels


� Prices of important inputs or of substitute products may have changed and all market players, taking into account those changed circumstances, revise their prices at the same time.

� Also, in tight oligopolies, firms may match competitors’ prices or price increases not because of any explicit or tacit agreement, but merely because they are aware of their considerable economic interdependence. Therefore, they autonomously decide to match price increases by competitors without a conscious commitment to a common plan because they view it as in their self-interest.

Therefore, most jurisdictions use indirect evidence, such as price parallelism, with great caution, relying on such type of evidence only when certain conduct can only be explained as part of a collusive arrangement and no other possible justifications are identified. Case 7: Price parallelism and concerted practices in the wood pulp market in the European Union

The European Commission adopted a decision for infringement of EU competition rules with respect to an alleged cartel arrangement among the main suppliers of bleached sulphate pulp (wood pulp) in the European market. Wood pulp constitutes an important input for the production of paper and paperboard. According to the Commission’s decision, the involved firms had engaged in a collusive pact aimed at establishing uniform conduct with respect to announced prices for future delivery as well as current prices charged to customers. In particular, future price announcements, which were made in advance by individual firms, were consistently aligned and occurred almost simultaneously. Analogously, current prices charged to customers were often very similar. In addition to the observed price parallelism, it was ascertained that all market players had access to very detailed information about their competitors’ prices which could have occurred only as part of a secret arrangement. In the decision, the Commission stated that the observed price parallelism could be explained only as result of collusive arrangement and no other explanation was possible. The parties appealed the decision at the European Court of Justice which annulled the Commission’s decision. The Court’s judgment clarified that collusion and concerted practices include not only formal arrangements but also any form of conduct by market players which is not the result of independent decision-making but it is part of conscious commitment to a common plan. Nevertheless, the prohibition of collusive arrangements does not deprive companies in an oligopolistic market of their right to adapt intelligently to the existing and anticipated conduct of competitors. According to the findings of the Court, which hired economic advisors, price parallelism by the wood pulp producers could have been explained by other reasons. In particular, in view of the oligopolistic characteristics of the market, which included a significant market transparency, companies had the natural tendency to replicate competitors’ conduct and pricing approach. Concerning parallelism in the actual prices, the Court annulled the decision because the Commission had used evidence in the final decision which had not been previously shared with the defendants. Such evidence, in particular, had not been included in the Statement of Objections sent to the parties presenting the investigation findings. The Court therefore concluded that the involved firms had been denied the full exercise of their right of defence.

Direct evidence for the existence of a hard-core cartel is always the best type of evidence on which to base a ruling. However, countries with less experience in competition law enforcement may face greater constraints with respect to obtaining direct evidence about cartels compared to more experienced countries. First, adequate leniency programmes may not yet be in place, or they may be still in the process of being introduced. Second, the lack of a competition culture may create special difficulties for competition authorities to detect cartels. For this

Which approach should competition authorities take?


reason, young competition authorities may need to rely more on circumstantial evidence. On the other hand, the lack of a competition culture may also facilitate the discovery of cartels, as companies may still not be aware of their prohibition, or they may not have developed sophisticated means of keeping them secret. Therefore, direct evidence in these circumstances may be more easily accessible (Case 8). Case 8: Collusive arrangements in the Zimbabwean Dry Cleaning and

Laundry Services Sector – cartel detection in the absence of a competition

culture

In 2003, the Competition and Tariff Commission of Zimbabwe (“the Commission”) undertook a full-scale investigation in terms of section 28 of the Competition Act into allegations of restrictive and unfair business practices in the dry cleaning and laundry services sector following the establishment of a prima facie case for such an investigation by preliminary investigations into the matter. The allegations arose from a newspaper article on the outcome of discussions by dry cleaning firms, under the auspices of the Dry Cleaning and Laundry Employers Association of Zimbabwe to uniformly increase their dry cleaning and laundry charges by 40%, thus constituting collusion. At the stakeholder hearings conducted by the Commission into the matter, the existence of collusive price fixing arrangements in the dry cleaning and laundry services industry was not disputed. The Dry Cleaning and Laundry Employers Association, and its members actually admitted that competing dry cleaners regularly meet under the auspices of the Association to discuss and agree on prices that should be charged for dry cleaning and laundry services. There was also documentary evidence that discussions on prices dominated the meetings of the Association. Further documentary evidence on formulas used by the Association in determining service charges for its members, and on the Association’s official price lists (that were highly persuasive to its members), was also easily obtained by the Commission.

Source: Competition and Tariff Commission of Zimbabwe. In general, it is important for the competition authority to develop training activities aimed at promoting awareness about competition policy rules in general and anti-cartel activities in particular among the business community and public administration.

3.1.3 Discovering Cartels – Issues to be Considered In order to be able to discover hidden cartels, competition authorities need to develop a good understanding of how cartels are set up and under what conditions they may be expected to thrive or to fail. Issues to be considered by the competition authority include both factors internal to the cartel (i.e. the size, type and number of members, etc.) and external factors (of the market, industry, etc.).

3.1.3.1 External Factors Facilitating Cartels Taking into account the mentioned problems facing cartels, a substantial amount of economic research has shown that markets where cartels are more likely to operate usually present one or more of the characteristics described in the following paragraphs. The list provided here is not exhaustive though. Generally, any factor which allows cartels to charge high prices and which therefore increases


the benefits of cartel membership facilitates the existence and durability of a cartel. The smaller the number of firms in the market, the easier it is to reach a cartel agreement. This finding can be explained in various ways. First, the research on collective action has shown that small groups can be organised easier, and co-operation among them is more durable. Second, the expected benefit of collusion is higher when the number of suppliers in the market is small. If firms have similar cost structures finding a cartel price acceptable to all participants becomes easier. Likewise, if firms have similar market shares conflicts about the distribution of cartel benefits are less likely to occur. The more difficult it is for firms to enter the market, i.e. the higher market entry barriers are, the more likely it is for companies to establish a cartel. If entry barriers are low, cartel members cannot easily increase prices as this would attract new entrants into the market. The new entrant would then have two options: It could behave aggressively and undercut cartel prices, so that the cartel would also have to lower prices and cartel benefits would vanish. Or the new entrant could become a member of the cartel and sell at cartel prices – but this would mean that cartel benefits would be shared among more members, and reduced cartel benefits for each member would increase incentives for deviation and, hence, collapse of the cartel. If products are homogeneous, i.e. there is limited or no product differentiation among the different suppliers, cartel members do not need to agree on other output variables such as quality level, as competition is mainly based on the charged price. Cartel negotiations thus become less complicated. A high degree of market transparency also facilitates collusive agreements. This includes availability of public information about prices and quantities supplied by market players. If such data are available firms can more easily determine the most profitable cartel price and they can also easily detect deviation of cartel members. This last factor presents a problem for competition policy – on the one hand, transparency of markets benefits consumers, but on the other hands it also facilitates the establishment and operation of cartels. How then should a competition authority deal with market and price information systems? There are two characteristics of market information systems which provide an indication for their main purpose. First, is the information provided publicly available or restricted to members in the industry (e.g. members of an industry association)? If the latter is the case it can be assumed that its purpose is anti-competitive, as consumers will not benefit from it. Second, is the information available at an aggregate level (e.g. providing the average market price of a product) or disaggregated by firms (e.g. providing the product price as charged by each supplier)? The main additional benefit of the latter is that disaggregate information can be used by a cartel to punish firms which don’t co-operate; on the other hand, consumers are unlikely to gain much from disaggregated information. In sum, the competition authority should become suspicious

Market concentration

Symmetry of firms

Market entry conditions

Homogeneity of products

Transparency in the market


whenever market information is provided at disaggregate levels and/or access to the information is limited to suppliers in the industry. Scanning markets for the above factors helps competition authorities to determine those markets where collusion is most likely to be expected. Furthermore, they should be studied during specific cartel investigations and be included as auxiliary evidence in determinations. Case 9 presents an example from Italy where market characteristics played an important role during cartel investigations. Case 9: Cartel agreement in the Italian market for boat paint – market

characteristics facilitating collusion

In 2003, the Italian Competition Authority (“ICA”) was provided with information about the alleged existence of a cartel agreement among suppliers of vessel paint. According to the initial information, the involved firms had established an agreement concerning the modalities of participation to tenders organized by shipping and shipbuilding companies for the purchase of boat paint. ICA launched an investigation, employing surprise inspections, hearings with the involved parties, customers and trade associations, and written requests for information. The relevant market was defined as the supply of boat paint to large customers. Such market represented only around 5% of the overall Italian market for paint. Boat paint is normally purchased by shipbuilding companies in order to paint newly built boats, as well as by freight shipping and cruise companies in order to refurbish used boats. In most cases, both cruise companies and shipbuilding companies purchase their required quantities of paint through formal tenders. All major suppliers were habitually invited to the tenders. The investigation by ICA concluded that the relevant market featured several characteristics which facilitated collusive arrangements. First, market concentration was significantly high: the whole market supply was covered by 5 companies which had been holding stable market shares over the years. Second, barriers to market entry were considered significant. In fact, one requirement to operate in the market was the affiliation with a multinational enterprise or network, because such affiliation was considered important by customers, as they needed assistance on a global basis. Third, the relevant product, boat paint, was considered a homogenous product: all paints of similar technical specifications were considered perfect substitutes; competition among different suppliers was primarily based on the charged price. Fourth, the market featured a high degree of transparency as all market players received a significant amount of information about market conditions by the industry’s trade association. The documentation gathered during the proceeding proved the existence of a cartel agreement operating from 1999 to 2004. The main objective of the cartel was to maintain a customer allocation based on historical market shares: each supplier was expected to continue supplying the customers already supplied in the past. The cartel also included a compensation mechanism in order to maintain the respective market shares in equilibrium. Also, price-fixing and bid-rigging was part of the cartel arrangement. Numerous meetings and exchanges of business sensitive information were uncovered during the investigation. The discussions focused on the tenders assigned not according to the plans which needed to be compensated. Substantial fines were imposed on all five firms involved.

3.1.3.2 Internal Factors: the Structural Instability of Cartel Arrangements

As a first condition to be successful, cartels need to include the most important firms in the industry as members. If this is not the case consumers will still be able to turn to alternative sources of supply when cartel members try to raise their prices. Cartels, however, may be able to operate well even when not all firms are parties to the agreement, particularly when outside firms have constraints with respect to

Lessons for competition authorities

Cartels must include the most important firms in the industry


expanding their production capacity following price increases by the cartel. Nevertheless, the presence of significant market players outside the cartel may be problematic and in the long-run may destabilise the cartel. It is therefore likely that cartel members will try to come to terms with the other firms, asking them to join the cartel. Consequently, a relevant source of evidence about the existence of a cartel may be contacts established by cartel members with firms outside the cartel, with the aim to recruit them. The latter firms may decide, instead, to contact the competition authority, exposing cartel members’ activities. Secondly, cartels may face severe difficulties in agreeing on the terms of the cartel arrangement, such as prices to charge. In fact, firms may have different cost structures and therefore prefer different cartel prices in order to maximize their profits. Likewise, in a customer or territorial allocation cartel, members need to agree on how markets and customers are allocated, with possible tensions arising with respect to the terms of market allocation. Negotiations among firms may be long and complex. Therefore, an additional valuable source of information about cartels which may prove useful for investigating and detecting them may arise from negotiations amongst cartel members on the terms and conditions of the collusive arrangement. Thirdly, cartels can prove to be inherently unstable because each market participant is aware that significant extra profits may be earned through secret price cuts, and the resulting expansion in sales, which are maintained hidden to the other cartel participants. Monitoring and policing of cartel arrangements may be both complex and burdensome. A lesson for competition authorities resulting from the above is that is should look out for monitoring mechanisms which have no obvious benefit other than servicing a cartel: typical examples would be market or price information systems (often provided by industry associations or market intelligence bureaus) exclusively accessible to suppliers in the industry (see above) or announcements by firms in the industry about future pricing, especially when they are not public (i.e. when they are made available only to competitors). The fact that cartels are inherently instable and therefore require communication and coordination plays into the hands of competition authorities. They increase the likelihood that cartels are reported – especially if a leniency programme exists and is coupled with high penalties – and that direct evidence can be found, in particular when on-site investigations are being undertaken.

3.1.4 Alleged Justifications for Cartel Conduct In some industries firms often point out that cartel-like arrangements, for example the fixing by professional associations of minimum prices for goods and services, are necessary to guarantee adequate quality levels of the supplied services. This would be particularly relevant in those industries and markets where customers face difficulties in judging the quality level of goods and services prior to purchase.

Cartel negotiations are difficult

Deviation of members is profitable and a constant threat

Lessons for competition authorities


Without price control, the argument usually goes, firms would excessively reduce quality of their services to the detriment of consumers, particularly those more vulnerable. In fact, in some markets, for example liberal profession services (legal services, etc.) and pharmaceuticals, consumers are clearly not in the position to judge the quality of services before their use (and often also after). It is therefore argued that setting minimum price levels may be necessary to guarantee acceptable quality standards. However, minimum prices do not represent the solution for guaranteeing quality: only quality regulation and controls can provide a direct remedy. Controls are necessary both for competitive or monopolistic market structures. Similarly, in some industries, for example in passenger airline services, firms argue that “excessive” price competition may lead to a race to engage in cuts in safety standards, with severe consequences for security. Again, the only real answer to guaranteeing safety consist in promoting the adoption and strong enforcement of safety standards, no matter the degree of competition or the prevailing market structures. Checklist 5: Identifying and assessing cartels

For the identification of cartels prior to the formal opening of investigations the competition authority could ask the following questions and use the following sources of information: 1. Which markets are most conducive to the establishment and operation of cartels (factors to be

considered: market concentration, number and similarity of firms, market transparency, product homogeneity, market entry conditions, etc.)?

2. Which markets have shown “unusual” behaviour (price parallelism, high prices)? 3. In which industries are there strong associations or providers or market intelligence? 4. In which markets have there been complaints by consumers/buyers about alleged anticompetitive or

similar practices? 5. Leniency programmes should be designed and publicised (and maximum penalties be checked for their

deterring effect) so that cartel members have an incentive to report to the competition authority. For investigations the following points should be remembered: 1. Collecting direct evidence on cartel activity is important. For this searches and inspections will usually be

required. 2. The competition authority should base its investigations on different data and information sources,

including stakeholder consultations, hearings, etc. 3. Direct evidence should be complemented by indirect (economic) evidence.

3.2 Other Forms of Horizontal Agreements In addition to hard-core cartels, various other types of horizontal agreements between firms exist. Their effect on competition and welfare may be positive or negative, or irrelevant. As a result, such agreements are usually not prohibited by competition laws but may still become the object of investigations and action by competition authorities applying the rule of reason (see section 3.1 in Part I above). In the following sub-sections we present some examples of non-collusive horizontal agreements and provide some recommendations on how competition authorities should deal with them.


3.2.1 Examples of Non-Collusive Horizontal Agreements Joint ventures are frequently employed forms of non-cartel horizontal collaboration, associated both with market efficiencies as well as potential anti-competitive effects. Different forms of joint ventures exist. Generally, they are agreements which allow the participating firms to operate more efficiently in the market, by sharing their most efficient resources. For example, a firm may be capable to produce high-quality products but dispose of an inefficient distribution network, while another firm may have built up a very capable distribution and logistics capacity but dispose of second-rate products. By joining forces, the two firms may be able to become more competitive. In order to evaluate the competition effects, it is necessary to examine whether the remaining other market players exercise sufficient competitive pressure on the joint-venture. Another form of non-cartel horizontal arrangement is the so-called specialisation agreement. For example, two firms in a market where each of them produces a whole range of products, may agree to divide production functions in order to exploit economies of scale: for example one firm may decide to produce only small-size products and the other specialise in large products and then distribute the whole range of products under each firm’s name. Again, the impact of specialisation agreements depends on the intensity of competition facing the two firms. If the combined market share of the two firms is limited, no significant effects on competition can be expected. Depending on several conditions, agreements to exchange price information can facilitate firms’ efforts to reach collusive arrangements and monitor their execution or alternatively can contribute to more efficient market functioning. Anti-competitive effects can be expected when the information is exchanged only among competitors and is not made public or involves detailed and firm or customer specific data. Also, the anticompetitive effects are greater if only few firms are present in the market. On the other hand, if the data exchanged is aggregate and not firm-specific, and collected and distributed by a third party, positive effects can be expected. Competitors may agree to restrict advertising. They may agree to outright ban all forms of advertising, or to prohibit only advertising about prices or other strategic variables. Advertising restrictions have often been justified on public interest grounds. This occurs particularly within professions: firms argue that advertising will misguide consumers who are unable to judge the features advertised. Also, they may point out that advertising will lead to an overall reduction in quality level. However, it should be pointed out that advertising, in all markets, plays a very important role by ensuring the spreading of information about products. Also, new market entrants rely heavily on advertising to enter and expand in new

Joint ventures

Specialisation agreements

Price information agreements

Advertising agreements


markets: advertising promotes competition and market entry. While advertising may sometimes deceive consumers, control and supervision over misleading promotion should be assigned to public institutions rather than to market players. Trade and industry associations play a very important and positive role in almost all industries. They provide valuable legal and administrative support to their members. Also they advance associates’ interests vis-à-vis public institutions. However, often they represent an ideal forum for the development of cartel activities because they bring together market players and facilitate exchanges of information. It is important that trade associations are well aware of the limits to their activity in order to prevent infringements of competition legislation.

3.2.2 Treatment of Non-Collusive Agreements by Competition Authorities

Unlike cartels, for all other forms of agreements, such as joint ventures in research and development, joint marketing or distribution agreements, agreements to exchange information, agreements restricting advertising, business associations, joint purchasing cooperatives, etc., the overall impact on competition may not be clear-cut. Also, significant beneficial effects for economic welfare may originate from such agreements which are sometimes greater than the harmful competition effects. For such agreements, a case-by-case detailed market assessment by the competition authority is usually necessary in order to evaluate the overall competition and welfare effects. A typical sequence of the competition authority’s activities in the investigation of a non-collusive horizontal agreement is depicted in Figure 10. The first stages are the usual definition of the relevant market and determination of market power (as described in chapter 2 above. If the parties to the agreement do not hold significant market shares, then a significant impact on competition can be excluded and no additional scrutiny is necessary; the investigation can stop here. If, on the other hand, parties to an agreement hold significant market shares, a more in-depth assessment of the characteristics of the market, barriers to entry and the efficiencies arising from the agreement is necessary. If the competition authority determines that the positive efficiency effects of the agreement are more important than the negative anticompetitive effects it should clear the agreement and close the investigations. If the negative effects outweigh efficiency effects, the competition authority should still check if there are any public interest reasons to exempt the agreement despite its negative effects on competition.

Trade and industry associations

Procedure for treatment of horizontal agreements other than cartels


Figure 10: Treatment of non-collusive horizontal agreements – procedure

Market share

below “ safe harbour”

threshold?

yes

no

Close case

Determine market share of



Assess agreement ’s impact

on compet it ion (negat ive)

Assess ef f iciency ef fect of

agreement (posit ive)

Eff iciency ef fect >

compet it ion ef fect?

yesClose case

Prohibit pract ice

or order remedies

no

Public interest

mot ives to exempt

agreement?

yes Grant

exempt ion

no

Obviously, the difficult part is to weigh efficiency and anticompetitive effects, and there is unfortunately no general guidance for doing this. The competition authority will usually consult all stakeholders in order to get their views on the agreement, and complement these consultations with data analysis and its own interpretations of the agreement before coming to a decision. Public interest motives are usually somewhat easier to check as these are often spelt out in the law or competition policy. As an example, the Competition Act of Zimbabwe specifies the following expressions of public interest which the competition authority must consider in the treatment of restrictive practices:

“the Commission shall regard a restrictive practice as contrary to the public interest if it is engaged in by a person with substantial market control over the commodity or service to

How to weigh efficiency against anticompetitive effects

Consideration of public interest


which the practice relates, unless the Commission is satisfied as to any one or more of the following - (a) that the restrictive practice is reasonably necessary, having regard to the character of the commodity or service to which it applies, to protect consumers or users of the commodity or service, or the general public, against injury or harm; (b) that termination of the restrictive practice would deny to consumers or users of the commodity or service to which the restrictive practice applies, other specific and substantial benefits or advantages enjoyed or likely to be enjoyed by them, whether by virtue or the restrictive practice itself or by virtue of any arrangement or operation resulting therefrom; (c) that termination of the restrictive practice would be likely to have a serious and persistently adverse effect on the general level of unemployment in any area in which a substantial proportion of the business, trade or industry to which the restrictive practice relates is situated; (d) that termination of the restrictive practice would be likely to cause a substantial reduction in the volume or earnings of any export business or trade of Zimbabwe; (e) that the restrictive practice is reasonably required to maintain an authorized practice or any other restrictive practice which, in the Commission’s opinion, is not contrary to the public interest; (f) that the restrictive practice does not directly or indirectly restrict or discourage competition to a material degree in any business, trade or industry and is not likely to do so.” (§32(2))

3.3 Suggested Readings Bolotova, Yuliya/Connor, John M./Miller, Douglas J. 2009: Factors Influencing the Magnitude of

Cartel Overcharges: An Empirical Analysis of the U.S. Market, in: Journal of Competition Law & Economics, 5(2), 361–381, doi:10.1093/joclec/nhn025

International Competition Network 2006-2009: Anti-Cartel Enforcement Manual, available at: http://www.internationalcompetitionnetwork.org/working-groups/current/cartel/manual.aspx

OECD 2006: Background Note, in: OECD Policy Roundtables. Prosecuting Cartels without Direct Evidence, DAF/COMP/GF(2006)7, 11 September 2006, pp. 17-41, http://www.oecd.org/dataoecd/19/49/37391162.pdf


4 VERTICAL RESTRAINTS As mentioned in part I, vertical restraints can be viewed as a form of partial vertical integration, favouring coordination among firms belonging to the same production-distribution chain, even though the involved parties remain independent. Arrangements between a parent company and its subsidiaries operating in downstream markets cannot be considered as vertical restraints from a competition perspective since the companies are already fully integrated through common ownership. Vertical restraints can often be found in retail distribution markets. In the SADC region, the typical case of a vertical restraint occurs in markets which are dominated by a few large suppliers, some of them multinational companies, with a host of smaller distributors relying on the supplies from the larger companies. Often, contractual arrangements of the dominant suppliers with distributors of their products placed limitations on the ability of the distributors to handle the products of competing manufacturers or to sell products outside a particular territory. Examples in the SADC region can be found particularly in the beer, cement, sugar and soft drinks markets. Cases of vertical restraint – and in particular exclusive dealing – can therefore also often be treated as cases of abuse of dominance by the upstream firm, and in rare cases also the downstream firm (Case 10). Given the high concentration of many markets in the SADC region and the importance of large international players, it is not surprising that the number of restrictive business practice cases involving vertical restraints that are being investigated by competition authorities in the region is on the increase. Case 10: Foreclosing vertical restraints/abuse of dominance in fast moving

consumer goods, Mauritius

The very first investigation of the Competition Commission of Mauritius (CCM), launched in December 2009, concerned the nature of sales contracts relating to soft cheese, biscuits and chocolate being offered by a distributor of fast moving consumer goods (FMCG) to retail outlets, including hypermarkets, supermarkets, and independent retail stores. The formal investigation was initiated because the CCM had reasonable grounds to believe that the distributor had a monopoly position in the wholesale market for the supply of soft cheese and was attempting to use its monopoly position to further increase sales in soft cheese and also to increase its sales of other products in which it did not enjoy an equally high market share, including biscuits and chocolate. This behaviour could result in a restriction, prevention or distortion of competition in the affected markets, ultimately to the detriment of consumers. The CCM was also generally concerned about volume related discount schemes involving sales targets and applying to total sales volume. The CCM determined that the terms and conditions of sales contracts might constitute a breach of the monopoly provisions of the Competition Act 2007. From an economic point of view, they could however also be understood as vertical restraints between the distributor and retailers with potential foreclosure effects.

Source: Competition Commission of Mauritius Despite this increase, given international experience and the fact that most vertical restraints do not have major anticompetitive effects, competition authorities should take a cautious approach when investigating them, to the extent possible given the applicable laws. In particular they should heed to the fact that only

Incidence of vertical restraints in the SADC region


vertical restraints in which a dominant firm is involved (at the upstream or downstream position) can have notable anti-competitive effects.

4.1 Effects of Vertical Restraints There are several reasons for the widespread use of vertical restraints by firms in all sorts of business activities. In order to correctly assess and address cases of vertical restraints the competition authority must be clear about these reasons as well as the effects of vertical restraints. It is important to note that upstream and downstream firms belonging to the same vertical production-distribution chain are strictly related to each other: the decisions in terms of pricing, quantity and services supplied taken by one firm have a direct consequence on the other firms.

4.1.1 Avoidance of Double Price Mark-up When downstream distribution firms are in a position to exercise market power, they have an incentive to raise prices and restrict output in order to extract extra profits from the market. If the upstream manufacturer also enjoys market power and adds up its own extra profit margin, then the final price charged to consumers will be subject to a double mark-up margin. This double mark-up, set independently at the two stages of production and distribution, will result in a reduction in total welfare for upstream and downstream firms, as well as for consumers, as compared with a more cooperative solution, since coordination would increase the overall efficiency of the enterprises concerned, and consumers would benefit from lower prices. In order to deal with double mark-ups, besides the option of full vertical integration, manufacturers can employ different vertical restraints which result in their elimination or reduction. One way is to impose (maximum) resale prices so as to minimise or eliminate distributors' excessive profit margins. Another possibility is to require the distributor to purchase a minimum quantity of the product, which would match the quantity leading to the profit maximising equilibrium for the vertical structure as a whole. However, to estimate this value, the manufacturer needs detailed information about the demand conditions facing each distributor. Such information is rarely precise and reliable. What is important from a competition policy point of view is that vertical restraints in the presence of market power in both the upstream and downstream markets may enhance efficiency compared to non-co-ordinated behaviour. This is because the lack of co-ordination causes both the upstream and downstream firm to set prices which are too high. Nevertheless, the vertical restrain is only a second-best option. Another solution to the double mark-up problem could be to promote sufficient competition among retailers so as to eliminate excessive retail margins.

Efficiency-enhancing vertical restraints in case of both upstream and downstream market power


4.1.2 Prevention of Free-riding in the Distribution (Downstream) Sector

Retailing is an essential input in the process whereby enterprises sell their goods and services to the end consumers. As with any other input, upstream manufacturers want to pay as little as possible for it. In particular, as mentioned above, once they have decided on the most suitable wholesale price for their products (which might be higher than the competitive price when market power can be exploited), it will be in their own interest to ensure that the firms handling their goods sell the largest quantity at the lowest price, since this is expected to maximise demand for their products as well as total profits. They have, therefore, a vested interest in maintaining competition among dealers. Nevertheless, several of the vertical restraints most often used by manufacturers (such as resale price maintenance and territorial exclusivity) appear to allow distributors to set prices above the level that might be otherwise expected. This result is achieved directly by setting distributors' resale price, or, indirectly, by allowing retailers to exercise market power, for example by granting them total or partial market exclusivity at a specific location. The effect is to reduce competition among distributors of a same brand (intra-brand competition), leading to an apparent welfare reducing outcome from the manufacturer's point of view (in addition to higher prices for consumers), with fewer goods sold and lower profit levels realised. This apparently paradoxical situation can be explained, however, by realising that the sale of a manufacturer's products is also very much a function of the quality of pre- and after-sales services provided by its distributors. This holds particularly true for complex products such as computers or cars. The customer often requires information about the specific features of these products, particularly for models only recently introduced into the market; very often he will need to try them out, before being convinced of the purchase. It will therefore be in the manufacturer’s interest for its products to be sold along with certain services. While these distribution-related services may be associated with costly, well trained personnel and specialised investments, they might also contribute to an increase in overall sales as well as in profits. The benefits of these extra sales and profits can then be shared by both the manufacturer and his distributors. If the added services are beneficial to both upstream and downstream enterprises, why should the market not be able to provide autonomously the desirable amount of sales-related services? It can be observed that some (but not all) of the services related to distribution can be consumed separately from the product itself. For example, a customer may go to a computer retail outlet where he can receive all necessary information and assistance with respect to the latest version of a personal computer, and then go to another “no-frill” discount store (which has lower distribution costs) to make his purchase at a lower price. As a consequence, outlets offering few or no services might be expected to “free-ride” on those stores providing more assistance, customers and increasing their market share to the detriment of those who provide service. Ultimately, full-service stores could be expected to go out of business, resulting in a lower level of distribution

The paradox of price increasing vertical restraints

Explaining free-riding in sales-related services


services than the level desired by the manufacturer, hence reducing overall sales and profits or affecting the desired high quality image of the brand in question. Similarly, more motivated distributors may invest to a greater extent in promotion and advertising. However, these efforts – which can have a clear beneficial impact on demand for the manufacturer’s product – can also greatly benefit other retailers who do not contribute to the costs involved. Vertical restraints can, therefore, be used by manufacturers to encourage distributors to provide those services which can be consumed by customers separately from the product itself. In fact, they ensure that distributors are rewarded to a fuller extent for their investments in promotional and distributional efforts. It is important to observe that the free-rider problem is less likely to arise in the provision of after-sales services. For example, a high-service distribution outlet can provide repair services not covered by the standard warranty to customers and can charge separately for these services without fearing free-riding from low service distributors. Vertical restraints introduced to deal with distributors' free-riding problems can be expected to increase manufacturers’ and distributors’ sales and profits. Does the expansion in output also result in an increase in overall welfare? To answer this question, one needs to look also at the effects on consumers of the use of vertical restraints to reduce free-riding opportunities. With the use of vertical restraints, consumers can expect to be supplied with products at a higher price but with the benefit of more sales-related services. In considering the overall loss or gain to consumers, one must determine whether the increase in services promoted by vertical restraints is considered overall to be worth more than the increase in the price of the product. In this respect, one needs to remember that not all consumers share the same preferences with respect to the trade-off between more services and lower prices. In fact, one can distinguish between those customers at the margin in their preferences, who will be induced to purchase the product only when certain services are provided along with the product, and those customers who would purchase the product anyway, even in the absence of these additional services. For example, with respect to presale demonstration services, consumers already familiar with the product (or with similar products) will not receive much satisfaction from having available retail outlets working hard and investing resources to show the qualities and features of the product on sale. Rather, they will consider the extra costs incurred as a useless waste and will prefer products supplied with less services but at a cheaper price. Other customers, however, might be led to attribute greater value to the product concerned and to buy it. Ultimately, an evaluation of the benefits deriving from vertical restraints to cope with dealers’ free-riding problems needs to balance the expected increase in producer surplus (profits) and the effects on consumer surplus: i.e. the net effect of the increase in consumer satisfaction from the customers benefiting from the extra services and of the decrease in consumer welfare from the effects on customers not requiring those services.

Assessing the welfare effects


A factor certainly having an influence on whether vertical restraints can be beneficial to consumers is the novelty of the product or brand concerned: a larger number of consumers will require information on recently introduced products or brands. On the other hand, for established and well-known products and brands, the impact on consumers is more likely to be negative. Another factor is the degree of sophistication of the product. Also, if consumers have a sufficient choice of brands, they will be able more easily to switch purchases toward products that are more in line with their personal price-services trade-off. When sufficient choice is available, it is more likely that vertical restraints dealing with free-riding will also increase consumers’ satisfaction as well as total welfare. As mentioned earlier, resale price maintenance and territorial exclusivity are types of vertical restraints sometimes employed by manufacturers to guarantee to distributors an adequate margin with the aim of encouraging them to promote sales with greater zeal. If a sufficient degree of inter-brand or intra-brand competition exists, the extra margin will be passed on to consumers in terms of increased services. While both resale price maintenance and territorial exclusivity are expected to determine an increase in retailers’ profit margins, differences may arise with regard to their impact on the market. Exclusive territory, in particular, allows for a greater degree of flexibility when compared with resale price maintenance. In fact, the specific size of the exclusive territory allocated to a distributor can be modified according to local demand, so as to avoid excessive profit margins for each distributor. This flexibility is less obvious with respect to resale price maintenance. However, the alleged greater flexibility is only apparent. Distributors may strongly oppose any proposed change in the extent of their geographical coverage, even in the presence of changed demand conditions, viewing such change as unacceptable attempts to override their established property rights. This type of opposition emerged in the United States soft drinks industry during the 1970s, where wholesalers strongly opposed any revision in the geographical scope of their exclusivity, in spite of substantial changes in transportation costs greatly increasing potential economies of scale in wholesale activity.

4.1.3 Prevention of Free-riding in the Manufacturing (Upstream) Sector

Another free-rider problem that may arise in the manufacturer-distributor relationship is opportunistic behaviour among upstream firms. Manufacturers, to ensure the development of efficient retail networks, often opt to contribute resources to distribution organisations by providing, for example, training and know-how for the sales force of downstream (independent) firms. Likewise, they may provide start-up capital at preferential rates and help in the choice of retail locations and in the development of marketing plans. Competing manufacturers could free-ride on these investments by using the same outlets and would therefore be able to outprice the enterprises which had invested in downstream activities. Also, manufacturers may exchange information with dealers on market survey results and marketing strategies, which could be passed on to competing manufacturers.

Positive net effects of vertical restraints in novelty markets


A solution available to manufacturers to overcome this possibility of free-riding among competing manufacturers is to enter into exclusive dealing arrangements with distributors: downstream firms will engage themselves to carry only the goods of a single manufacturer, which will then be able to recover its investments in the development of downstream activities.

4.1.4 Market Foreclosure While exclusive dealing arrangements can be employed to deal with the free-rider problem among manufacturers, they can also have an anticompetitive impact (and may be used expressly for this purpose) when they result in raising barriers to entry for potential competitors or in impeding the market growth of firms already positioned in the market. The restriction of competition might not necessarily be the outcome desired by the parties concerned, but rather an unintended side-effect of the vertical contractual arrangements. Nevertheless, whether the effect is intentional or not, the reduction of competition (and the possible adverse consequences on economic welfare) might be substantial. When exclusive dealing arrangements tie up a predominant share of existing outlets, competing suppliers are forced to find alternative distributors or to build up their own independent networks. Exclusive dealing arrangements might therefore represent a substantial barrier to entry whenever the share of tied retail outlets is significant. With regard to the option of entering into the distribution activity directly, this might not be a feasible or excessively costly alternative, especially for SMEs, since developing a retail network requires financial resources and specific know-how that are not always easily available. In addition, a significant amount of time and effort may be required to set up an effective distribution network. Also, economies of scope are very often prevalent in the distribution in the same outlet of different lines of products, (as in the case of the retailers selling thousands of different products and brands). Therefore, distribution costs would be much higher if new entrants were impeded from using existing networks, especially those of dominant firms. Raising barriers to entry has particularly harmful consequences on competition for those manufacturing and distribution markets where collusion among incumbent firms is a more real and direct threat. The risk of collusion is more likely to occur in markets where concentration is relatively high, products are homogeneous and demand is relatively inelastic. In these markets, in fact, collusive agreements may be able to thrive for a longer time when entry is barred, since no outsiders are able to expand and underprice incumbent firms. In the absence of the abovementioned market characteristics which facilitate collusion or the existence of dominant firms, the potential of exclusive dealing agreements to undermine competition can be expected to be less pronounced and the incentive to enter into exclusive dealing arrangements to reduce competition is greatly reduced. There is no reason why distributors should be willing to enter into exclusive dealing arrangements if to do so is likely to cause them financial losses, due to the fact that they will only be able to carry a narrow range of goods.

Market foreclosure effects of exclusive dealing arrangements


However, they might be willing to do so anyway if they are rewarded adequately by manufacturers, i.e. if they share in the extra profits deriving from the reduction in competition. Hence, the impact of exclusive dealing agreements on competition can be expected to be to a large extent related to the degree of concentration, as well as to other structural characteristics of the retailing sector concerned. In this respect, the share of outlets with exclusive dealing contracts is clearly an important indicator of concentration at the distribution level. Equally important, however, are the number and strength of potential new suppliers of retail services who are ready to enter the market. The relative importance of three alternative forms of distribution needs to be assessed in analysing the potential impact of foreclosing access to distribution networks. First, existing distributors may be able to switch to new suppliers in a relatively limited period of time (particularly when the exclusive contracts are limited in time) or they may be able to open new outlets in favour of competing brands. Second, dealers from other industries may expand into the relevant downstream market. Third, new dealers may be willing to enter the market if there are sufficient profit opportunities. Other types of vertical restraints which have effects similar to those obtainable with exclusive dealing arrangements can also raise barriers to entry for potential new competitors. For example, by assigning an exclusive territory to a distributor in a given area, a manufacturer can ensure that the latter will act aggressively and engage in a local price-war against any competitor entering the area. More specifically, the retailer may be willing to cut prices drastically in order to exclude a competitor, without having to worry about the consequences of his price cuts in other geographic areas. In contrast, a manufacturer who has made no exclusive territory arrangements (and therefore is not able to apply price discrimination), might be less willing to respond aggressively to a geographically limited competitive entry, because of the consequences of his price cuts on the price level in other geographic areas.

4.1.5 Facilitation of Collusive Behaviour Vertical restraints may play a facilitating role in promoting and maintaining the cartelisation of markets when certain structural characteristics prevail. Resale price maintenance, in particular, may facilitate the task of monitoring effective compliance with a manufacturers’ cartel. With retail prices fixed, manufacturers have less incentive to undermine cartels and to underprice competitors by offering discounts to retailers, since the latter, in turn, cannot reduce the prices they charge to final consumers. As a consequence, the solidity of the upstream cartel would be increased. In fact, with regard to the duration and strength of cartels, one of the biggest problems encountered in maintaining the internal stability of collusive agreements is the monitoring of compliance by members with cartel rules. All cartel participants have an incentive to undercut the cartel's agreed price if they can do so without being detected and with impunity.

Market foreclosure effects are related to the degree of concentration

Market foreclosure effects of other vertical restraints


This said, it has to be observed that even in the presence of fixed resale prices, manufacturing price-cutting in favour of wholesalers and retailers may allow downstream firms to employ some indirect form of price-cutting, for example by offering more favourable credit terms or providing extra services to the final customers. This would achieve a result similar to price-cutting at retailer’s level.

4.2 Assessment of Vertical Restraints For new competition practitioners, vertical restraints are difficult to examine because of the mere fact that almost all of them have both anti-competitive effects and pro-competitive features requiring a rule of reason approach in their evaluation. The assessment of vertical restraints requires the three steps as outlined in the standard investigation process (see section 1.3 above). First of all, an appraisal of the characteristics of the involved upstream and downstream markets is necessary. In particular the presence of market power in either of the two markets must be determined. Indicators for this the emergence of high profits, stable and substantial market shares, and high and stable concentration levels (for a detailed description of the measurement of market power see section 2.2 above). If competition in the markets is adequate, no intervention is required and the investigation can be closed. If markets are concentrated and competitive forces are constrained, and especially for markets with firms holding dominant market positions, an additional in-depth analysis is necessary in order to verify the effects on competition as well as the efficiency gains brought about by the vertical restraints under scrutiny. Also, dominant firms should be requested to demonstrate that comparable efficiency gains, allegedly associated with the use of vertical restraints, could not be realised through alternative means that are less harmful to competition. The anticompetitive effects need to be balanced with the possible market vertical restraints’ positive effects on market efficiency. In particular, one needs to analyse whether the reduction in product/service variety resulting from either reduced intra-brand or in-store inter-brand competition is deemed to affect the consumer negatively. This can be assessed by looking at the degree of substitutability between products and distribution outlets for consumers and the extent of economies of scope in distribution. Also, it is important to examine the extent of the efficiency gains deriving from the restrictions on the number of dealers or their product range. This would be assessed looking at the type of goods, the search costs for the consumers and other market characteristics (Table 10). In particular, for expensive, highly complex and relatively unknown products, the efficiency benefits deriving from the use of vertical restraints can be expected to be more important. On the other hand, in retailing markets characterised by the presence of significant entry barriers and substantial economies of scope, the risk of distortion of competition is greater.

The assessment procedure

Determination of upstream and downstream market power

Assessment of anti-competitive and efficiency effects


The previous section has shed some light on the different effects of vertical restraints on economic welfare and competition. Such effects depend to a very large extent on the specific context surrounding their application. In fact, a simple analysis of the particular form of a vertical contractual arrangement does not reveal, by itself, whether the arrangement will lead to a reduction or an enhancement of economic welfare. The same vertical restraint (or combination of vertical restraints) may reduce efficiency and competition under certain market conditions, but enhance competition and efficiency under other circumstances. Resale price maintenance, for example, can be employed by upstream firms to prevent double price mark up by retailers in a position to exploit market power or to eliminate free-riding in the provision of distribution services. In other circumstances, it can be used as a tool to facilitate the detection of violations of cartel agreements and can have clear anticompetitive effects. In fact, none of the vertical restraints mentioned can be defined as always harmful or always beneficial to economic welfare and competition. Table 10: Importance of efficiency effects of vertical restraints depending on product and market characteristics

Market/product characteristics Efficiency gains likely to be

important if...

Efficiency gains are likely to

be limited if...

Product complexity ...products are highly complex or technical

...products are simple

Cost of product for consumer ...products are expensive ...products are inexpensive Consumer buying habits ...products are bought seldom ...products are bought

repeatedly/frequently Shopping format ...products are bought in non-

convenience outlets ...products are bought in convenience outlets

Consumers’ product information

...products are not known by consumers

...product details/features are widely known

Price/quality comparability ...products are experience or credence good

...products are search goods

Perceived product

differentiation

...products appear like – weak branding

...branding is clear and strong

Position in product life cycle ...products are new ...products are mature/established Entry barriers in retailing (downstream)

...entry barriers are low ...entry barriers are high

Economies of scope in retailing (downstream)

...economies of scope are insignificant

...economies of scope are substantial

Source: Adapted from Dobson/Waterson (1996: 56) Market structure and the intensity of inter-firm rivalry are the main factors in determining whether vertical restraints will reduce or increase efficiency and strengthen or weaken competition. If the market is characterised by the presence of a sufficient number of competing vertical structures (manufacturers and their downstream distributors) and by relative ease of entry at both the upstream and downstream stages of the market, inter-brand competition can be expected to ensure that the use of vertical restraints will lead to increased market efficiency as well as to consumer satisfaction. For example, when consumers are faced with a variety of brands, vertical restraints employed to ensure a greater provision of distribution services (and thus to determine higher retail prices) can be expected not only to lead to greater profits within the vertical manufacturer-distributor structure but also to

The assessment of vertical restraints always requires an analysis of the specific context

Importance of market structure and inter-firm rivalry


benefit consumers. In fact, additional consumers attracted by the provision of extra sales-related services will benefit from the new combination of prices and sales-related services, while those consumers not happy with such arrangements will be able to switch to alternative brands. Analogously, when competition among manufacturers is intense and a large number of retail outlets are available, vertical restraints will not be able to impact substantially on the degree of competition. For example, exclusive dealing arrangements will not be able to reduce competition and foreclose market entry when alternative outlets are easily available. On the other hand, when rivalry among competing vertical structures is weak as in many of the markets in developing countries, the effects of vertical restraints on competition and efficiency are more ambiguous. Vertical restraints aimed at promoting greater coordination between upstream and downstream firms will allow them to benefit from greater profits. This increase in producers’ profits, however, may be associated with an even greater reduction in consumer welfare when firms are able to exploit their market power and are not forced to pass on the efficiency gains to final consumers. Also, in markets where competition is weak, vertical restraints can determine a further reduction in the intensity of rivalry among actual competitors, increasing the risk of cartelization, as well as reducing the likelihood and feasibility of entry by new market players. While a comprehensive economic analysis of the specific market conditions appears essential if one is to draw definite conclusions on the competitive effects of vertical restraints, a case-by-case analysis may represent an excessive burden for any competition agency, in view of the significant enforcement costs (as well as administrative costs for the firms) associated with reviewing the very large number of vertical contractual arrangements entered into by companies. This is certainly the case for newly established competition authorities, which have limited enforcement capacity and experience. To minimise enforcement costs, and at the same time to avoid the harmful effects of the vertical restraints most likely to have anticompetitive effects, the competition authority should adopt enforcement guidelines establishing different rules depending on the state of inter-brand competition, identifying situations where the risks of anticompetitive effects are more likely and a more detailed analysis is desirable.12 Such a procedure should establish market structure criteria by setting market share thresholds below which no competition policy intervention would occur.

4.3 Suggested Readings Dobson, P.W./Waterson, M. 1996: Vertical restraints and competition policy, Office of Fair

Trading, Research Paper 12, December 1996, United Kingdom.

OECD 2008: Background Note, in: OECD Policy Roundtables. Resale Price Maintenance, DAF/COMP(2008)37, Paris, 10 September 2009, pp. 23-58, http://www.oecd.org/dataoecd/39/63/43835526.pdf

12 Many Competition Authorities have issued guidelines in order to provide guidance about the assessment under competition legislation of vertical agreements. For example, in 1999, the European Union has issued guidelines on the treatment of vertical restraints (Guidelines on Vertical Restaints; http://europa.eu/legislation_summaries/competition/firms/l26061_en.htm).

Enforcement guidelines for vertical constraints


Slade, Margaret E 1997: The Leverage Theory of Tying Revisited, Discussion Paper 97-09, Department of Economics, University of British Columbia, Vancouver.

UNCTAD 1999: Competition Policy and Vertical Restraints. Note by the UNCTAD Secretariat, UNCTAD/ITCD/CLP/Misc.8, 12 January 1999, http://www.unctad.org/en/docs/poitcdclpm8.en.pdf

Case studies: Katz, Michael L 2008: Exclusive Dealing and Antitrust Exclusion: U.S. v. Dentsply (2005), in:

Kwoka, John E/White, Lawrence J (eds.): The Antitrust Revolution. Economics, Competition and Policy, 5th ed., Oxford UP, Case 14.

Scherer, F.M. 2008: Retailer-Instigated Restraints on Suppliers’ Sales. Toys’R’Us (2000), in: Kwoka, John E/White, Lawrence J (eds.): The Antitrust Revolution. Economics, Competition and Policy, 5th ed., Oxford UP, Case 16.


5 ABUSE OF MARKET DOMINANCE Abuse of dominance provisions may be particularly helpful in emerging economies to counter efforts by former state-owned monopolies to hamper market liberalization following the removal of incumbents’ legal exclusive rights. They can also be useful to eliminate obstacles to local distribution networks erected by incumbent dominant firms against new market entrants (also see the above chapter 4 on vertical restraints). It is, however, crucial that business practices which generate efficiencies for the benefit of consumers or the economy in general are not mistaken as competition-distorting practices, including when they are put in place by dominant firms. Many practices which appear to reduce competition may in reality, in some cases, foster efficiency and enhance welfare, depending on market conditions. Also, the achievement by a firm of a dominant position on the basis of greater efficiency, the delivery of innovative and high-quality products and services, is a normal outcome in a market-based economy and should not be outright opposed. In almost all jurisdictions, the application of abuse of dominance provisions requires a three-step analysis by the enforcement agency: 1. First, the relevant market where the alleged abusive practice takes place needs

to be defined in order to identify the immediate competitors to the dominant firm.

2. Second, the holding of a dominant position needs to be appraised. 3. Third, the evaluation of the abusive practice and its actual impact on market

competition needs to be conducted. The procedure for abuse of dominance cases is thus normally the standard investigation procedure as described in section 1.3 above. The main difficulty in the investigation and assessment of abuse of dominance cases – both the exploitative and exclusionary variants – stems from the difficulty of distinguishing normal competitive from anti-competitive behaviour.

5.1 Treatment of Exploitative Practices Exploitative abuses can be particularly difficult to detect and prosecute, mainly because it is extremely burdensome for competition authorities to identify the “fair” conduct of firms, such as the correct price. Specific forms of abusive practices are examined in more detail below. This list is not exhaustive, as market dynamics are always in flux: new and innovative business practices and anti-competitive means are constantly introduced by enterprises.

5.1.1 Excessive Pricing Dominant firms may be able to charge “excessively high” prices as a result of their anti-competitive conduct in the market: after neutralising competitors, they


can act independently and therefore exercise market power. In small economies –including any of the SADC Members – which tend to have more concentrated markets excessive pricing is likely to be more common than in larger economies. Despite the theoretically simple relationship between market power and price levels, the assessment of excessive pricing practices has some pitfalls for competition authorities. First of all, a clear definition of “excessive prices” must be available, i.e. a threshold which distinguishes a “normal price” from an “excessive price”. Furthermore, establishing whether a price is excessive would require that the competition authority can determine the dominant firm’s underlying costs. Access to such information can be difficult to obtain, particularly when firms produce several products: since many production and distribution costs may be common, their allocation among different products may be problematic. In order to address these two issues, a number of instruments have been developed. The basic idea behind all of these instruments is that the observed, potentially excessive price is benchmarked against some proxy for the competitive price. The main instruments are: � Comparison of observed prices with costs plus reasonable margin: This

requires that the competition authority can measure costs, and a “reasonable” margin needs to be set.

� Comparison of prices charged to different consumers in the same (geographical and product) market: If the lower prices charged are profitable higher prices can be considered excessive. This approach requires, first, that the supplier engages in price discrimination and, second, the competition authority knows the suppliers cost structure.

� Comparison of prices charged to consumers in different geographical markets (after accounting for cost differences, e.g. transportation costs): If low prices charged in one market are profitable higher prices can be considered excessive.

� Comparison of observed prices with prices of like goods in competitive markets.

Excessive pricing practices are not often addressed by competition authorities. An instructive example is presented in Case 11. The most appropriate means of intervention for competition authorities in order to restore competitive prices is the elimination of the dominant firm’s restrictive practice rather than trying to determine the “right” market price to be charged by the dominant firm. This is because of three reasons: Firstly, as described above, due to information constraints it is difficult (if not impossible) for a competition authority to determine the “right” price. Secondly, price setting is usually an instrument of regulation rather than competition policy. Last but not least, prices represent important signals for firms when deciding whether to enter or exit a market. High prices may convince firms to enter a market because they are lured by the opportunity to make high profits. Price control may disrupt such signalling mechanism, preventing beneficial market entry of new firms eroding supra-competitive pricing.

Distinguishing excessive prices from normal prices

Identifying excessive prices

Appropriate remedy to excessive pricing: remove the practice, don’t set the price!


Case 11: Excessive pricing in the South African steel industry

Case summary and outcome: In 2007 the Competition Tribunal of South Africa determined that Mittal Steel South Africa (Mittal SA) had used excessive pricing to domestic customers. It imposed certain behavioural remedies aimed at reducing the segmentation that Mittal SA’s pricing regime had created in the market for flat steel products. It also imposed an administrative penalty of ZAR 692 million, representing 5,5% of Mittal’s total turnover earned on flat steel in both the local and export market during the year preceding the start of the investigation. In order to reduce the segmentation in the market for flat steel products, the Tribunal also ruled that Mittal SA may not, amongst other things, impose upon any customer of its flat steel products any conditions in respect of the customers’ use or resale of those products. The Tribunal also ordered Mittal SA to make known in the public domain at all times, its list prices, rebates, discounts and other standard items of sale for flat steel products. Determination of relevant market: South Africa’s market for flat steel. Assessment of dominance: Mittal SA holds a market share of 80% in the relevant market. High investments costs and Mittal SA’s backward linkage constitute high barriers to market entry. Abusive practice: For determining the price to its domestic customers, Mittal SA used an import parity price calculation based on the cheapest f.o.b. price for imported steel to which various supplementary costs were added (such as import tariffs, port charges, agent commissions, finance costs, domestic transport costs, finance costs, and a “hassle factor”), which together accounted for a 30-40% surcharge. The net price for South African customers of Mittal SA was thus approximately 60% than the net price of Mittal SA’s foreign customers. The Competition Commission determined that Mittal SA’s export prices were profitable, yielding an operating margin of 29%. It therefore concluded prices charged to domestic customers to be excessive. The abusive nature of the practice was furthermore supported by the fact that Mittal SA had devised a system to prevent re-import of its flat steel exports and ran a system of rebates for powerful buyers, customers facing competition by substitutes (notable steel roofing manufacturers which competed with cement tile producers), and manufacturers of downstream exports.

Sources: Competition Tribunal of South Africa - Harmony Gold Mining Limited (13/CR/Feb04), and Roberts (2008).

5.1.2 Price Discrimination As mentioned in Part I of this guide, price discrimination is prohibited in several SADC countries. Competition authorities may therefore have to investigate such cases – although the assessment of price discrimination is far from easy and the damage caused by the practice is usually small, if existing at all (at least in terms of overall welfare losses). Price discrimination refers to the practice by a supplier of selling the same product at different prices to customers, for example according to their willingness to pay. In order to have price discrimination two conditions must be fulfilled. First, there must be a way to classify customers according to their effective willingness to pay a price. This classification can take place either through self-selection (e.g. through quantity discounts or two-part tariffs, consisting of a fixed and a variable part) or by grouping customers based on observable characteristics (e.g. special prices for students, pensioners, etc.). The second condition for price discrimination to work is that the supplier must be in the position to impede arbitrage, i.e. the possibility for disadvantaged customers to buy from customers buying at lower prices. Often, the ability of customers to

Preconditions for price discrimination to occur


engage in arbitrage is clearly limited, due to inertia and lack of information, favouring price discrimination. In general, price discrimination which leads to an increase in sales should not be necessarily considered as anticompetitive, particularly taking into account that more customers will be supplied than with price uniformity. A possible result is that consumer welfare will increase (total welfare will increase in any case). In general, price discrimination will affect some customers negatively, namely those that end up paying a higher price than under a uniform price, while others benefit – those that are able to buy at a lower price than under a uniform price, or that could not have afforded to purchase the product at all at the uniform price. However, if price discrimination results in a contraction of total sales, it has a negative effect on welfare. Identifying the practice of price discrimination is not as straightforward as it may appear at first sight. In particular, a competition authority must not determine price discrimination based on the observance that the same product is sold at different prices on the market: When price differences reflect differences in costs of supplying the product (such as different distribution costs to different locations), price discrimination cannot be said to arise. Cost differences which result in different prices may sometimes not be evident: price discrimination can therefore be difficult to identify for competition authorities. For example, prices for car theft insurance policy for the same type of vehicle may differ, according to the buyer’s characteristics and risk category. In these circumstances, price discrimination is only apparent: products which appear equal have different qualities and underlying costs in reality. Conversely, price discrimination does exist when suppliers sell to all customers at the same price even though the cost of supplying the product differs among customers. Likewise, price discounts may or may not involve price discrimination. When discounts are directly linked with savings, for example from economies of scale in distribution, price discrimination does not occur. However, when discounts are provided on the basis of commitments by buyers to purchase all or most of their requirements from the dominant firm, and are not directly linked to cost savings they may, according to the specific market conditions, produce significant exclusionary effects (see section 5.2.4 below). In sum, proving price discrimination may be difficult for a competition authority, in view of the complications associated with identifying firms’ underlying costs. Therefore, competition authorities should be very careful in investigations into allegedly anticompetitive price discrimination; in all but the most extreme cases it will be more worthwhile to focus the authority’s scarce resources on other cases of anticompetitive practice.

Negative and positive effects of price discrimination

Identifying price discrimination

Discounts as price discrimination?

The appropriate response by competition authorities


In practice, non-exclusionary forms of price discrimination are seldom addressed by competition authorities.13 The relationship between potential damage caused by the practice, complexities of the investigation, and legal risks entailed for the competition authority cause competition authorities to shy away from addressing potentially exploitative forms of price discrimination. Nevertheless, the situation is entirely different for exclusionary price discrimination (see section 5.2.4 below).

5.2 Treatment of Exclusionary Practices Alleged exclusionary practices need a thorough assessment by competition authorities because often they are employed by firms in order to operate as efficiently as possible, rather than to distort competition. As noted in part I, there is no consistency in the legal treatment of different practices applied by dominant firms. Some forms of conduct by dominant firms which are considered per se abusive behaviour by some jurisdictions are judged by the rule of reason in others. The per se approach is viewed as facilitating the adoption and application of competition legislation, particularly in countries with little experience in competition law enforcement. On the other hand, it carries the risk that normal competitive practices by firms which are welfare optimising are banned (type I error). In any case, competition authorities should approach investigations into exclusionary practices of dominant firms with care and also consider – to the extent possible under the law – potential positive effects of these practices.

5.2.1 Predatory Pricing Competition legislation prohibits predatory pricing because consumers, while probably profiting in the short-run from the dominant firms’ low prices, in the long-run will be harmed by the suppression of competition in the market and by supra-competitive pricing. On the other hand, aggressive pricing is beneficial to competition and to consumers, including by dominant firms. The difficulty for competition authorities is to distinguish between (good) aggressive pricing as a normal competitive behaviour and (bad) predatory pricing. In order to prove the existence of predatory pricing competition authorities usually apply a three stage process (Figure 11). First, it has to be assessed if the predatory is a dominant firm. If this is not the case, the investigation may stop. Otherwise, it has to be determined if through the aggressive pricing policy the dominant firm sacrifices short-term profits. Third in some countries the competition authority also has to show that recoupment of the short-term loss can be recouped by the dominant firm.

13 Note, however, that many cases of excessive pricing also entail price discrimination. For example, the South African Harmony Gold Mining case presented in Case 11 above involved price discrimination between domestic customers (and even, to a certain extent, among domestic customers) and foreign customers.


Figure 11: Determination of predatory pricing – procedure

Is the alleged predator a

dominant f irm?

no

yes

Close case

Does the

alleged predator sacrif ice

prof its in the short

term?

noClose case

Prohibit pract ice

and order remedies

yes

Will the

alleged predator

recoup short -term losses af ter

the predat ion

period?

noClose case

yes

Prohibit pract ice

and order remedies

In some count ries

Methods for the first stage, assessment of dominance, have been addressed in detail in chapter 2 above. But how can the competition authority prove that a dominant firm sacrifices short-term profits by selling at prices which are lower than it would charge under normal circumstances? Obviously, the only clear criterion which can be used to conclusively prove that a firm is sacrificing profits is if it makes short-term losses. Otherwise, the competition authority would have to prove that the firm could have made higher profits by applying a different pricing policy – this will hardly be possible given the information constraints about costs and demand functions which usually exist. The firm makes short-term losses if it sells below cost. The question then is which cost definition to use for its investigation. The correct measure would be marginal cost, but marginal costs are not observable directly. In practice, there is an international convergence among competition authorities to apply the Areeda/Turner rule (Box 9). Differences in approach exist among jurisdictions with regard to the third stage, i.e. to show the likelihood of recoupment of the losses made during the predatory phase. In the US, proof of the possibility of recoupment is a requirement for an intervention by the competition enforcement agencies.

Stage 1: Assessment of dominance

Stage 2: Sacrifice of short-term profit during predation period

Stage 3: Recoupment test


Box 9: The Areeda/Turner rule14

The Areeda/Turner rule distinguishes three different situations, depending on whether prices charged during the predation period are below average variable costs, between average variable costs and average total costs, or above total costs: � Only prices below average variable costs (as proxy of marginal costs) charged by dominant firms

are usually considered predatory pricing. In fact, a firm should normally find it rational to stop production rather than charging prices below variable costs, considering that for each additional unit of product supplied, additional losses are incurred. The only explanation for such “prima facie” irrational behaviour would be the expectation for higher profits at a later stage.

� Prices above average variable costs but below average total costs, on the other hand, may be considered predatory when they are clearly associated with an exclusionary intent.

� Prices above average total costs are not considered predatory.

Conversely, evidence of high barriers to entry in the market and successful predatory strategy has not been considered prerequisite for an intervention by recent court decisions in the EU (Case 12). Case 12: Predatory pricing in the organic peroxide market in Europe (the

AKZO case)

A small company operating in the production of organic peroxide, a chemical component used mainly as flour additive or input for the plastics industry, complained to the European Commission about the abusive practices of the allegedly dominant player. According to the complainant, the dominant supplier, a multinational firm with production plants in several European countries and with a market share in the EU above 50%, had resorted to selective below-cost pricing with the aim of forcing the competitor out of the market. In particular, the dominant company had offered supplies of organic peroxide to customers of the small firm at prices well below production costs while maintaining higher prices to its traditional clientele. The European Commission’s investigation confirmed the allegations. An infringement of article 82 prohibiting the abuse of the dominant position was found. A fine of 14 million ECUs was imposed. The European Commission’s decision stressed that any company, including those holding a dominant position, is allowed to apply aggressive pricing. However, during the investigation, substantial evidence had been produced with regard to a loss-making pricing strategy, not compatible with profit-maximising behaviour, and part of an overall exclusionary plan aimed at excluding the small firm from the market. The European Court of Justice confirmed the European Commission decision and shed some light about the Community stance vis-à-vis predatory pricing. The Court, inter alia, stated that pricing below average variable costs by means of which a dominant firm seeks to eliminate a competitor must be generally regarded as abusive. A dominant firm does not have any interest in charging such level of price other than pursuing the objective of eliminating competition and being in the position of charging monopolistic prices at a later stage. With prices below average variable costs the firm generates a loss with each sale; the loss being related to the fixed costs and part of the variable costs incurred. Moreover, the Court added that prices below average total costs but above variable costs can be considered abusive if they are determined to be part of a plan to eliminate a competitor.

The recoupment test has to show that the predator can expect to charge prices above the competitive price after the predation period. As we have seen above this is only the case if high barriers to entry exist. If barriers to entry into the markets are low, the predatory pricing strategy can be expected to fail because a price increase by the dominant firm would lure new competitors into the market, thereby forcing prices to go down again.

14 Named after Phillip Areeda and Donald Turner who first proposed this rule (see Areeda/Turner 1974).


5.2.2 Refusal to Deal and Denial of Access to Essential Facilities

Anticompetitive refusal to deal may occur particularly in regulated markets which have been recently opened up to at least partial competition. In these situations, dominant firms may try to evade price regulation by exploiting their dominant position in contiguous, unregulated markets so as to gain supra-competitive profits. Competition cases dealing with anticompetitive refusals to deal have occurred, for example, in the airport and port services markets, following partial liberalisation. In Germany and in Italy, airport authorities, holding exclusive rights over maintenance and ground services which are subject to price regulation, refused access to airport infrastructures to firms interested in providing catering or handling services in competition with the airport authorities in order to remain the exclusive suppliers of the services (Case 13). Similarly, competition authorities in the European Union have prosecuted port authorities vertically integrated in ferry services which denied access to port facilities to competing ferry boat companies. Case 13: Refusal to deal as an abuse of dominant position in the market for

airport-related services in the European Union

In 1994, several European airlines (KLM, British Airways and Air France) complained to the European Commission with respect to the refusal by FAG, the Airport of Frankfurt management company, to allow other operators to provide so-called “ground-handling” services, i.e. loading and unloading of luggage, fuelling of aircrafts, catering services, etc., in competition with FAG in the airport premises. The European Commission’s investigation concluded, in 1998, that FAG had abused its dominant position in the market for the provision of airport facilities for the landing and take-off of aircrafts. The European Commission proved that FAG has made use of its power as exclusive provider of airport facilities in the Frankfurt area to deny access to the ramp to potential competitors in the market for the provision of ground-handling services. Such denial applied both with regard to airlines and independent suppliers. FAG has extended its dominant position on the market for the provision of airport landing and take-off services to the neighbouring, but separate, market for ground-handling services. The Commission ascertained that no objective justification for the denial of access existed as no space constraints existed with respect to the presence of competing operators. Also, FAG could have asked ground-handling operators to make adequate payments for use of the facilities provided by it. The European Commission stressed that access to the airport facilities was necessary in order to allow other operators to provide services. In particular, no alternative infrastructures were available in order to compete with FAG in supplying services to airlines using Frankfurt airport facilities. It was concluded that there were no other international airports in the proximity of Frankfurt which could be considered substitutable for the provision of “point-to-point” air transport services to and from Frankfurt and its surrounding region. Also, the denial of access to the facilities had clear negative effects on competition in the downstream market as FAG was the monopolistic supplier of the relevant upstream services. Finally, the harm on consumers, in this case the airline companies, was clear as they were prevented from the ability to choose among alternative suppliers.

Source: Commission Decision 98/190/EC of 14 January 1998 (IV/34.801 FAG Flughafen Frankfurt/Main AG). Often, competition authorities have determined all too eagerly that a monopolist has abused its dominance by refusing new entrants to use existing facilities.

Typical cases of anticompetitive refusal to deal

The risk of over-enforcement


Assume that a dominant shipping company has built a port for use by its vessels. A new shipping line also wishes to make use of this port but the incumbent refuses. Does this constitute an exclusionary practice? Possibly – but more information about the specific circumstances must be known. Excessive reliance on competition policy to force dominant firms to give access to their infrastructure may reduce incentives for competing firms to develop their own facilities, with negative effects on efficiency and competition. In all cases of refusal to deal, an in-depth market assessment needs to be carried out. Particularly, the competition authority should consider the following issues in their assessments: � Availability of substitutes: Firms being denied access to facilities or other

inputs may be able to find alternative suppliers. E.g., are there ports nearby which could be used as a substitute to the port access to which is denied?

� Own investment: Competitors may build their own infrastructures, maybe in consortium with other firms. Would such an investment be feasible?

� Implications of granting access to facilities: The competition authority should take into consideration the implications for the dominant firm of granting access to its facility. E.g., if the port is already operating at full capacity refusal to access could hardly be considered exclusionary. Also, if the facility in question is an investment by the dominant firm, forcing access to it may send wrong signals in terms of protection of investments (and property rights) and might deter similar investments in the future. Conversely, if the facility was built by the Government it will be much harder for the incumbent to argue that refusal to access is not an exclusionary practice.

A further problematic aspect for competition authorities to deal with anti-competitive refusals to deal may be the need to determine the right price for the supply of the input or for granting access to the essential facilities. Clearly, an excessive price may produce the same effects as an outright denial. However, the competition authority may lack the necessary expertise for determining the right access price. In several competition decisions dealing with denial of access to essential facilities, the European Commission has broadly required that essential facilities are provided on the basis of, fair, cost-related and non-discriminatory terms, rather than determining the access price. In general, as stated before, competition authorities should rather not set prices themselves but leave the pricing decisions to the market players.

5.2.3 Tie-ins As mentioned in part I, tie-ins, including when put in place by dominant firms, do not necessarily produce anti-competitive consequences. Tying practices may as well be associated with the realisation of market efficiencies. For example, firms may opt to sell their products together with repair and maintenance services, in order to preserve their products’ reputation among customers: If customers receive poor maintenance and repair services, they may come to the conclusion that the original product’s quality was not adequate. Poor

Guidelines for the assessment of refusal to deal

The problem of determining the right price for users of essential facilities

Efficiency enhancing tying


servicing would then determine overall negative consequences on the product’s reputation and on the firm’s overall sales. However, less restrictive ways to ensure quality levels of related services may be available to firms, such as forms of quality control on qualified repairers. Dominant firms may also engage in tie-ins with the objective of extracting extra-profits, to the damage of competitors and consumers. For example, if a firm holds a dominant or monopolistic position in a market, and the market price is regulated to avoid the exercise of market power, the firm may impose a tie-in in order to circumvent price regulation. In particular, the tie-in would allow the firm to gain monopoly profits in a separate market where no price regulation is present. Under some circumstances, tie-ins may produce detrimental effects for consumers also when competition in the tying product market is satisfactory. For example, buyers, after their purchases, may only be able to turn to the seller in order to get spare parts or repair services. Providers may then try to exploit their position as sole supplier. This may be particularly true for relatively expensive goods which are purchased infrequently. Exploitation of customers may, however, not be sustainable in the medium term, as purchasers of the product will take into account the price of spare parts and repair services when making their purchase decisions. In order to reduce such exploitative forms of tying, the competition authority should ensure that adequate information about spare parts and repair services is provided in the marketplace, as this will reduce or outright eliminate the negative consequences of potentially harmful conduct. The worst type of tying is if it is used as an anti-competitive instrument in order to eliminate competition. This may occur if a firm which is dominant in the market for the tying product uses bundling or tying to exclude competitors in the market for the tied product by forcing customers to buy its products on that market rather than products of competitors.15 Given the fact that the welfare effects of tying are ambiguous, and there are indeed many cases where tie-ins are efficiency enhancing, competition authorities need to take a cautious approach to the assessment of tying practices. In principle, the general investigation approach as described in section 1.3 above will be applied. Specifically, no actions should be taken if the firm using tying is not dominant. Secondly, anticompetitive and efficiency effects need to be weighed against each other. Finally, the exploitative or exclusionary purpose of the practice should be evidenced. An example of the consequences of over-enforcement is the classic Ilford case (Case 14). It shows the need for competition authorities to carefully assess the rationale behind firms’ tying practices.

15 This argument has been brought forward by proponents of the “leverage theory” and has been the matter of much debate among competition lawyers and economists. The neoliberal so-called Chicago school rejects the theory and thus does not see any reason for competition authorities to be concerned about tying. For a discussion see Slade (1997).

Tying as an exploitative price discrimination device

Exclusionary tying

Assessment of tying by competition authorities


Case 14: Tying by a non-dominant firm: the Ilford case, UK

“In the mid-60s, the colour film market was dominated by Kodak worldwide. In the UK, Kodak had around 80% of sales, with Ilford holding less than 15% market share. One of the reasons why Ilford found it difficult to catch up with Kodak was due to (indirect) network effects: Ilford used a processing system that differed from the dominant Kodak’s, and this represented an obstacle to its diffusion with independent processors. Ilford’s response to this problem was to sell film with processing included. A customer would buy the film and after taking pictures would send back the exposed film to Ilford, which would process it in its laboratories and then send it back to the customer. Following a complaint by independent processors that this practice would have reduced the demand for their services, the Monopolies and Mergers Commission found the tying of film and processing to be anti-competitive in 1966. [...] This finding greatly increased Ilford’s problems. The independents could not easily process the company’s film, and this appears to have been the last straw for Ilford’s retail business [...] Ilford withdrew its brand from the color film market in 1968.”

Source: Motta (2004: 468)

5.2.4 Price Discrimination In addition to the potential exploitative effects discussed above, price discrimination may also be used by dominant actors as an exclusionary device. Two classical examples are its use in combination with predatory pricing and fidelity rebates. In the first case, the dominant firm uses predatory pricing in order to force exit of a competitor. In order to keep its costs (in terms of foregone short-term profits) as low as possible, it will strive to offer predatory prices only to customers purchasing from the competitor, while charging normal prices to all other customers (see the organic peroxide case in Case 12 above). Fidelity discounts are offered to buyers if they commit to purchase only from one supplier and commit to not buy from competing suppliers. The exclusionary potential of this practice is evident; in fact, it can be interpreted as a weak form of exclusive dealing. Thus, when price discrimination is used as an exclusionary practice it is either paired with another exclusionary practice, as in the first example and/or substitutes another exclusionary practice (Case 15). The competition authority should check if price discrimination is used in either way. If this is confirmed in an investigation, remedial measures should be taken and penalties be applied.

5.3 Suggested Readings International Competition Network 2007: Report on the Objectives of Unilateral Conduct Laws,

Assessment of Dominance/Substantial Market Power, and State-Created Monopolies, http://www.internationalcompetitionnetwork.org/uploads/library/doc353.pdf

OECD 2007: Background Note, in: OECD Policy Roundtables. Remedies and Sanctions in Abuse of Dominance Cases. 2006, DAF/COMP(2006)19, Paris, 15 May 2007, pp. 17-52, http://www.oecd.org/dataoecd/20/17/38623413.pdf

Assessment of exclusionary price discrimination by the competition authority


OECD 2008: Background Note, in: OECD Policy Roundtables. Evidentiary Issues in Proving Dominance. 2006, DAF/COMP(2006)35, Paris, 09 October 2008, pp. 17-49, http://www.oecd.org/dataoecd/42/8/41651328.pdf

OECD 2009: Background Note, in: OECD Policy Roundtables. Refusals to Deal. 2007, DAF/COMP(2007)46, Paris, 03 September 2009, pp. 21-56, http://www.oecd.org/dataoecd/44/35/43644518.pdf

UNCTAD 2008: Abuse of dominance. Report by the UNCTAD Secretariat, TD/B/COM.2/CLP/66, 21 May 2008, http://www.unctad.org/en/docs/c2clpd66_en.pdf

Case studies: Elzinga, Kenneth G/Mills, David E 2008: Predatory Pricing in the Airline Industry: Spirit Airlines

v. Northwest Airlines (2005), in: Kwoka, John E/White, Lawrence J (eds.): The Antitrust Revolution. Economics, Competition and Policy, 5th ed., Oxford UP, Case 8.

Roberts, Simon 2008: Assessing Excessive Pricing: The Case Of Flat Steel In South Africa, in: Journal of Competition Law and Economics, 4(3), 871–891, doi:10.1093/joclec/nhn005.

Case 15: Price discrimination as an exclusionary device – replacement tyres in France (the Michelin case)

Case summary and outcome: In 2001 the European Commission imposed a fine of EUR 20 million on the French tyre maker Michelin for abusing its dominant position in replacement tyres for heavy vehicles in France during most of the 90s. The investigation started in May 2006 based on the Commission’s own-initiative. During the investigations, Commission officials carried out inspections at Michelin's premises in France, which provided evidence that the company was abusing its dominant position in the French market for retread and new replacement tyres for heavy vehicles. Article 82 of the EC Treaty prohibits abuses of dominant positions either individually or collectively in the European common market or in a substantial part of it insofar as it may affect trade between Member States. The Court of Justice has ruled in several cases that quantity rebates with exclusionary effects are illegal when granted by a company in a dominant position for more than three months. Definition of the relevant market: The tyre market for heavy vehicles can be divided into two sectors, the original and the replacement equipment markets. Replacement tyres can be new or retread, i.e. given a new tread if the casing is in sound condition. The relevant market was defined as consisting of both new and retread replacement tyres. Assessment of dominance: Michelin has a market share in excess of 50 percent of the market for new replacement tyres for heavy vehicles in France. As regards the French retread market, its share is even higher. None of its competitors are comparable in size. The Commission therefore considered that Michelin holds a dominant position in France. Assessment of abuse of dominance: The Commission established that Michelin had operated a complex system of, inter alia, fidelity rebates, bonuses and commercial agreements, which constitute a loyalty-inducing and unfair system vis-à-vis its dealers. Michelin's commercial policy for both the retread and the new replacement tyre market had the effect of keeping dealers in close dependence and preventing them from choosing their suppliers freely between 1990 and 1998. This policy, which artificially barred competitors' access to the market, was suspended by Michelin in January 1999.

Source: Commission Decision of 20 June 2001 relating to a proceeding pursuant to Article 82 of the EC Treaty (COMP/E-2/36.041/PO — Michelin), OJ L143/1 of 31.05.2002.


6 REVIEW OF MARKET CONCENTRATIONS Merger control aims at preventing an excessive reduction in the number of independent competitors supplying the marketplace so as to ensure the maintenance of an adequate degree of competition. In other words, it aims at preventing those concentrations which would substantially increase the ability for firms to engage in either abuses of dominant position or in restrictive agreements. A major difference from the assessment of restrictive practices is that merger control is forward-looking: rather than assessing the anti-competitive effects of practices that have occurred in the past, the competition authority assesses the likely anti-competitive effects of the merger in the future. Merger control has assumed great importance in the SADC region as firms re-position themselves to take advantage of trade liberalisation and/or to strengthen themselves against increased competition from within and outside the region. For example, in Zimbabwe competition cases involving mergers and acquisitions have overtaken those involving other forms of restrictive business practices. In Namibia, the competition authority receives more notifications of mergers and acquisitions than it deals with cases of restrictive business practices.

6.1 Approaches to Merger Control To contribute to the efficiency of markets and ensure rapid transactions, competition authorities need to review and authorise concentrations with no competition effects in a speedy manner, in order to not unnecessarily delay restructuring processes. Few concentrations will require an in-depth assessment because of their significant impact on market competition. The fact that most concentrations are not harmful for competition is reflected in most competition laws in two measures. First, competition laws usually define thresholds below which mergers and acquisitions can be concluded without any notification requirements. Second, concentrations which surpass the threshold are reviewed by the competition authority through a two-step process. While all concentrations not producing significant competition effects are cleared during the first phase, a more thorough evaluation will only be conducted for those few concentrations liable to restrict competition significantly. The rationale for setting thresholds below which mergers and acquisitions are exempt from scrutiny by the competition authority is that small mergers usually have no negative impact on competition. Thresholds are found in most competition laws or regulations. In the SADC region, all countries except Malawi and Zambia address thresholds in the law. Most do so at a general level but leave the definition of specific thresholds to be defined in regulations or guidelines by the competition authority or a ministry. Only Mauritius and the Seychelles specify thresholds in the law. In Mauritius, mergers which result in a combined market share of less than 30% are not subject

The general approach to merger control

Thresholds

Thresholds in SADC competition laws


to review; in the Seychelles, the corresponding market share according to the law is 60%, but this may be amended by regulation. There are different bases for setting thresholds: absolute market share, increase in market share and size of the transaction. What is important in determining the threshold is the potential negative impact of the concentration on competition – this can be the creation of a dominant position or a substantial lessening of competition. The absolute market share test focuses on the former: if the firm after the concentration exceeds a certain market share in the relevant market it will be dominant. Therefore, it makes sense to set the threshold at the same level – as a maximum – as the threshold that is defined in the law for determining market dominance. The increase in market share and size of transaction tests focus on the increase in size of the firms involved in the concentration and hence on the potential lessening of competition in the market. Defining threshold levels on this basis is less straightforward and eventually depends on the government’s or competition authority’s view with regard to which degree of concentration may have a harmful effect on competition. Box 10: Merger thresholds in US competition law

Merger thresholds under the US 1992 Merger Guidelines are determined based on the HHI and combine both absolute and relative measures, i.e. the potential creation of a dominant position and the lessening of competition. For determining a “safe harbour” below which mergers are assumed to be competition neutral a combination of the absolute value of the post-merger HHI and the increase in the HHI induced by the merger. This is illustrated in the figure below.

Po

st-m

erg

er

HH

I

Increase in HHI50 100

1000

1800

Safe harbour

In determining the thresholds, country characteristics need to be taken into account. For example, developing countries and small economies in general are characterised by higher degrees of concentration as the small market sustains only a smaller number of suppliers. Therefore, in SADC countries higher values for the post-merger HHI than in the US would be appropriate.

South Africa uses the size of the transaction as merger thresholds. Depending on the turnover and assets of all firms involved in the concentration, a merger is

Market share as threshold

Market share increase and size of transaction


classified as small, intermediate or large.16

16 The Competition Commission must be notified of all intermediate mergers and acquisitions if the value of the proposed merger equals or exceeds ZAR560 million (calculated by combining the annual turnover or assets of both firms) and the annual turnover or asset value of the target firm is at least ZAR80 million. If the combined annual turnover or assets of both the acquiring and the target firms are valued at or above ZAR 6.6 billion and the annual turnover or asset value of the target firm is at least ZAR190 million, the merger must be notified as a large merger. The Commission has also developed a merger notification calculator to assist practitioners and the merging parties in determining whether a merger is small, intermediate or large based on the thresholds. See http://www.compcom.co.za/merger-threshold-calculator/.


In some cases, absolute and relative thresholds are also combined. Box 10 describes the approach taken in the US. Figure 12: Merger assessment procedure – overview

Assess post -

merger market

power

Determine ef f iciency gains

No dominance

Dominance

Assess merger induced

concentrat ion ef fect

No SLC

SLC

Eff iciency gains >

market power/concent rat ion

ef fects?

Assess pro-collusive ef fects

yes

no

High risk of col lusion?

Remedies or

prohibit

merger

yes

noClear merger

Determine market power of

f i rms involved in merger

Def ine relevant market

Sta

ge 1

Sta

ge 2

Sta

ge 3

In practical terms, thresholds determine whether or not if companies must get prior approval of the merger by the competition authority. Thus, all planned mergers which would exceed the thresholds (i.e. which do not belong in the “safe harbour” category) must be notified to the competition authority in advance, so that the merger and its likely impact on competition can be assessed. Furthermore, some laws also foresee a voluntary notification of mergers in case the merger is below the thresholds but the companies involved want to make sure that it will indeed not have any anti-competitive effects. In the SADC region, Mozambique is the only country that explicitly addresses the possibility of voluntary notification in the competition law.

Notification requirements


6.2 Assessment of Concentrations – the Process All competition laws define the category of prohibited mergers in broad terms. These are usually defined as concentrations producing “significant harm on competition” or “significantly lessening competition”. It is therefore up to the competition authorities to implement these general provisions in practice. A flowchart of the general process applied by most competition authorities is shown in Figure 12. It consists of three main stages, which are described in more detail in the following sections: first, the relevant market and the market power of the firms involved in the concentration are determined. Thereafter, the effects of the concentration on competition are assessed. Finally, the anticipated positive efficiency effects of the concentration are assessed and weighted against the concentration effects. If efficiency effects are found to outweigh concentration effects the merger will be approved; otherwise it will be prohibited or subjected to remedies in order to be allowed. Case 16 presents an example of a complex merger in the European Union and how it was addressed by the competition authority. Case 16: Horizontal and conglomerate effects in a merger in the personal

care products in the European Union

In 2005, the European Commission scrutinized the acquisition of Gillette, a multinational manufacturer of consumer products, active in oral care, small electric appliances, blades and razors and personal care, by Procter & Gamble, a global manufacturer of consumer goods, including household care, beauty care, and family care products The Commission, after conducting the market investigation, concluded that the merger would lead to significant overlap only in the market for powered toothbrushes (battery and rechargeable toothbrushes) where the acquiring firm after the merger would control a very high market share. Also, barriers to entry into this market were considered high, significantly higher compared to those existing in other personal care products. The relevant geographic market was considered national in scope, in view of the fact that European retailers negotiated at a national level with the national sales representatives of their respective suppliers. The European Commission requested some structural measures in the powered toothbrush market in order to clear the merger. The European Commission also assessed whether the merger could have led to anti-competitive conglomerate effects, taking into account the parties’ rebate schemes and pricing policy and their share of “must stock brands”. The Commission noted that the parties owned a significant number of so-called “must-stock brands” The Commission investigation focused on whether the merger would enable the parties to impose weak brands on their customers and foreclose competitors from access to retailers’ limited space and hinder the entry of new products to the market, using bundling practices. The Commission concluded that it was unlikely that anticompetitive effects would result from bundling practices, since there was significant competition of other branded product suppliers having a sufficiently broad product range, and retailers had the ability and incentive to exercise countervailing buyer power. No competition concerns were identified in the markets for manual toothbrushes, for toothpaste, deodorant, shaving formulation or fragrances.

6.2.1 Definition of the Relevant Market The first step in the assessment of concentrations is usually the definition of the relevant market (see section 2.1 of this guide). The definition of the relevant market has two dimensions: the product and the geographic dimension. All products which are considered direct substitutes by consumers comprise the


relevant product market. All areas which consumers view as feasible alternatives for the purchase of products comprise the relevant geographic relevant market. Box 11: Defining the relevant market in merger cases – a soft drink industry

example

Imagine a hypothetical merger between Happy Cola, a major cola-flavoured carbonated soft-drink producer, and Lucky Lime, a supplier of lime flavoured carbonated soft-drinks. Depending on the definition of the relevant market the competition authority may come to totally different results regarding the competitive effects of the merger. Assume that there are three different drinks on sale in the country (we assume that the relevant geographical market is the national market), cola, lime flavoured carbonated soft-drinks and orange juice. The sales with regard to each drink are given in the following table:

Firm Cola Lime flavoured drinks Orange juice

Happy Cola 60 0 0 Lucky Lime 0 60 0 Others 40 40 200

Total market size 100 100 200

What are the consequences of the merger? 1) Narrow definition of the relevant market: If cola drinks and lime flavoured carbonated soft-drinks are considered as distinct markets Happy Cola and Lucky Lime will not be considered as direct competitors, although they are dominant actors in their respective market (each having a market share of 60%). The merger would not be viewed as involving firms operating in the same market and would not be considered posing a threat to competition (unless there are other concerns about a conglomerate merger). 2) Intermediate definition of the relevant market: If cola and lime-flavoured carbonated soft-drinks are products within the same relevant market while not viewed as direct substitutes with respect to orange juice, then the merger may be viewed to significantly increase market concentration and might be prohibited. In the combined Cola-lime flavoured soft drinks market, Happy Cola and Lucky Lime would each hold a 30% market share which would increase to 60% as a result of the merger 3) Broad definition of the relevant market: If all three drinks on offer are considered as substitutes and therefore as belonging to the same relevant market, the merger would be treated as a horizontal merger. However, the involved firms would each hold only 15% market share in the relevant market thus broadly defined, which would increase to 30% after the merger. The competition authority would likely clear the merger as it would not be considered as restricting competition. The following table provides the market shares depending on the definition of the relevant market

Firm Narrow relevant

market: Cola

Narrow relevant market: Lime

flavoured drinks

Intermediate relevant market: cola

and lime flavoured

drinks

Broad relevant market: all three

drinks

Happy Cola 60% 0% 30% 15% Lucky Lime 0% 60% 30% 15% Others 40% 40% 40% 70%

It is worth noting that there is no more important component for merger review than a correct definition of the relevant market. If the relevant market is defined too narrowly, competing companies may be wrongly considered as belonging to separate markets. On the other hand, a too broad definition of the relevant market may lead to an unjustified dilution of the effective market concentration


and therefore lead the competition authority to assign low market share levels, compared to those held in reality, to the merging companies. An illustration of this problem is presented in Box 11.

6.2.2 Assessment of Competition Effects After concluding the definition of the relevant market, the next step in merger review involves the assessment of the competition effects in the market resulting from the merger. The effect of the merger on market concentration is a particularly important criterion to identify those operations which do not produce significant competition effects and which can thus be authorised without delay and the need for closer scrutiny. Mergers can have two effects on concentration. Either, they can result in the creation of a dominant firm which could then potentially engage in abusive practices. Furthermore, even if the merger does not result in dominance it might still substantially reduce competition. Competition authorities therefore need to assess whether the merger is likely to have either effect on the market. With regard to the creation of a dominant position, mergers where the combined market shares of the involved firms do not exceed the threshold established for the position of dominance cannot found to result in dominance. The assessment may then proceed to the substantial lessening of competition (SLC) test. For the SLC test, it is not sufficient to look only at the increase in market share or the reduction in the number of firms in the market. In fact, many jurisdictions do not consider that concentrations resulting in the merged firm holding significant market shares will always produce harmful competition effects and therefore need to be prohibited. Other factors to be included in the analysis are market entry conditions, demand variables (such as elasticities, switching costs, etc.) or buyer power – essentially the same factors which need to be taken into account in the assessment of dominance (see section 2.2.2 above). For example, when barriers to market entry are sufficiently limited, potential market entrants will be able to impede the merged firm, at least in the medium term, to take advantage of the dominant position. Consequently, high market shares will not be sufficient to allow the dominant firm to act independently from customers and competitors: if it increased prices, new companies would enter into the market and erode the incumbent’s position, forcing it to reduce prices again. However, in order for potential competition to really exercise a constraining effect, enforcement agencies need to verify that market entry must be likely and timely, as well as significant in scale. In order to assess the likelihood of market entry, competition authorities usually try to assess what would be the reaction to a price increase introduced by the incumbent firm – a price increase of 5-10% is usually considered – and maintained for some time. If prospective entrants can be identified that would enter the market within one to two years following the price increase induced by the merger, then such potential competition can be considered as sufficiently effective to discipline the merged firm.

Creation of dominance and substantial lessening of competition

Market entry analysis


Even if the concentration does not result in a substantial increase of the merged firms’ market power the concentration effect on the market can still increase the likelihood of collusion (in the case of horizontal mergers). This is because the number of independent firms in the market is reduced; and the merger may also change other conditions which facilitate collusion (see section 3.1.3 for details). Therefore, the assessment of the merger will need to determine, on a case-by-case basis, how the merger affects each of the factors facilitating collusion in order to make a final judgement of the potential pro-collusive effects. In the case of the acquisition of minority percentage of shares, a case-by case assessment is necessary in order to conclude whether control is really reached and acquiring and acquired firm need to be considered a single economic unit from a competition policy perspective. Finally, some jurisdictions also review the competition effects of the acquisitions of non-controlling minority shareholdings because such transaction are viewed as leading to a reduction in competition between the involved companies, even though there is no reduction in the number of independent suppliers.

6.2.3 Assessment of Efficiency Effects Most competition laws foresee the possibility, in the assessment of mergers, to take into account the potential positive effects of concentrations: the so-called “efficiencies defence”. When the potential beneficial effects are greater than the negative effects on competition, concentrations which would significantly reduce competition could still be authorised, depending on the circumstances. Usually, efficiencies are particularly well received when circumstances allow for the beneficial effects to accrue to consumers and not only to the involved firms in terms of greater profits. The evaluation of the beneficial effects of concentration is a difficult exercise, because quantifying economies of scale and scope and other advantages arising from merging firms’ integration is often difficult to realise in practice. It is equally difficult to reach conclusions about the net negative effects on competition of prospective concentrations, so that the balancing between the two effects is extremely complex. Case 17 provides an example from Zimbabwe. Some jurisdictions impose as requirement for considering efficiencies that parties demonstrate that the merger efficiencies cannot be obtained in a less restrictive way (see Case 17). Such requirement clearly limits the resort to efficiencies as a justification for competition-restricting concentrations. On few occasions, however, the appraisal of concentration efficiencies needs to be carried out, particularly when the benefits appear substantial and able to balance the anti-competitive effects.

Assessment of pro-collusive (coordinated) effects

A special case: minority ownership


Case 17: Unsubstantiated claims of merger efficiencies in a merger case in

the market for the supply of soft-drink beverages in Zimbabwe

In 2008, the Competition and Tariff Commission of Zimbabwe conducted a review of a merger subject to compulsory notification. The merger concerned the market for soft-drink beverages in Zimbabwe. It involved the acquisition of control by Delta Corporation Group, a South African multinational active in the alcoholic and non-alcoholic beverages markets, of two companies owned by the Coca Cola Group operating in the soft-drink markets. Delta Corporation had already an important presence in Zimbabwe. Coca Cola’s sell-off of the two companies aimed at ensuring compliance with the remedies imposed by the Commission in the course of the conditional approval of the Coca-cola/Schweppes concentration. The transaction had been notified and scrutinised in many jurisdictions around the world. Relevant market definition: The relevant market was considered the supply of carbonated and non-carbonated soft-drinks, in view of the functional characteristics of the involved products. The relevant geographic market was considered national, taking into account the barriers to trade still separating national markets within SADC and COMESA. Concentration effects of merger: In case of approval of the proposed merger the acquiring firm, Delta Corporation, would have significantly strengthened its dominant position, increasing its market share by 10% and reaching around 60% of the overall market revenue. The other three main players present in the market held shares significantly lower, respectively comprised between 10 and 8%. Entry barriers into the relevant market were considered significant, in view of the required investments achieving brand recognition and developing an adequate distribution network. As part of the investigation the Commission conducted interviews with suppliers, customers and competitors of the involved firms. The general view confirmed the finding that the proposed merger would have greatly increased market concentration and the acquiring firm’s ability to exercise market power, to the disadvantage of consumers. Efficiency defence: Delta Corporation claimed that the merger would originate substantial market efficiencies. In particular, the merger would allow for substantial savings in procurement costs and a wider distribution network throughout Zimbabwe. The Commission noted that these efficiencies were not transaction-specific and could be achieved by an alternative buyer, with less negative effects on competition and consumer welfare. As a consequence, the merger was not authorised.

A specific form of efficiency is the so-called “failing-firm defence”. Competition authorities may authorise a concentration which would otherwise seriously restrict competition in case the acquired firm is expected to go bankrupt and its assets to leave the market. However, strict conditions usually apply to the application of the failing-firm defence to mergers considered to have significant harmful effects on competition. First, no possibility must exist for the firm to reorganise itself after bankruptcy. Second, no alternative buyer must be available, which could ensure the viability of the failing firm with less negative effects on competition. Third, the productive capacity of the failing firm would definitely exit the market, absent the acquisition.

Failing firm defence


6.3 Information Needs and Sources for the Assessment of Concentrations

6.3.1 Types of Information Required The most important requirement for a correct assessment of concentrations is access to adequate information about supply and demand conditions in the interested markets. Access to information is necessary, inter alia, for the assessment of the correct product and geographic relevant markets, the identification of the actual and potential competitors, and the merger’s likely effects on competition. The relevant information includes:

� Technical features, end-uses, and relative prices of the relevant products and their close substitutes

� Switching costs for consumers to change to substitute products � Identity, strategy and market relevance of actual and potential competitors

(including foreign ones) and buyers � Technical and economic constraints on capacity expansion by competitors � Barriers to entry: administrative and legal barriers, minimum efficient

dimension to operate in the market, importance of brand loyalty, etc. Often, an important competition constraint on domestic firms is represented by foreign firms. The assessment of the competition effects from foreign firms’ competition can be conducted as part of the general appraisal of the borders of the relevant market. However, in practice, sometimes the evaluation is carried out separately. Foreign competition may not represent a constraining force on the merged firms at the time when the concentration is carried out. However, competition can be expected to occur soon after the concentration has been consummated. For example, existing tariffs on foreign producers may be in the process of being reduced or totally eliminated. Consequently, adequate competition constraints may still operate even though domestic concentration may increase significantly. In order to assess foreign competition, information about trade flows and transportation costs are necessary. Also, other possible domestic legal requirements may indirectly constrain the ability of foreign firms, such as public procurement rules favouring domestic producers, technical barriers, etc.

6.3.2 Sources of Information There are several important sources of information about concentrations. These include the merging firms, actual and potential competitors, merging firms’ buyers and suppliers, and public and government information. Case 18 describes an example of how different sources of information were used by the South African competition authorities in a merger assessment.

Information about foreign competition


Case 18: Merger between national retail chains of sport and outdoor apparel and equipment in South Africa – use of different sources of

information

The Competition Tribunal of South Africa prohibited a merger referred by the Competition Commission which was likely to significantly lessen competition in the market for retail distribution of general sports equipment through national chains and in the market for retail of outdoor equipment through national chains. The merger involved two national chains of retail distribution (Massmart and Moresport) with strong brand reputation built in the course of the years through significant investments in marketing and promotion. The two chains operated in many retail markets but serious competition concerns from the integration of the two companies were identified only with respect to the two mentioned markets. The involved companies chose not to present possible remedies which could have helped overcome the competition concerns such as selected divestitures in the critical markets. Therefore, the Tribunal’s choice was limited to either authorise or prohibit the merger. The assessment of the merger was conducted through a thorough and wide-ranging industry survey and by means of interviews with competitors, suppliers and sector specialists, including former employees of the two companies intending to merge. The parties had tried to argue that they did not really compete directly as they were retailing sports and equipment goods of different qualities and prices. However, internal documents and interviews with representatives of the two companies intending to merge showed that the companies considered each other as their main direct competitors. The review showed that national chains retailing sports and outdoor equipment do not face significant competition from general retailers, sports and equipment specialists and independent stores not belonging to national chains. This was confirmed by an analysis of pricing policies of the merging parties. After the merger, it was estimated that the new entity’s market share would have been around 80%. The appraisal of the market also showed that barriers to entry into the market were considerable. In particular, the establishment of a new national chain was expected to take anywhere between 5 to 18 years. In the view of the expected harmful effects on competition and the absence of the redeeming effects from potential new market entry, the Tribunal prohibited the merger.

Source: Competition Tribunal of South Africa, Case No: 62/LM/Jul05. The first source of information is the parties to the concentration. The information notified to the competition authority is the earliest foundation. Such information, if trustworthy, should be sufficient in order to decide whether or not a given merger raises competition concerns and requires additional appraisal. Additional relevant information by the merging firms includes existing business documents and plans, not specifically produced for the competition authority. Such information can be particularly valuable. The merging parties may also produce reports or documents specifically tailored for the notification to the competition authority. Such information should be considered as well but special caution should be paid to ensure it is reliable information. Competition authorities will need to obtain information which is confidential or sensitive from merging parties. It is important to ensure the highest degree of protection of such information. Official sources – such as the national statistics institute, the ministry in charge of industry/economy – and industry associations may provide important data about the market size and structures, although this will often be in aggregated form. Nevertheless, such data may be helpful to validate the information provided by interested parties.

Firms involved in the merger

Official statistics and industry associations

Competitors


Third parties can also provide useful information for the correct assessment of a concentration. Actual and potential competitors, in particular, will have access to very relevant information concerning the products to be considered part of the relevant market as well as the relative strength of market participants. It should be noted, however, that competitors’ information may be biased and distorted on the basis of self-interest. In particular, a merger reducing competition can be expected to provide benefits to the existing competitors while a merger creating efficiencies and fostering competition will damage competitors. This implies that the competition authority should give special weight to an analysis of positive efficiency effects of the merger if competitors are strongly against the merger – put in other words, the stronger the opposition of competitors against the merger, the greater is the likelihood that the net effect of the merger is positive. In sum, information provided by competitors may be useful but should be assessed with great care. Particularly useful would be objective data on sales, price, imports, etc. Buyers will also be a source of valuable information, particularly considering their vested interests to maintain vigorous market competition and avoiding exploitation by market suppliers.

6.4 Effective Remedies for Mergers When mergers with likely anticompetitive effects have been detected in the context of merger review, three alternative remedies can be employed in order to preserve competition. First, prospective anticompetitive mergers can be prohibited. This represents the only option available when the expected anticompetitive effects are so wide-ranging and significant in scope that no viable solution is available to remove the merger’s expected harm to competition. Other than outright prohibition, further remedies for anticompetitive mergers, which have become in recent years increasingly frequent in many jurisdictions, include the imposition on the merged firm of either structural or behavioural remedies which aim at the elimination of the merger’s prospective anticompetitive effects. The imposition of remedies may tackle the market-specific harm to competition, while letting the merger be consummated. Case 19 shows how structural remedies helped a merger go ahead despite initial strong concerns by the competition authority with regard to its anti-competitive effects. In general, structural remedies are viewed as superior to behavioural remedies as they are more effective in permanently solving the competition problems. In addition, they do not require continuous monitoring by the competition authority to ensure that the specific required conduct, such as price control or compulsory supply to certain classes of customers at given conditions, is complied with. Behavioural remedies risk using up too many of competition authorities’ scarce resources.

Buyers

Types of remedies

Comparison of behavioural and structural remedies


In case behavioural remedies are imposed, they should be set for a limited amount of time. Remedies which can be monitored more easily and which have less impact on firm’ conduct should be considered preferable. Case 19: Merger assessment in the nickel and cobalt product markets by the European Commission – the importance of remedies

In 2007, Inco Ltd of Canada filed a notification with the European Commission to obtain authorisation for the acquisition of the control of Falconbridge Ltd of Canada. While the transaction involved two Canadian companies, it was still subject to mandatory prior notification as the involved firms’ revenues in the European Union exceeded the thresholds set in EC regulation n° 139/2004 on the control of market concentrations. Both companies were active worldwide in the mining, processing, refining and sale of various nickel products, copper, cobalt and precious metals. Relevant market definition: The investigation carried out by the European Commission concluded that the relevant product markets concerned by the proposed acquisition were the following: � The supply of nickel to the plating and electroforming industry. This market was viewed as having a EU

dimension in view of the unconstrained ability for customers to procure supplies everywhere in Europe. � The supply of high-purity nickel for the production of super alloys used in safety-critical parts. The

geographic relevant market was considered having a worldwide dimension. � The supply of high-purity cobalt for the production of super alloys used in safety-critical parts, with a

worldwide geographic dimension. Assessment of anti-competitive effects of the acquisition: The investigation revealed that the transaction notified would have substantially lessened effective competition in all three relevant markets if authorised in its original form notified to the European Commission. Post-merger, Inco would have become by far the largest supplier in the EU of nickel products to the plating and electroforming industry. No other supplier would represent a credible constraint for Inco, in view of its unique range of products offered. The investigation had revealed, in fact, that the other suppliers had capacity constraints or lacked access to suitable technology. In addition, Inco would have become the quasi-exclusive supplier of high purity nickel used in super alloys, with a market share exceeding 90% of the worldwide production. Falconbridge had, in fact, represented the only credible competitor in the market on a global level. Also, barriers to entry were very high: no firm had access the market in the previous 10 years. Finally, after the acquisition, Inco would have become the almost monopolistic supplier of high-purity cobalt for super alloys used in critical applications, in a market featuring very significant barriers to entry. Efficiency arguments: During the investigation, the parties declared that the proposed transaction would create significant efficiency gains, in terms of reduced costs, which would benefit all involved consumers. The efficiency gains in the integration of the mining and processing operations were related to the proximity of the production plants of the two firms. The parties, however, failed to demonstrate that such efficiency gains would actually accrue to consumers, in view of the significant reduction in competition and the increased market power of Inco. Also, no evidence was produced that no alternative means were available to obtain comparable gains though less competition-restricting means. Remedies: In order to remove the competition concerns, the parties submitted to the European Commission a package of divestitures in favour of a competing metal mining and processing firm with sufficient nickel resources to sustain viability of the divested capacity. As a consequence, the Commission cleared the merger.

The typical structural remedy is that the merging parties agree to divest of parts of their assets. Several conditions must be met in order to ensure that such divestiture deals adequately with the competition problems raised by the proposed concentration.

Structural remedies – conditions for effective use


First, the divestiture should be effective in guaranteeing that following the merger, the firm will not be able to lessen competition and exercise market power. Second, it is necessary that the divested assets will be able to survive in the market as separate, stand-alone, entity, or as part of a firm already operating or entering in the relevant market, following the acquisition of the divested assets. If the divested asset needs to be viable as a stand-alone entity, it is necessary to ensure that they will be able to operate all necessary business activities and thrive in the market without the need for any major external support. For several reasons, it is preferable for the competition authority to require the conclusion of the sale of the divested assets before allowing the concentration to be completed. First, merging firms will have greater incentives to conclude the divestiture as quickly as possible in order to receive the authorisation to proceed with the merger. In addition, the competition authority will be in a much better position to intervene in case the divestiture cannot be carried out and, if necessary, prohibit the merger. If the merger has already been implemented, imposing divestiture may be much more difficult in practice. If the merger is permitted to be carried out before the divestiture of assets has been completed some safeguards need to be in place: The most important one is a requirement on the merging parties to hold the assets to be divested separate during the transition period. They should be under a distinct management and should have adequate financial and human resources to operate. The separation of assets pursues several objectives. First, it reduces the possibility of the establishment of collusive arrangements between the merging firms and the divested assets which could produce anticompetitive effects after the conclusion of the divestiture. Second, negative effects on competition before the divestiture is carried out will be prevented because the two entities will operate separately. Third, the merging firm will be motivated to carry out the divestiture more quickly. Fourth, the value of the assets to be divested will be preserved during the transition period. A second important safeguard is the requirement on the merging parties to respect a deadline for concluding the divestiture. In case the deadline is not completed by the set deadline, the responsibility for carrying out the sale should be passed on to a third party (“trustee”) which would act under the supervision of the competition authority in order to conclude the sale. Merging parties should hold primary responsibility for choosing the buyer of the divested assets as they can be expected to know well the value of the assets to be divested as well as market conditions and therefore be in a better position to identify prospective buyers. The deadline for completing the sale would depend on business conditions and practices specific to a country. Generally, many jurisdictions allow a 6-9 month period in order to carry out the divestiture. The competition authority should be assigned the task of scrutinising the buyer in order to avoid that the divestiture creates anticompetitive effects. The seller should be entitled to obtain the highest possible price but no minimum price

Sequencing: First remedy, then merger approval

Safeguards if the merger precedes the divestiture

Responsibilities for divestiture


should be allowed. Enough powers should be assigned to the competition authority in case the divestiture is not carried out according to plans.

6.5 Suggested Readings Farrell, Joseph/Shapiro, Carl 2010: Antitrust Evaluation of Horizontal Mergers: An Economic

Alternative to Market Definition, 15 February 2010, http://faculty.haas.berkeley.edu/shapiro/alternative.pdf

International Competition Network 2005: ICN Investigative Techniques Handbook for Merger Review, http://www.internationalcompetitionnetwork.org/uploads/library/doc322.pdf

International Competition Network 2006: ICN Merger Guidelines Workbook, Prepared for the Fifth Annual ICN Conference in Cape Town, April 2006, http://www.internationalcompetitionnetwork.org/uploads/library/doc321.pdf

OECD 2004: Background Note, in: OECD Policy Roundtables. Merger Remedies. 2003, DAF/COMP(2004)21, Paris, 23 December 2004, pp. 17-45, http://www.oecd.org/dataoecd/61/45/34305995.pdf

OECD 2007: Background Note, in: OECD Policy Roundtables. Vertical Mergers, DAF/COMP(2007)21, Paris, 12 November 2007, pp. 15-65, http://www.oecd.org/dataoecd/25/49/39891031.pdf

Weinberg, Matthew 2008: The Price Effects of Horizontal Mergers, in: Journal of Competition Law & Economics, 4(2), 433–447, doi:10.1093/joclec/nhm029.


PART III: OTHER RESPONSIBILITIES OF COMPETITION AUTHORITIES


1 COMPETITION ADVOCACY Competition advocacy can be very relevant to promote general awareness about the benefits of competition among the business community and the public at large. In emerging economies and in developing countries, business and the public at large may have little experience with free markets in general and with the application of competition legislation in particular. Also, liberalisation and increased competition may produce in the short run negative effects on employment and prices. Therefore, it is important to illustrate the beneficial effects competitive markets are expected to bring about. Typical methods of competition advocacy aimed at the public include the maintenance of a website, organisation of workshop and conferences, brochures and publications, as well as contributions to print media and appearances in radio and TV, discussing competition issues (Box 12). These activities should address the whole range of the authority’s work. In the context of specific cases, press releases will be published whenever investigations are initiated and when decisions are taken. Box 12: Advocacy activities of the Zambian Competition Commission aimed at the public

The Zambian Competition Commission views competition advocacy as a non-enforcement supplementary mechanism to promote a competitive environment in the economy. The Commission, has adopted and implemented several strategies to develop a competition culture in Zambia: � Publications: The Commission produces different types of publications meant for different audiences.

These publications can be collected from the Commission in the form of hard copies (brochures and Annual Reports) and can also be accessed from the Commission website. Examples of publications are: A Comprehensive National Competition Policy; Consumer Beware; Market Intervention; The Promotion and Protection of Consumer Welfare and Interest in Zambia; Merger Control Regulation in Zambia; Merger Notification; and Annual reports.

� Communication: The Commission employs several tools to communicate with its various stakeholders. These include seminars, workshops and stakeholder meetings and consultations; website; television documentaries, radio programmes and drama shows; and the participation at the International Trade Fair and Agriculture and Commercial Show.

� Media Relations are important in the quest to instilling a culture of competition in the economy and for scaling up the corporate image of the Commission. As such, the Commission has engaged the media houses in different projects aimed at creating a good rapport and be able to reach the target audience. Some of the methods the Commission is employing are the publication of newspaper articles, placement of newspaper advertisements, media workshops, and interviews to the media.

� Promoting Compliance: To ensure compliance with its decisions and the competition law in general, the Commission uses the following methods: marketplace contacts, consultations with relevant stakeholders, pre-notification of mergers and acquisitions, advisory opinions and Corporate Compliance Programmes especially with dominant players.

� Building public confidence is one key ingredient in effective enforcement of competition law. As such, the Commission does the following instruments to scale-up its corporate image in the eyes of the public: Strong enforcement especially for high-profile cases, fairness and non-discriminatory enforcement, transparency in its investigative processes, unbiased prosecutions, and endorsement of Memoranda of Understanding with regulators to minimise duplication and reduce uncertainty to the business.

Source: Zambian Competition Commission, http://www.zcc.com.zm But competition advocacy targeting the business community and the public is only one part of a competition authority’s advocacy work. The other main target group is constituted by the public sector and government itself.

Advocacy aimed at the public

Advocacy aimed at government


Competition legislation aims at the prevention or elimination of restrictive business practices by enterprises, both private and state-owned, which disrupt competition, harm consumer or total welfare and reduce the efficient use of resources. However, rather than by business practices, competition is often disrupted by public policies and legislative or regulatory arrangements. Therefore, competition authorities’ law enforcement against restrictive business practices needs to be matched by an advocacy role addressing the other institutions within the State. Such advocacy has a positive and a negative side: � On the positive side competition authorities contribute to the development of

sound public policies which reduce, to the fullest extent possible, barriers to market entry and restrictions to competition;

� On the negative side, competition authorities should be involved in political processes and legal drafting processes whenever these have a potential impact on competition, so as to avoid that such initiatives have a negative impact on competition.

Thus, competition enforcement agencies should act at all times as advocates of competition vis-à-vis public institutions, policymakers and other stakeholders. Competition authorities should act to counterweigh lobbying efforts by firms aimed at obtaining protection from competition, particularly by foreign suppliers, in order to foster the public interest. In this sense, competition enforcement and competition advocacy are complementary activities. Case 20: Complementarity between competition enforcement and advocacy

- Discriminatory and excessive pricing in the Zambian sugar market

The close linkages between anti-trust enforcement and competition advocacy competences of competition authorities are clearly shown in a Report by the Zambian Competition Commission (ZCC) issued in 2006. The ZCC received several complaints by enterprises using sugar as input in their industrial production (sweets, beverages, etc.) with respect to the excessive and discriminatory pricing by the domestic dominant sugar supplier. The incumbent dominant sugar manufacturer held a quasi-monopolistic position, with two other sugar manufacturers present in the market holding marginal production capacities. The ZCC was able to conclude that sugar prices charged by the dominant supplier were considerably higher than price levels in other Southern African countries. In addition, the dominant company exported a significant share of production, with the export price considerably lower than prices charged in the home market. The price discrimination produced significant harmful effects on domestic enterprises using sugar as an important production input because they could not compete on a level playing field with foreign competitors either on the Zambian or in foreign markets. The dominant position held by the Zambian sugar producer derived from the absence of imported sugar in Zambia, due to a series of administrative barriers to trade which resulted from lobbying efforts of the incumbent enterprise. The Report’s conclusion included recommendations to the Government to adopt measures aimed at eliminating barriers to sugar imports into Zambia so that imported products could exercise downward pressure on the incumbent monopolist’s prices.

Source: Zambian Competition Commission Typical instruments of competition advocacy targeting the public sector include hearings, comments to law proposals having an impact on competition, policy papers, policy recommendations in cases and similar activities.


In many jurisdictions, the competition advocacy competences of the competition authorities are explicitly mentioned in provisions of the competition legislation, with particular reference to the responsibility to express views to the government and parliament on existing or draft legislation having an impact on competition. In other jurisdictions, the competition advocacy activities simply result from independent initiatives of the national enforcement bodies. Even where not explicitly addressed in the laws, competition advocacy should be an important activity of competition authorities. In fact, competition advocacy can be as effective as antitrust enforcement in promoting the maintenance of competitive markets (see Case 20). Table 11: Provisions on competition advocacy in selected SADC countries

Country Advocacy targeting Government Advocacy targeting the business community and public

Lesotho � �

Malawi � �

Mauritius � �

Mozambique - - Namibia � �

Seychelles - �

South Africa � - Tanzania � �

Zambia - �

Zimbabwe � �

Source: SADC Members’ competition laws. The legal basis for competition advocacy in SADC countries is summarised in Table 11. As can be seen, most SADC Members expressly include advocacy among the functions of their competition authority. As an example of detailed specifications in this regard, the Fair Competition Act of Tanzania provides for the following functions of the Fair Competition Commission:

“(b) Promote and enforce compliance with the Act; (c) Promote public knowledge, awareness and understanding of the obligations, rights and remedies under the Act and the duties, functions and activities of the Commission; (d) Make available to consumers information and guidelines relating to the obligations of persons under the Act and the rights and remedies available to consumers under the Act; (e) Carry out inquiries studies and research into matters relating to competition and the protection of the interests of consumers; (f) Study government policies, procedures and programmes, legislation and proposals for legislation so as to assess their effects on competition and consumer welfare and publicise the results of such studies; (g) Investigate impediments to competition, including entry into and exit from markets, in the economy as a whole or in particular sectors and publicise the results of such investigations; (h) Investigate policies, procedures and programmes of regulatory authorities so as to assess their effects on competition and consumer welfare and publicise the results of such studies; (i) Participate in deliberations and proceedings of government, government commissions, regulatory authorities and other bodies in relation to competition and consumer welfare; j) Make representations to government, government commissions, regulatory authorities and other bodies on matters related to competition and consumer welfare; (k) Consult with consumer bodies, regulatory authorities, business organizations and other interested persons; (1) Consult with the competition authorities of other countries; (m) Represent Tanzania at international fora concerned with matters relating to competition or the interests of consumers” (§65).

Competition advocacy – treatment in different jurisdictions


In the following paragraphs we list some important policies which have an impact on competition and where competition authorities therefore have a role to play. Generally, trade liberalisation is expected to significantly increase competition in the domestic market, particularly in developing countries where domestic production may be highly concentrated. As the break-up of domestic firms holding dominant or monopolistic positions may be unfeasible for political and social reasons in developing countries, the removal of barriers to trade such as tariffs, investment restrictions and quotas can rapidly lead to significant competitive pressure on domestic producers, to the benefit of consumers. However, trade liberalisation may be very much opposed by domestic producers because they may be afraid of not being competitive with foreign suppliers. Foreign investors in the country may also request protection from imports. In addition, social and political concerns may justify, at least temporarily, the protection of local production. The role of the competition authority should be mainly an educational one, pointing out to policymakers the costs and benefits of protection. Also, competition authorities should ensure that trade protection should be in most cases temporary and phased out over time, unless strong public interest concerns advise otherwise. In the SADC region, most countries have or are in the process of developing sector regulation and establishing sector regulators. Harmonisation of sector regulation at regional level is also on the SADC agenda. In view of their know-how in competition analysis, competition authorities can undoubtedly play a valuable role in fostering pro-competitive regulatory reform, particularly in the regulated industries, such as telecommunications, energy and transportation markets. Technological developments occurred in recent years and new economic thinking have increasingly questioned the rationale for maintaining direct control of price and other supply conditions in regulated sectors, highlighting the positive role competition can also play in these markets. In particular, a broad consensus has emerged that many industries, previously considered national monopolies as a whole, such as the electricity or telecom industries, are made up of different, vertically-related, activities, some of which include potentially competitive markets, such as electricity generation and long-distance telecom services. Economies of scale in those activities, in fact, are limited compared to the overall size of the market: competing suppliers each operating at an efficient scale can coexist. For these markets, competition rather than direct price regulation can be the most effective way to maximize economic efficiency and consumer welfare. Reform in regulated industries will therefore require the separation and different policy approaches for potentially competitive activities – where competition is not only feasible but also desirable – and activities which still maintain natural monopoly features, such as electricity transmission and local telecom services. Several countries, through restructuring and regulatory reforms, have operated such separation with positive effects on market efficiency.

Trade liberalisation

Economic regulation


Only with regard to natural monopoly components, direct regulation may still be the best means to restrain dominant firms from exploiting market power. In particular, setting the terms of access to essential infrastructures will be essential to ensure, where feasible, the promotion of competition. For the other potentially competitive activities, a greater reliance on market forces can be introduced gradually. The interface between sector regulation and competition law is important. Competition authorities cannot only advocate competition policy objectives during the establishment of the legal basis for regulation but should establish ongoing working relationships with sector regulators. Box 13 summarises the South African experience. Box 13: Cooperation between the competition authority and regulators – the South African experience

The South African Competition Act establishes that the Competition Commission is responsible to “negotiate agreements with any regulatory authority to co-ordinate and harmonise the exercise of jurisdiction over competition matters within the relevant industry or sector, and to ensure the consistent application of the principles of this Act” (§21(1)h). It furthermore establishes that such agreements must “(a) identify and establish procedures for the management of areas of concurrent jurisdiction; (b) promote co-operation between the regulatory authority and the Competition Commission; (c) provide for the exchange of information and the protection of confidential information; and (d) be published in the Gazette” (§82(3)).

In line with these provisions, in 2002 the Competition Commission signed Memoranda of Agreement with the Independent Communications Authority of South Africa (ICASA) and the National Electricity Regulator (NER). Prior to the signing, interested parties were asked for inputs to the agreement. Furthermore, based on the implementation experience the agreements were later adjusted and Memoranda of Understanding were signed also with other regulators.

The Memoranda detail how the Competition Commission and the regulators will cooperate in respect of investigations, evaluations and analysis of mergers and acquisition transactions, and complaints in areas of concurrent jurisdiction. Some features of the modus operandi are: � Joint working committees consisting of members from the Commission and the regulator have been

established in order to formalise consultations; � The Commission and the regulator continue making independent determinations on the basis of the

criteria and mandates of their respective legislation; � None of the respective powers have been waived.

In the 2009 Competition Amendment Act, the relationship between the Competition Commission and regulators was further clarified. Section 3(3) specifies that in cases of concurrent jurisdiction the regulator “will exercise primary authority to establish conditions within the industry that it regulates as required to give effect to the relevant legislation in terms of which that authority functions, and this Act; and [...] the Competition Commission will exercise primary authority to detect and investigate alleged prohibited practices within any industry or sector, and to review mergers within any industry or sector, in terms of this Act.” The same section also specifies that “details of the administrative manner in which any concurrent jurisdiction [...] is to be exercised, must be determined by an agreement between the Competition Commission and that other regulatory authority.” It is expected that the existing agreements between the Competition Commission and regulators will be reviewed in response to the legal changes.

Sources: Competition News – Newsletter of the Competition Commission, various editions; competition laws of South Africa. One of the main objectives for competition authorities to engage in competition advocacy is to ensure public policies and institutions treat all market players on

State aids and subsidies


equal terms and that no favourable treatment is granted to either domestic or foreign, private or state-owned, small or large enterprises. The granting of state aids to specific firms or industries, such as subsidies, loans at favourable rates, preferential tax treatment, etc. is one of the policies which lead to disrupt the level playing fields among companies and to distort competition with negative effects on consumers, particularly in the long-run as less efficient firms are often artificially maintained in the market. Particularly in developing and emerging economies, governments may feel pressured to provide direct financial support to firms in order to help them become competitive on international markets or to protect them from foreign competition. Even though several international agreements, such as the WTO agreements, provide rules and constraints on subsidies, most countries still provide substantial support to firms and industries. Subsidies can substantially distort market competition and efficiency. Subsidies may reduce firms’ incentives to operate efficiently. Also, subsidies may represent a significant burden on the State budget particularly for developing countries. Finally, governments are most of the time not best placed in choosing the industries in real need of direct support. As with regard to trade policy, competition authorities can provide information and analysis about the possible negative effects of state aids to policymakers. They can also help in identifying those circumstances where subsidies can produce the least negative effects on competition and be justified, for example with regard to support research and development efforts or providing temporary help to firms restructuring following recent market liberalisation. When local authorities – directly or through controlled enterprises – operate in the provision of public services, such as local public transportation and waste management, competition issues can arise. In particular, a conflict of interest can arise as local authorities are responsible for ensuring efficient services for the benefit of their citizens and, at the same time, they are also eager to maximise service suppliers’ profits as they own such firms. The profit maximisation objective clearly can be better achieved by assigning market exclusivities and excluding competition. Competition authorities should advocate for the introduction of competition in the provision of local public services whenever this is feasible. They should ensure, in particular, that local authorities do not engage in discrimination among market players and in preferential treatment vis-à-vis the controlled suppliers. For example, subsidies for the provision of local services which may not be supplied by the market because of their scarce profitability, should when necessary be available on a competitive and non-discriminatory basis to all market participants engaged in servicing citizens. Also, with respect to local services which present natural monopoly features, competitive bidding should be used whenever possible to ensure efficiency and non-discrimination. As an example, the provision of waste collection services

Local public services


should be assigned on a rotation basis to different suppliers, according to their ability to supply the service at the lowest price, ensuring at the same time an adequate quality level. Through the resort to competitive bidding, while only a single supplier will operate in the market at any point in time, the selection will have been made on the basis of a competitive mechanism. Competition for the market, i.e. competition for winning the right to supply the entire market, replaces competition in the market. In case local authorities own essential facilities necessary to provide services, it would be preferable that they do not operate in upstream or downstream activities, in order to avoid discriminatory and exclusionary practices. In case vertical separation is not considered feasible, access to such facilities should be at least provided on an equal basis to all market players. Privatisation of state-owned enterprises is an important element of economic reform by developing and emerging countries which intend to promote the establishment of an efficient market-based economy. Governments often provide privileged treatment to state-owned companies, including partial or full exclusion from the application of competition legislation. Also, state-owned companies are frequently not subject to the same budget constraints as private firms, as public funds are more easily mobilised to avoid state-owned companies’ bankruptcies: the incentive to operate efficiently is therefore diminished. Privatisation can therefore be expected to contribute a great deal to the promotion of efficient competitive markets to the benefits of consumers. Public policies aimed at coping with the possible short-term negative effects on employment, as privatised companies restructure, must also be in place. However, in the privatisation process, an evident conflict can arise between the government’s desire to maximise the revenue from the sale of State assets and the objective of the promotion of competitive markets. In fact, investors are clearly more willing to purchase companies holding a dominant position or which are protected from competition by government-created barriers to market entry. They are willing to disburse more when they can purchase firms not exposed to competition. In fact, they may even require, as a condition for their investment, protection from competition. There is, therefore, a significant role to play for the competition authority in the privatisation process. In many developed and developing countries, the sale of state-owned enterprises is subject to the general provisions on merger control. Alternatively, they are scrutinised by the competition authority as part of the privatisation process, in cooperation with the specialised agencies established with the task of managing the privatisation process. Divestitures of state-owned companies are assessed in order for the competition authority to single out those proposed divestitures which risk a significant lessening of competition through the creation of a monopolistic or dominant

Privatisation


position. In this case, conditions to solve the competition concerns can be imposed. Available remedies in the privatisation context, as in the case of merger control, would include forced divestiture of tangible and intangible assets which could guarantee to preserve competition. A more drastic remedy would be the restructuring of the enterprise to be privatised, with separate sales to distinct investors of the different units. This remedy should be used only if no other, less drastic alternative is available. Also, each component of the restructured firm should be able to operate independently after the sale. Checklist 6: Competition advocacy

Competition advocacy reinforces the enforcement activities of competition authorities. Advocacy can target the business community and Government. The instruments and communication channels to be applied differ. In order to approach advocacy activities in a structured way, the following questions should be answered: 1. Review the functions related to competition advocacy in your competition law. 2. Does the competition authority have dedicated staff for advocacy work? 3. What have been the advocacy activities targeting the public so far? In particular:

a. Is a website in place and regularly updated? b. Have studies been published? How often, on which topics? c. Are workshops/roundtables/conferences being organised on a regular basis? d. Are press releases published and circulated regularly? e. Does the authority have established links to the media? f. Have any opinion surveys on competition issues been undertaken, and if so, what were the results?

4. What have been the advocacy activities targeting the Government so far? In particular: a. Has the competition authority been invited by other government entities to contribute to hearing or

review proposals? b. Has the competition authority proactively sought to be involved in such hearings/legal drafting

processes? c. Does the authority maintain continuous exchanges of information with other government bodies? Is

it informed of ongoing initiatives of other government bodies which may have an impact on competition?


2 COMPETITION POLICY AND CONSUMER PROTECTION

Competition policy and consumer protection policy pursue the same ultimate objective of enhancing consumer welfare. Competition policy aims at ensuring that consumers will be able to choose among the widest possible range of goods and services at the lowest possible prices. Consumer protection aims at ensuring that consumers have the ability to make the most informed and favourable choice, on the basis of the available range of goods and services, and that they are not misled or taken advantage of. Generally, competition and consumer protection policies reinforce each other. For example, competition provides firms with a strong incentive to develop a reputation for good quality products or services, allowing them to maintain their existing customer base and expand it further. Also, a reputation for high-quality goods and services allows firms to reduce marketing and promotional costs. Competition, therefore, contributes to consumer protection objectives such as setting and enforcing product standards and reduces the need for intervening in the marketplace to preserve quality standards. Also, effective competition ensures that firms have the incentive to reduce consumers’ switching costs from moving away from competitors, in order to gain their patronage. In particular, firms in competitive markets, in order to attract new customers, would provide to them as much information as possible concerning alternative products and their usage. In addition, they may offer to cover part, or all, of the switching costs. As a consequence, competitive forces manage to minimize or solve one of the market constraints that consumers’ protection policy often is faced with: i.e. switching costs constraining customers’ ability to select the best market supplier. On the other hand, sound enforcement of consumer protection, for example through the repression of false or misleading advertising, the ban of unclear or disproportionate contractual provisions and the imposition of product standards ensuring minimum quality, contribute to the promotion of competition, as such consumer protection interventions favour the ability of consumers to choose, therefore promoting competition on the merits. On some occasions, however, tensions between competition and consumer protection policies may sometimes develop. In particular, tensions may arise particularly in previously regulated markets which have been opened to competition, such as financial services, public utility services and liberal professions, where the need to protect consumers, particularly the elderly, minors or the poor, may be especially relevant when markets are opened and consumers face for the first time the freedom to choose products. For example, while benefitting consumers in the long run, the initial introduction of competition in financial services may create new risks for consumers which may lack familiarity with new sophisticated financial products. Also, the liberalisation of telecom services may raise important consumer protection issues,

Synergies between competition policy and consumer protection

Conflicts between competition policy and consumer protection


such as the tendency of firms to introduce complicated pricing schemes. Analogously, greater market access in professional services needs to be matched by arrangements which ensure a good balance between increased competition and a reasonable choice for consumers in view of the existing information asymmetries between suppliers and consumers. More specifically, consumers may face difficulty in judging the quality of services they receive before their purchase and sometimes even after their purchase, as often is the case, for example, for legal services. In addition to the three industries mentioned above, in all markets previously lacking effective competition, incumbent firms, in order to maintain their market dominance may resort to practices harmful to consumers in order to prevent them to switch to competitors. Important implications for setting up efficient institutional arrangements draw from the close linkages existing between competition policy and consumer protection policy. In particular, as the two policies clearly reinforce each other, the chosen approach in many jurisdictions (incl. the United States) has been to assign enforcement responsibilities with respect to both policies to one single agency. However, in the SADC region, only Tanzania and Zambia seem to have taken this approach. There are both advantages and disadvantages which can be identified from assigning competences for both competition policy and consumer protection enforcement to the same agency. A first advantage is that when market dysfunctions are observed, the agency can employ greater flexibility with respect to the most efficient means of intervention. In particular, in markets where an inadequate level of competition seems to prevail, competition enforcement may have a limited scope of intervention, particularly when no anticompetitive practices have been detected and forced divestiture in order to decrease market concentration may not be a feasible option. In such cases, consumer protection initiatives aimed at strengthening consumers’ ability to make reasoned choices, such as for example, reducing switching costs, may increase demand elasticity and promote greater market competition. Also, a closer interaction between the two policies within the same enforcement institution may help to avoid policy choices which would create conflicts between the two policies. For example, the adoption of unnecessarily stringent product standards may impede the entry of low-cost products which could well meet consumers’ needs. A close coordination between the two policies may prevent or minimise approaches in one policy area which produce negative effects in the other. There are also disadvantages arising from the integration of the two policies within the same agency. The main disadvantage derives from the fact that the two policies, even though they pursue similar objectives, use very different instruments for their implementation.

Institutional arrangements

Advantages of an integrated competition and consumer protection agency

Disadvantages of an integrated competition and consumer protection agency


Competition policy uses mainly administrative proceedings and litigation in courts or tribunals which have little interaction with the public at large. Enforcement usually involves a limited amount of cases each of them often having a significant economic relevance. While consumer policy also involves conventional administrative enforcement, particularly in the area of misleading advertising, is, however, broader in terms of the instruments used, which include consumer education, dispute settlement, industry standards, etc. Also, consumer protection cases are habitually very large in number, each of them having a limited market effect. In addition, consumer protection, unlike competition policy, even though maintained within a single agency, is also always enforced by many other institutions which often have an important role. This occurs particularly in regulatory industries, where the regulatory agency often has direct consumer protection responsibilities. Therefore, assigning consumer protection responsibilities to the competition authority will still require coordination with several other institutions. Checklist 7: Consumer protection – the role of competition authorities

As the functions of the competition authority are defined by law, competition authorities obviously have to stay within their remit. Competition authorities which do not include consumer protection issues among their functions should consider the following issues: 1. Is consumer protection assigned to a government body or is it left to civil society to develop means for

consumer protection? 2. Does the competition authority have formal and operational communication links with the entity/ies in

charge of consumer protection? 3. Are there any activities jointly undertaken by competition and consumer protection institutions (such as

joint workshops, research, etc.)?


REFERENCES

Text books and introductory readings Motta, Massimo 2004: Competition Policy. Theory and Practice, Cambridge et al.: Cambridge UP.

OECD 1993: Glossary of Industrial Organisation Economics and Competition Law, Paris. Available online: www.oecd.org/dataoecd/8/61/2376087.pdf

Viscusi, W. Kip/Harrington, Joseph E. Jr./Vernon, John M. 2005: Economics of Regulation and Antitrust, 4th ed., Cambridge, Mass. & London: MIT Press. – Part I.

Model laws OECD 2007: Competition Assessment Toolkit, Paris: OECD.

UNCTAD 2000: The United Nations Set of Principles and Rules on Competition, TD/RBP/CONF/10/Rev.2, Geneva: UN.

UNCTAD 2007: Model Law on Competition, New York and Geneva: UN.

World Bank/OECD 1997: A Framework for the Design and Implementation of Competition Law and Policy.

Useful websites Competition authorities in the SADC region:

Competition Commission of Mauritius: http://www.ccm.mu

Competition Commission of South Africa: http://www.compcom.co.za

Competition Tribunal of South Africa: http://www.comptrib.co.za/

Fair Competition Commission of Tanzania: http://www.competition.or.tz/

Zambia Competition Commission: http://www.zcc.com.zm/

Southern African Development Community: http://www.sadc.int/

Other national competition authorities

European Commission DG Competition: http://ec.europa.eu/competition/index_en.html

United States Federal Trade Commission: http://www.ftc.gov/index.shtml

Links to other national competition and consumer protection authorities: http://www.ftc.gov/oia/authorities.shtm

Other useful competition policy websites

International Competition Network: http://www.internationalcompetitionnetwork.org

OECD Competition Website: http://www.oecd.org/competition

UNCTAD Competition Law and Policy Website: http://www.unctad.org/Templates/StartPage.asp?intItemID=2239&lang=1

Global Competition Forum of the International Bar Association: http://www.globalcompetitionforum.org

CUTS Centre for Competition, Investment & Economic Regulation: http://www.cuts-ccier.org


Online Databases of Competition Cases European Commission DG Competition:

http://ec.europa.eu/competition/elojade/isef/index.cfm#

Competition Tribunal of South Africa: http://www.comptrib.co.za/search.asp

United States Federal Trade Commission: http://www.ftc.gov/bc/caselist/index.shtml

United States Department of Justice Antitrust Division: http://www.justice.gov/atr/cases.html

Other suggested readings and sources consulted Areeda, Phillip E/Turner, Donald F 1974: Predatory Pricing and Related Practices under Section 2

of the Sherman Act, in: Harvard Law Review 88: 697-733.

Bork, Robert H. 1978: The Antitrust Paradox. A Policy at War with Itself, New York: Basic Books.

Cook, Paul/Fabella, Raul/Lee, Cassey (eds.) 2007: Competitive Advantage and Competition Policy in Developing Countries, Cheltenham/Northampton, MA: Edward Elgar.

CUTS 2001: Competition Policy and Law Made Easy, Monographs on Investment and Competition Policy #8, Jaipur.

Doern, G Bruce 1996: Comparative Competition Policy: Boundaries and Levels of Political Analysis, in: Doern, G Bruce/Wilks, Stephen (eds.): Comparative Competition Policy. National Institutions in a Global Market, Oxford: Clarendon, 7-39.

Evenett, Simon J 2005: What is the Relationship between Competition Law and Policy and Economic Development?, in: Brooks, Douglas H/Evenett, Simon J (eds.): Competition Policy and Development in Asia, Basingstoke/New York: Palgrave Macmillan, 1-26.

Evenett, Simon J 2005: Would Enforcing Competition Law Compromise Industrial Policy Objectives?, in: Brooks, Douglas H/Evenett, Simon J (eds.): Competition Policy and Development in Asia, Basingstoke/New York: Palgrave Macmillan, 47-70.

Gal, Michal S. 2003: Competition Policy for Small Market Economies, Cambridge/Mass & London: Harvard UP.

Hüschelrath, Kai 2009: Competition Policy Analysis, ZEW Economic Studies Vol. 41, Heidelberg: Physica.

Kleit, Andrew N. (ed.) 2005: Antitrust and Competition Policy, Cheltenham/Northampton, MA: Edward Elgar.

Kokkoris, Joannis (ed.) 2007: Competition Cases from the European Union, Thomson Sweet and Maxwell Publisher.

Lee, Cassey 2007: Model Competition Laws, in: Cook, Paul/Fabella, Raul/Lee, Cassey (eds.): Competitive Advantage and Competition Policy in Developing Countries, Cheltenham/ Northampton, MA: Edward Elgar, 29-53.

Mehta, Pradeep S. (ed.) 2006: Competition Regimes in the World. A Civil Society Report, Jaipur: CUTS.

Metcalfe, John Stanley/Ramlogan, Ronnie 2007: Competition and the regulation of economic development, in: Cook/Fabella/Lee, 9-28.

OECD 2008: The Interface between Competition and Consumer Policies, OECD Policy Roundtable.

Posner, Richard A. 1976: Antitrust Law. An Economic Perspective, Chicago/London: University of Chicago Press.

Qaqaya, Hassan/Lipimile, George (eds.) 2008: The effects of anti-competitive business practices on developing countries and their development prospects, New York/Geneva: UN.


Singh, Ajit 2002: Competition and Competition Policy in Emerging Markets: International and Developmental Dimensions, G-24 Discussion Paper Series No. 18, UNCTAD/Center for International Development Harvard University, New York/Geneva: UN.

UNCTAD 1997: World Investment Report 1997. Transnational Corporations, Market Structure and Competition Policy.

UNCTAD 2004: Competition, Competitiveness and Development: Lessons from Developing Countries, UNCTAD/DITC/CLP/2004/1, New York/Geneva: UN.

UNCTAD 2009: The use of economic analysis in competition cases, 28 April 2009.

UNCTAD 2009: The relationship between competition and industrial policies in promoting economic development, 27 April 2009.


SUBJECT INDEX abuse of dominance 10, 14, 94

exclusionary practices 23 exploitative practices 23 treatment in law 25

acquisition 28 advertising agreements 79 after-sales services 85 Areeda/Turner rule 100 assessment of dominance 99 barriers to entry 32, 64 barriers to expansion 64 behavioural remedies 47, 116 bid rigging 17 bundling 24 cartels 14

cheating 17 compliance 17 effects 16 facilitating factors 74 identification 68 instability 76 justifications 77 types of 17

cellophane fallacy 55 circumstantial evidence 69 collective dominance 67 collusion 10, 15 communication evidence 71 competition (definition of) 7 competition advocacy 123 competition policy

definition 8 competitive market 28 concentration 28 concentration ratio 63, 65 confidentiality 40 conglomerate concentrations 29, 33 consumer protection 131 consumer welfare 7, 9, 10, 12 cost differences 97 creation of a dominant position 111 damage compensation 49 data collection tools 43 demand substitutability 52 denial of access to essential facilities 24, 27 deregulation 13 direct evidence 69 divestiture 118 dominance

definition 51 legal standards 59

dominance and monopoly 58 double mark-up 84 economic efficiency 7, 9, 12 economic evidence 71 economic regulation 126 economic welfare 10 efficiencies defence 112

equity 9 essential facilities

pricing 102 excessive pricing 25, 94

benchmarks 95 remedy 95

exclusionary practices 10, 98 exclusionary tying 103 exclusive dealing arrangements 20, 21, 88 exclusivity agreements 20 explicit collusion 10 exploitative practices 10 failing-firm defence 113 fairness 9 financial penalties 48 franchising 20 free-riding 85 geographical market 52 hard-core cartels 16, 68 hearings 43 Hirschman-Herfindahl Index 63, 65 homogeneous products 75 horizontal agreements 15

beneficial effects 15 treatment in law 18

horizontal collusion 14 horizontal concentrations 28 horizontal mergers 31

coordinated effects 32 unilateral effects 31

industry associations 80 interactions with other policies 13 inter-firm rivalry 91 interviews 43 investigation instruments 42 joint control 28 joint ventures 79 leniency programmes 70, 71 Lerner index 62 local public services 128 market allocation 17 market concentration 75 market entry conditions 75 market foreclosure effects 20 market inquiry 41 market observation 41 market power 21

definition 7, 51 market share 62 market structures 28 market transparency 75 merger control 106 merger thresholds 106

increase in market share 107 market share 107 size of transaction 107

mergers 10, 28 and acquisitions 14


creation of dominance 111 definitions 29 market entry analysis 111 relevant market 110 remedies 116

minimum prices 78 minority ownership 112 model laws 2 monopolistic markets 28 natural monopolies 24 non-cartel horizontal agreements 78 notification requirements 108 novelty markets 86 obstruction of competition law enforcement

48 oligopolistic markets 28 over-enforcement 40 penalties 46 per se prohibition 17, 22 powerful buyers 67 predatory pricing 24, 26, 98 pre-sales services 85 price correlation 56 price discrimination 24, 26, 96

as exlusionary device 104 conditions for 96 effects 97 identification 97

price elasticities 56 price information agreements 79 price parallelism 72 price-fixing 17 prison sentences 49 privatisation 13, 129 producer surplus 10 product market 52 protection of competitors 12 protection of small enterprises 12 public interest 9, 81 public interest motives 46 quantity fixing 17 quantity forcing 20 quantity restraints 20 rationing 20 recoupment test 99 refusal to deal 24, 101

assessment guidelines 102 regulation of natural monopolies 25 relevant market

definition 51 sources of information 56

remedies objectives 46

requirements tying 24

resale price maintenance 19, 22, 87 restrictive business practices

as market failure 7 consequences 7

rule of reason 18, 22 sacrificing profits 99 SADC Declaration on Regional

Cooperation in Competition and Consumer Policies 1

SADC Protocol on Trade 1 safe harbour 60, 107 sales-related services 85 sanctions 46 search warrant 43 shipment test 57 specialisation agreements 79 SSNIP test 53, 55 state aids 128 structural remedies 47, 116 subsidies 128 supply and demand substitutability 54 supply-side substitutability 54 surprise inspections 43 switching costs 56 symmetry of firms 75 tacit collusion 10 tensions between law and economics 12 territorial exclusivity 87 tie-ins 20, 102 tie-ins as exploitation 103 toolkits 2 total welfare 9 trade liberalisation 126 tying 24, 26

assessment guidelines 103 Type I error 40 Type II error 40 under-enforcement 40 unfair trade practices 14 vertical concentrations 29, 33 vertical mergers

anti-competitive efffects 33 facilitation of collusion 33

vertical restraints 10, 14, 19, 20, 83 and abuse of dominance 83 effects 20 enforcement guidelines 92 positive effects 21 prevention of free-riding 85 pro-collusive effects 21 substitutability 20 treatment in law 22 welfare effects 86


ANNEX: EXCERPTS OF SADC COMPETITION

LAWS


1 INTRODUCTION In the context of preparing this reference guide the following laws and draft laws of SADC Member States have been consulted: Country Law

Lesotho Draft Competition Bill 2009 Malawi Competition and Fair Trading Act, 1998 Mauritius Competition Act 2007 (No. 25 of 2007) Mozambique Draft Competition Law 2008 Namibia Competition Act 2003 (Act No. 2, 2003) Seychelles Draft Fair Competition Act 2009

Draft Fair Trading Commission Bill 2009 South Africa Competition Act 1998 including amendments up to Competition Amendment Act, 2009 (Act

No. 1, 2009) Tanzania Fair Competition Act, 2003 Zambia Competition and Fair Trading Act 1994 Zimbabwe Competition Act, 1996 as amended by Competition Amendment Act No. 29 of 2001

In the following sections we provide excerpts of these laws, organised by issue addressed. The excerpts have been shortened so as to highlight the important issues. Any further analysis of the laws should be based on the original texts, which are available from the national competition authority websites or the SADC website (see References section of this guide).

1.1 Objectives of Competition Law “to safeguard and promote competition in Lesotho”

“to encourage competition in Malawi in order to promote efficiency, adaptability and competitiveness of the economy; to provide consumers with a range of choices at competition prices and to regulate and control concentrations of economic power”

“to make better provisions for the regulation of competition and for matters incidental thereto and connected therewith”

“to enhance the welfare of the people and the economic development of the country through the promotion and safeguard of free and effective competition as well as the prohibition of anti-competitive practices with the overall aim to: a - increase efficiency in the production, distribution and supply of goods and services; b - promote innovation and improvement of the quality of goods and services; c - promote employment creation; d - promote local entrepreneurship and consolidate its position in order to face the challenges of regional integration and intensified globalisation; e - promote national products and add value to its services; f - ensure that small and medium enterprises have a fair opportunity to participate in the national, regional and global economy; g - protect consumers.”

“to enhance the promotion and safeguarding of competition in Namibia in order to (a) promote the efficiency, adaptability and development of the Namibian economy; (b) provide consumers with competitive prices and product choices; (c) promote employment and advance the social and economic welfare of Namibians; (d) expand opportunities for Namibian participation in world markets while recognizing the role of foreign competition in Namibia; (e) ensure that small undertakings have an equitable opportunity to participate in the Namibian economy; and (f)

Lesotho

Malawi

Mauritius

Mozambique

Namibia


promote a greater spread of ownership, in particular to increase ownership stakes of historically disadvantaged persons”

“(a) to promote and maintain and encourage competition; (b) to prohibit the prevention, restriction or distortion of competition and the abuse of dominant positions in trade in Seychelles; (c) to ensure that all enterprises, irrespective of size, have the opportunity to participate equitably in the market place”

“to promote and maintain competition in the Republic in order (a) to promote the efficiency, adaptability and development of the economy; (b) to provide consumers with competitive prices and product choices; (c) to promote employment and advance the social and economic welfare of South Africans; (d) to expand opportunities for South African participation in world markets and recognise the role of foreign competition in the Republic; (e) to ensure that small and medium-sized enterprises have an equitable opportunity to participate in the economy; and (f) to promote a greater spread of ownership, in particular to increase the ownership stakes of historically disadvantaged persons”

“to enhance the welfare of the people of Tanzania as a whole by promoting and protecting effective competition in markets and preventing unfair and misleading market conduct throughout Tanzania in order to: (a) increase efficiency in the production, distribution and supply of goods and services; (b) promote innovation; (c) maximise the efficient allocation of resources; and (d) protect consumers”

“to encourage competition in the economy by prohibiting anticompetitive trade practices; to regulate monopolies and concentrations of economic power; to protect consumer welfare; to strengthen the efficiency of production and distribution of services; to secure the best possible conditions for the freedom of trade, to expand the base of entrepreneurship“

“to promote and maintain competition in the economy of Zimbabwe; to establish an Industry and Trade Competition Commission and to provide for its functions; to provide for the prevention and control of restrictive practices, the regulation of mergers, the prevention and control of monopoly situations and the prohibition of unfair trade practices“

1.2 Definitions of Dominant Position “’dominant position’ means a situation in which one or more enterprises possess such economic strength in a market as to make it possible for it or them to operate in that market, and to adjust prices or output, without effective constraint from competitors or potential competitors” (§2(1)). “For the purpose of investigating the potential application of the prohibition on abuse of a dominant position, the Directorate shall deem a dominant position to be capable of existing in relation to the supply of goods or services of any description in Lesotho or part of Lesotho if it is satisfied that: (a) 30% or more of those goods or services are supplied by one enterprise, or are acquired by one enterprise; or 60% or more of those goods or services are supplied by three or fewer enterprises, or are acquired by three or fewer enterprises. The thresholds [...] may be amended by regulation.” (§38) “’monopoly’ means a situation in which a single person exercises, or two or more persons with a substantial economic connection exercise, substantial control of a market for any goods or services” (§2)17 “A monopoly situation shall exist in relation to the supply of goods or services of any description where –

17 The law fails to define a “dominant position” although it refers to the abuse of a dominant position on various occasions.

Seychelles

South Africa

Tanzania

Zambia

Zimbabwe

Lesotho

Malawi

Mauritius


(a) 30 per cent or more of those goods or services are supplied, or acquired on the market, by one enterprise; or (b) 70 per cent or more of those goods or services are supplied, or acquired on the market, by 3 or fewer enterprises.” (§46(1))

“Dominant position – the ability of an enterprise acting alone and without any interference from competitors which can profitably and materially restrain or reduce competition in that market for a significant period of time. Monopoly – exists when a specific individual or enterprise has substantial control over a particular market for any goods or services, as to determine significantly the terms on which other enterprises or consumers shall have access to it“ (§1e & h) “For the purposes of this law:

a - an enterprise is deemed to be dominant in the market if it does not suffer any substantial competition or assume dominant power in relation to its competitors; b - one or more enterprises which acts in conjunction whereby they do not suffer any substantial competition or assume dominant power in relation to third parties.” (§11(2))

“For the purposes of this Part, the Minister, with the concurrence of the Commission, must determine by notice in the Gazette in relation to undertakings in Namibia, either in general or in relation to a specific industry -

(a) a threshold of annual turnover or value of assets below which this Part does not apply to an undertaking; (b) the method for calculating an undertaking’s annual turnover or value of assets for the purposes of paragraph (a).” (§24)

“the Commission must prescribe criteria to be applied for determining whether an undertaking has, or two or more undertakings have, a dominant position in a market, which may be based on any factors which the Commission considers appropriate” (§25) “an enterprise holds a dominant position in a market if, by itself or together with an affiliated company, it occupies such a position of economic strength as will enable it to operate in the market without effective competition from its competitors or potential competitors” (§6(2)) “‘market power’ means the power of a firm to control prices, or to exclude competition or to behave to an appreciable extent independently of its competitors, customers or suppliers” (§1) “A firm is dominant in a market if it has at least 45% of that market; it has at least 35%, but less than 45%, of that market, unless it can show that it does not have market power; or it has less than 35% of that market, but has market power” (§7). “A person has a dominant position in a market if both (a) and (b) apply: (a) acting alone, the person can profitably and materially restrain or reduce competition in that market for a significant period of time; and (b) the person's share of the relevant market exceeds 35 per cent.” (§5(6)). “In defining markets, assessing effects on competition or determining whether a person has a dominant position in a market, the following matters, in addition to other relevant matters, shall be taken into account: (a) competition from imported goods and services supplied by persons not resident or carrying on business in Tanzania; and (b) the economic circumstances of the relevant market including the market shares of persons supplying or acquiring goods or services in the market, the ability of those persons to expand their market shares and the potential for new entry into the market.” (§5(5)) “’monopoly undertaking’ means a dominant undertaking or an undertaking which together with not more than two independent undertakings – (a) produces, supplies, distributes or otherwise controls not less than one half of the total goods of any description that are produced, supplied or distributed throughout Zambia or any substantial part of Zambia; or (b) provides or otherwise controls not less than one-half of the services that are rendered in Zambia or any substantial part thereof” (§2)

Mozambique

Namibia

Seychelles

South Africa

Tanzania

Zambia


“A person has substantial market control over a commodity or service if –

(a) being a producer or distributor of the commodity or service, he has the power, either by himself or in concert with other persons with whom he has a substantial economic connection, profitably to raise or maintain the price of the commodity or service above competitive levels for a substantial time within Zimbabwe or any substantial part of Zimbabwe; (b) being a purchaser or user of the commodity or service, he has the power, either by himself or in concert with other persons with whom he has a substantial economic connection, profitably to lower or maintain the price of the commodity or service below competitive levels for a substantial time within Zimbabwe or any substantial part of Zimbabwe.” (§2(2))

1.3 Abuse of Dominance “(1) Any conduct on the part of one or more enterprises is subject to prohibition by the Board if, following investigation by the Directorate, such conduct is determined to amount to an abuse of a dominant position in a market in Lesotho or a part of Lesotho. (2) Without prejudice to the general application of subsection (1) to any conduct falling within its scope (including any action by an enterprise or enterprises in a dominant position to prevent, restrict or distort competition or to exploit that dominance), abuse of a dominant position includes:

(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; (b) limiting or restricting production, market outlets or market access, investment, technical development or technological progress; (c) applying dissimilar conditions to equivalent transactions with other trading parties; (d) making the conclusion of contracts subject to acceptance by other parties of supplementary conditions which by their nature or according to commercial usage have no connection with the subject matter of the contracts.” (§37)

“(1) Any person that has a dominant position of market power shall not use that power for the purpose of—

(a) eliminating or damaging a competitor in that or any other market; (b) preventing the entry of a person into that or any other market; or (c) deterring or preventing a person from engaging in competitive conduct in that or any other market.

(2) Any person who contravenes the provisions of subsection (1) commits an offence.” (§41) “(2) A monopoly situation shall be subject to review by the Commission where the Commission has reasonable grounds to believe that an enterprise in the monopoly situation is engaging in conduct that –

(a) has the object or effect of preventing, restricting or distorting competition; or (b) in any other way constitutes exploitation of the monopoly situation.

(3) In reviewing a monopoly situation, the Commission shall take into account – (a) the extent to which an enterprise enjoys or a group of enterprises enjoy, such a position of dominance in the market as to make it possible for that enterprise or those enterprises to operate in that market, and to adjust prices or output, without effective constraint from competitors or potential competitors; (b) the availability or non-availability of substitutable goods or services to consumers in the short term; (c) the availability or non-availability of nearby competitors to whom consumers could turn in the short term; and (d) evidence of actions or behaviour by an enterprise that is, or a group of enterprises that are, a party to the monopoly situation where such actions or behaviour that have or are likely to have an adverse effect on the efficiency, adaptability and competitiveness of the economy of Mauritius, or are or are likely to be detrimental to the interests of consumers.” (§46)

Zimbabwe

Lesotho

Malawi

Mauritius


“1 - Any conduct on the party of one or more enterprises which amounts to the abuse of a dominant position in the national market or in party therein, which have as its object or effect the prevention or substantial lessening of competition, is prohibited. [...] 3 - The following conducts may be considered abusive:

a - Undertaking any of the conducts enumerated in the articles 9 and 10; b - Denying, against fair remuneration, to any other enterprise, access to a network or other controlled infrastructures and assets, if that conduct hampers the opportunity to the third party to compete with the dominant firm at any stage of the production and retailer chain, unless the contrary is proven; c - Partially or fully discontinuing a commercial relationship, without a good cause; d - Obligating or preventing a supplier or consumer from engaging in a commercial relationship with a competitor; e - Unreasonably selling products below cost; f - Importing any assets below cost from an exporting country.

4 - Similarly, pricing discrimination to different buyers is being considered as an abusive conduct, as soon as:

a - it have as its effect the prevention or substantial lessening of competition; b - it relates to equivalent transactions of goods and services of the same type and quality; c - it relates to retail prices, discounts, payment conditions, credit or any other service provided in connection with the supply of goods and services.” (§11)

“(1) Any conduct on the part of one or more undertakings which amounts to the abuse of a dominant position in a market in Namibia, or a part of Namibia, is prohibited. (2) Without prejudice to the generality of subsection (1), abuse of a dominant position includes -

(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; (b) limiting or restricting production, market outlets or market access, investment, technical development or technological progress; (c) applying dissimilar conditions to equivalent transactions with other trading parties; and (d) making the conclusion of contracts subject to acceptance by other parties of supplementary conditions which by their nature or according to commercial usage have no connection with the subject-matter of the contracts.” (§26)

“(1) Subject to subsection (4), the abuse by an enterprise of a dominant position which the enterprise holds is prohibited. [...] (3) An enterprise abuses a dominant position if it impedes the maintenance or development of effective competition in a market and in particular, but without prejudice to the generality of the foregoing, if it

(a) restricts the entry of any enterprise into that or any other market that supplies or is likely to supply a substitute for the good or service supplied in that market; (b) prevents or deters any enterprise from engaging in competitive conduct in that or any other market; (c) eliminates or removes any enterprise from that or any other market; (d) directly or indirectly imposes unfair purchase or selling prices that are excessive, unreasonable, discriminatory or predatory; (e) limits production of goods or services to the prejudice of consumers; (f) makes the conclusion of agreements subject to acceptance by other parties of supplementary obligations which by their nature, or according to commercial usage, have no connection with the subject of such agreements; (g) engages in exclusive dealing, market restriction or tied selling; or (h) uses any other measure unfairly in its trading operations that allows it to maintain dominance.

(4) An enterprise shall not be treated as abusing a dominant position if (a) it is shown that its behaviour was exclusively directed to improving the production or distribution of goods or to promoting technical or economic progress and consumers were allowed a fair share of the resulting benefit; (b) the effect or likely effect of its behaviour in the market is the result of its superior competitive performance; or

Mozambique

Namibia

Seychelles


(c) by reason only that the enterprise enforces or seeks to enforce any right under or existing by virtue of any copyright, patent, registered design or trademark except where the Commission is satisfied that the exercise of those rights

(i) has the effect of lessening competition substantially in a market; and (ii) impedes the transfer and dissemination of technology.” (§6)

“It is prohibited for a dominant firm to -

(a) charge an excessive price to the detriment of consumers; (b) refuse to give a competitor access to an essential facility when it is economically feasible to do so; (c) engage in an exclusionary act, other than an act listed in paragraph (d), if the anti-competitive effect of that act outweighs its technological, efficiency or other pro-competitive gain; or (d) engage in any of the following exclusionary acts, unless the firm concerned can show technological, efficiency or other pro-competitive gains which outweigh the anti-competitive effect of its act –

(i) requiring or inducing a supplier or customer to not deal with a competitor; (ii) refusing to supply scarce goods to a competitor when supplying those goods is economically feasible; (iii) selling goods or services on condition that the buyer purchases separate goods or services unrelated to the object of a contract, or forcing a buyer to accept a condition unrelated to the object of a contract; (iv) selling goods or services below their marginal or average variable cost; or (v) buying-up a scarce supply of intermediate goods or resources required by a competitor.” (§8)

“(1) An action by a dominant firm, as the seller of goods or services is prohibited price discrimination, if –

(a) it is likely to have the effect of substantially preventing or lessening competition; (b) it relates to the sale, in equivalent transactions, of goods or services of like grade and quality to different purchasers; and (c) it involves discriminating between those purchasers in terms of –

(i) the price charged for the goods or services; (ii) any discount, allowance, rebate or credit given or allowed in relation to the supply of goods or services; (iii) the provision of services in respect of the goods or services; or (iv) payment for services provided in respect of the goods or services.

(2) Despite subsection (1), conduct involving differential treatment of purchasers in terms of any matter listed in paragraph (c) of that subsection is not prohibited price discrimination if the dominant firm establishes that the differential treatment –

(a) makes only reasonable allowance for differences in cost or likely cost of manufacture, distribution, sale, promotion or delivery resulting from the differing places to which, methods by which, or quantities in which, goods or services are supplied to different purchasers; (b) is constituted by doing acts in good faith to meet a price or benefit offered by a competitor; or (c) is in response to changing conditions affecting the market for the goods or services concerned, including –

(i) any action in response to the actual or imminent deterioration of perishable goods; (ii) any action in response to the obsolescence of goods; (iii) a sale pursuant to a liquidation or sequestration procedure; or (iv) a sale in good faith in discontinuance of business in the goods or services concerned.” (§9)

“(1) Complex monopoly conduct subsists within the market for any particular goods or services if

(a) at least 75% of the goods or services in that market are supplied to, or by, five or fewer firms; (b) any two or more of the firms contemplated in paragraph (a) conduct their respective business affairs in a conscious parallel manner or co-ordinated manner, without agreement between or among themselves; and

South Africa


(c) the conduct contemplated in paragraph (b) has the effect of substantially preventing or lessening competition in that market, unless a firm engaging in the conduct can prove that any technological, efficiency or other pro-competitive gain resulting from it outweighs that effect.

(2) For the purposes of subsection (1)(b) ‘conscious parallel conduct’ occurs when two or more firms in a concentrated market, being aware of each other’s action, conduct their business affairs in a cooperative manner without discussion or agreement. (3) If the Competition Commission has reason to believe that complex monopoly conduct subsists within a market—

(a) the Commission may investigate any conduct within that market without initiating or having received a complaint in terms of Chapter 5; and (b) Parts A and B of Chapter 5, and section 49D, each read with the changes required by the context, apply to an investigation in terms of paragraph (a).

(4) After conducting an investigation in terms of subsection (3), the Competition Commission may apply to the Competition Tribunal for a declaratory order contemplated in subsection (5) against two or more firms if—

(a) at least one of the firms— (i) has at least 20% of the relevant market; and (ii) are engaged in complex monopoly conduct as described in subsection (1); and

(b) the conduct of the firms has resulted in— (i) high entry barriers to that market; (ii) exclusion of other firms from the market; (iii) excessive pricing within that market; (iv) refusal to supply other firms within that market; or (v) other market characteristics that indicate co-ordinated conduct.

(5) If the Tribunal, after conducting a hearing in the manner required by Part D of Chapter 5, read with the changes required by the context, is satisfied that the requirements of subsection (4) are satisfied, the Tribunal may make an order reasonably requiring, prohibiting or setting conditions upon any particular conduct by the firm, to the extent justifiable to mitigate or ameliorate the effect of the complex monopoly conduct on the market, as contemplated in subsection (4)(b). (6) Contravention by a firm of an order contemplated in subsection (5) is a prohibited practice.’’ (§10A) “(1) A person with a dominant position in a market shall not use his position of dominance if the object, effect or likely effect of the conduct is to appreciably prevent, restrict or distort competition. [...] (4) Any person who intentionally or negligently acts in contravention of the provisions of this section, commits an offence.” (§10) “(1) Any category of agreements, decisions and concerted practices which have as their object the prevention, restriction or distortion of competition to an appreciable extent in Zambia or in any substantial part of it are declared anti-competitive trade practices and are hereby prohibited. (2) Subject to the provisions of subsection (1), enterprises shall refrain from the following acts or behaviour if through abuse or acquisition of a dominant position of market power, they limit access to markets or otherwise unduly restrain competition, or have or are likely to have adverse effect on trade or the economy in general:

(a) predatory behaviour towards competition including the use of cost pricing to eliminate competitors; (b) discriminatory pricing and discrimination, in terms and conditions, in the supply or purchase of gods or services, including by means of pricing policies in transactions between affiliated enterprises which overcharge or undercharge for goods or services purchased or supplied as compared with prices for similar or comparable transactions outside the affiliated enterprises; (c) making the supply of goods or services dependent upon the acceptance of restrictions on the distribution or manufacture of competing or other goods; (d) making the supply of particular goods or services dependent upon the purchase of other goods or services from the supplier to the consignee; (e) imposing restrictions where or to whom or in what form or quantities goods supplied or other goods may be sold or exported;

Tanzania

Zambia


(f) mergers, takeovers, joint ventures or other acquisitions of control whether of horizontal, vertical or conglomerate nature; or (g) colluding, in the case of monopolies of two or more manufacturers, wholesalers, retailers, contractors, or suppliers of services, in setting a uniform price in order to eliminate competition.” (§7)

“restrictive practice” means –

(a) any agreement, arrangement or understanding, whether enforceable or not, between two or more persons; or (b) any business practice or method of trading; or (c) any deliberate act or omission on the part of any person, whether acting independently or in concert with any other person; or (d) any situation arising out of the activities of any person or class of persons;

which restricts competition directly or indirectly to a material degree, in that it has or is likely to have any one or more of the following effects –

(i) restricting the production or distribution of any commodity or service; (ii) limiting the facilities available for the production or distribution of any commodity or service; (iii) enhancing or maintaining the price of any commodity or service; (iv) preventing the production or distribution of any commodity or service by the most efficient or economical means; (v) preventing or retarding the development or introduction of technical improvements in regard to any commodity or service; (vi) preventing or restricting the entry into any market of persons producing or distributing any commodity or service; (vii) preventing or retarding the expansion of the existing market for any commodity or service or the development of new markets therefor; (viii) limiting the commodity or service available due to tied or conditional selling” (§2)

Unfair Business Practices (First Schedule of Competition Act): “Selling at very low prices or at below production costs as a deliberate strategy of driving competitors off the market.” (§8) “Engaging in exclusive dealing, that is-

supplying or offering goods or services at a particular price; or giving or allowing, or offering to give or allow, a discount, allowance, rebate or credit in relation to the supply or proposed supply of goods or services by the company;

on the condition that the person to whom the supplier offers or proposes to supply the goods- (i) shall not acquire goods or services of a particular kind or description, or not acquire them except to a limited extent, directly or indirectly from a competitor of the supplier; (ii) shall not re-supply the goods or services, or not re-supply them except to a limited extent-

A. to particular persons or classes of persons; B. in particular places or classes of places.” (§10)

1.4 Regulation of Horizontal Agreements “A horizontal agreement between enterprises is prohibited per se, and void, to the extent that it involves any of the following practices: (a) directly or indirectly fixing a purchase or selling price or any other trading conditions; (b) dividing markets by allocating customers, suppliers, territories, or specific types of goods or services; (c) bid rigging.” (§31(1)) “An agreement between enterprises (other than an agreement specified in Sections 31(1) or 32(1)) is subject to prohibition by the Board if, following investigation by the Directorate – (a) such an agreement is found to have the object or effect of preventing or substantially lessening competition in a market for any goods or services in Lesotho, or a part of Lesotho; and (b) no exemption is available [... This] applies in particular to any agreement which: (a) limits or controls production, market outlets or access, technical development or investment; (b) applies dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a

Zimbabwe

Lesotho


competitive disadvantage; (c) makes the conclusion of contracts subject to acceptance by other parties of supplementary conditions which, by their nature or according to commercial usage, have no connection with the subject of such contracts.” (§34) “(1) The Directorate may carry out an investigation to determine whether the provisions of Section 34(1) should be applied if it is satisfied that the parties to the agreement:

(a) in the case of a horizontal agreement, together supply 30% or more, or acquire 30% or more, of goods or services of any description in a relevant market in Lesotho or part of Lesotho [...]

(2) The thresholds specified in subsection (1) may be amended by regulation.” “(1) It shall be an offence for enterprises engaged on the market in rival or potentially rival activities to engage in the practices appearing in subsection (3). (2) This section applied to formal, informal, written and unwritten agreements and arrangements, (3) For the purpose of subsection (1), the following are prohibited -

(a) colluding in the case of monopolies of two or more manufacturers, wholesalers, retailers, contractors or suppliers of services, in settling uniform price in order to eliminate competition; (b) collusive tendering and bid-rigging; (c) market or customer allocation agreements; (d) allocation by quota as to sales and production; (e) collective action to enforce arrangements (f) concerted refusals to supply goods or services to potential purchasers; or (g) collective denials of access to an arrangement or association which is crucial to competition.” (§33)

“(1) For the purposes of this section, an agreement, or a provision of such agreement, shall be collusive if –

(a) it exists between enterprises that supply goods or services of the same description, or acquire goods or services of the same description; (b) it has the object or effect of, in any way -

(i) fixing the selling or purchase prices of the goods or services; (ii) sharing markets or sources of the supply of the goods or services; or (iii) restricting the supply of the goods or services to, or the acquisition of them from, any person; and

(c) significantly prevents, restricts or distorts competition. (2) Any agreement, or provision of such agreement, which is collusive under this section shall be prohibited and void.” (§41) “(1) For the purposes of this section, an agreement, or a provision of such agreement, shall be collusive if one party to the agreement –

(a) agrees not to submit a bid or tender in response to an invitation for bids or tenders; or (b) agrees upon the price, terms or conditions of a bid or tender to be submitted in response to such a call or request.

(2) Subject to subsection (3), any agreement, or provision of such agreement, which is collusive under this section shall be prohibited and void. (3) This section shall not apply to an agreement the terms of which are made known to the person making the invitation for bids or tenders at, or before, the time when any bid or tender is made by a party to the agreement.” (§42) “A horizontal agreement that is not collusive under section 41 may be reviewed by the Commission where –

(a) the parties to the agreement together supply 30 per cent or more, or acquire 30 per cent or more, of goods and services of any description on the market; and (b) the Commission has reasonable grounds to believe that the agreement has the object or effect of preventing, restricting or distorting competition.” (§44)

“Agreements between enterprises which are normally competing in the same markets, decisions by associations of enterprises or concerted practices by enterprises subsidiaries in an horizontal relationship which have as purpose or effect the prevention or substantial lessening of competition

Malawi

Mauritius

Mozambique


in trade in any goods or services in party or the whole national market, are prohibited. Among these, are prohibited the practices with purpose to:

a - obtain or otherwise solicit the adoption of uniform or concerted business practices among competitors; b - directly or indirectly fix the purchase or selling prices; c - unjustifiably provoke change of prices; d - directly or indirectly fix any other trading condition at a determined stage or different stages of the economic process; e - control production or limit supply of goods and services, research, technical progress or investments aiming at manufacturing goods or the provision of services or their supply; f - divide markets or selectively supplying resources by allocating customers, suppliers, territories, or specific types of goods or services; g - undertake colluding practices in order to achieve unjustifiable advantages or engage in collusive tendering for provision of products and services; h - limit or restrain market access by new companies.” (§9)

“The agreements referred to in the articles 9 and 10 may be justified if they contribute to or results in:

a - enhancing the supply chain or production conditions of goods and services; b - reducing prices for the consumers; c - fostering economic development; d - promoting technological development and innovation of local enterprises; e - better allocation of resources; f - promoting national goods or services; g - promoting exports; h - promoting competitiveness of local small and medium enterprises; i - promoting local entrepreneurship.

[...] In no case, the objectives indicated above may prevent competition or impose to enterprises restrains that are unnecessary to the implementation of the objectives of this law.” (§12)

Agreements between undertakings, decisions by associations of undertakings or concerted practices by undertakings which have as their object or effect the prevention or substantial lessening of competition in trade in any goods or services in Namibia, or a part of Namibia, are prohibited [... This] applies in particular to any agreement, decision or concerted practice which –

(a) directly or indirectly fixes purchase or selling prices or any other trading conditions; (b) divides markets by allocating customers, suppliers, areas or specific types of goods or services; (c) involves collusive tendering; [...] (e) limits or controls production, market outlets or access, technical development or investment; [...]” (§23)

“(2) [...] all agreements between enterprises, trade practices or decisions of enterprises or organisations that have or are likely to have the effect of preventing, restricting or distorting competition in a market are prohibited. (3) Without prejudice to subsection (2), agreements preventing competition referred to in that subsection include agreements containing provisions that

(a) directly or indirectly fix purchase or selling prices or determine any other trading conditions; (b) limit or control production, markets, technical development or investment; (c) provide for the artificial dividing up of markets or sources of supply; (d) affect tenders to be submitted in response to a request for bids; [...]

(4) Subsection (2) shall not apply to any agreement or category of agreements (a) the conclusion of which has been authorised under Part V; or (b) that the Commission is satisfied

(i) contributes to the improvement of production or distribution of goods and services or the promotion of technical or economic progress, while allowing consumers a fair share of the resulting benefit; (ii) imposes on the enterprises concerned only such restrictions as are indispensable to the attainment of the objectives mentioned in sub-paragraph (i); or

Namibia

Seychelles


(iii) does not afford such enterprises the possibility of eliminating competition in respect of a substantial part of the goods or services concerned.” (§3)

“An agreement between, or concerted practice by, firms, or a decision by an association of firms, is prohibited if it is between parties in a horizontal relationship and if –

(a) it has the effect of substantially preventing, or lessening, competition in a market, unless a party to the agreement, concerted practice, or decision can prove that any technological, efficiency or other pro-competitive gain resulting from it outweighs that effect; or (b) it involves any of the following restrictive horizontal practices :

(i) directly or indirectly fixing a purchase or selling price or any other trading condition; (ii) dividing markets by allocating customers, suppliers, territories, or specific types of goods or services; or (iii) collusive tendering.” (§4)

“(l) A person shall not make or give effect to an agreement if the object, effect or likely effect of the agreement is to appreciably prevent, restrict or distort competition. […] (3) Unless proved otherwise, it shall be presumed that an agreement does not have the object, effect or likely effect of appreciably preventing, restricting or distorting competition if none of the parties to the agreement has a dominant position in a market affected by the agreement and either (a) or (b) applies:

(a) the combined shares of the parties to the agreement of each market affected by the agreement is 35 per cent or less; or (b) none of the parties to the agreement are competitors.

(4) For the purposes of this section, in determining whether the effect or likely effect of an agreement is to appreciably prevent, restrict or distort competition, the fact that similar agreements are widespread in a market affected by the agreement shall be taken into account. [...]” (§8) “(1) A person shall not make or give effect to an agreement if the object, effect or likely effect of the agreement is:

(a) price fixing between competitors; (b) a collective boycott by competitors; or (c) collusive bidding or tendering.

(2) In this section: (a) 'price fixing between competitors' means to fix, restrict or control the prices, tariffs, surcharges or other charges for, or the terms or conditions upon which, a party to an agreement supplies or acquires, or offers to supply or acquire, goods or services, in competition with any other party to the agreement; (b) 'collective boycott by competitors' means:

(i) to prevent a party to an agreement from supplying goods or services to particular persons, or acquiring goods or services from particular persons, in competition with any other party to the agreement; or (ii) to restrict or control the terms and conditions on which, or the circumstances in which, a party to an agreement supplies goods or services to particular persons, or acquires goods or services from particular persons, in competition with any other party to the agreement;

(c) 'output restrictions between competitors' means to prevent, restrict or control the production by a party to an agreement of goods or services to be supplied in competition with any other party to the agreement; (d) 'Collusive bidding or tendering' means:

(i) to fix or control the prices or terms or conditions of any bid or tender by any of the parties to an agreement at an auction or in any tender or other form of bidding, in competition with any other party to the agreement; or (ii) to prevent a party to an agreement from making a bid or tender at an auction or in any tender or other form of bidding, in competition with any other party to the agreement. [...]” (§9)

“(1) It shall be an offence for enterprises engaged on the market in rival or potentially rival activities to engage in the practices appearing in subsection (2) where such practices limit access to markets or otherwise unduly restrain competition [...]

South Africa

Tanzania

Zambia


(2) This section applies to formal, informal, written and unwritten agreements and arrangements. (3) For the purposes of subsection (1), the following are prohibited:

(a) trade agreements fixing prices between persons engaged in the business of selling goods or services, which agreements hinder or prevent the sale or supply or purchase of goods or services between persons, or limit or restrict the terms and conditions of sale or supply or purchase between persons engaged in the sale of purchased goods or services. (b) collusive tendering; (c) market or customer allocation agreements; (d) subject to the Coffee Act, 1989, allocation by quota as to sales and production; (e) collective action to enforce arrangements; (f) concerted refusals to supply goods and services to potential purchasers; or (g) collective denials of access to an arrangement or association which is crucial to competition.” (§9)

Unfair Business Practices (First Schedule of Competition Act) “Entering into or giving effect to an agreement, arrangement or understanding, whether enforceable or not, with another person whereby –

(a) any of the parties to the agreement, arrangement or understanding undertakes not to submit a bid or tender in response to a call or request for bids or tenders; or (b) in response to a call or request for bids or tenders, some or all the parties to the agreement, arrangement or understanding submit bids or tenders that have been arrived at by agreement between themselves.” (§6)

“Being a producer or distributor of any class or type of commodity or service, entering into or giving effect to any agreement, arrangement or understanding, whether enforceable or not, with another person who produces or distributes a commodity or service of the same or a similar class or type –

(a) to distribute the commodity or service at a particular price or within a particular range of prices; or (b) to share the market for the commodity or service, whether the market shares are divided according to geographical area, class of consumer or otherwise; or (c) to limit, by number or quantity, the commodities or services produced or distributed.” (§7)

1.5 Regulation of Vertical Agreements “(1) A vertical agreement between enterprises is prohibited per se, and void, to the extent that it involves resale price maintenance. (2) Notwithstanding subsection (1), a supplier or producer may recommend a minimum resale price to the reseller of a good or a service provided that;

(a) the supplier or producer makes it clear to the reseller that the recommendation is not binding; and (b) if the product has its price stated on it, the words “recommended price” appear next to the stated price.” (§32)

“(1) An agreement between enterprises (other than an agreement specified in Sections 31(1) or 32(1)) is subject to prohibition by the Board if, following investigation by the Directorate –

(a) such an agreement is found to have the object or effect of preventing or substantially lessening competition in a market for any goods or services in Lesotho, or a part of Lesotho; and (b) no exemption is available in the terms of Part Three of this Chapter.

(2) Without prejudice to the general application of subsection (1) to any agreement falling within its scope, that subsection applies in particular to any agreement which:

(a) limits or controls production, market outlets or access, technical development or investment; (b) applies dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;

Zimbabwe

Lesotho


(c) makes the conclusion of contracts subject to acceptance by other parties of supplementary conditions which, by their nature or according to commercial usage, have no connection with the subject of such contracts.” (§34)

“(1) The Directorate may carry out an investigation to determine whether the provisions of Section 34(1) should be applied if it is satisfied that the parties to the agreement:

[...] (b) in the case of a vertical agreement, individually supply or acquire, at either one of the two levels of the market that are linked by the agreement, 30% or more of goods or services of any description in a relevant market in Lesotho or part of Lesotho.

(2) The thresholds specified in subsection (1) may be amended by regulation.” (§36) “(1) Any category of agreements, decisions and concerted practices which are likely to result in the prevention, restriction or distortion of competition to an appreciable extent in Malawi or in any substantial part of it are declared anti-competitive trade practices and are hereby prohibited. (2) [...] Enterprises shall refrain from the following acts or behaviour if they limit access to markets or otherwise unduly restrain competition, or have or are likely to have adverse effect on trade or the economy in general—

[...] (c) making the supply of goods or services dependent upon the acceptance of restrictions on the distribution or manufacture of competing or other goods or the provision of competing or other services; (d) making the supply of particular goods or services dependent upon the purchase of other goods or services from the supplier to the consignee; (e) imposing restrictions where or to whom or in what form or quantities goods supplied or other goods may be sold or exported. (f) resale price maintenance [...]” (§32)

“(1) Subject to subsections (2) and (3), a vertical agreement between enterprises shall, to the extent that it involves resale price maintenance, be prohibited and void. (2) A supplier or producer may recommend a minimum resale price to a reseller of goods or services provided that the recommendation is not binding. (3) Where a supplier or producer has recommended a minimum resale price to a reseller of goods and the resale price appears on the goods, the words “recommended price” shall appear next to the resale price.” (§43) “A vertical agreement that does not involve resale price maintenance may be reviewed where the Commission has reasonable grounds to believe that one or more parties to the agreement is or are in a monopoly situation that is subject to review under section 46.” (§45) “Agreements between enterprises or any other entity involved in a vertical relationship (i.e. supplier-producer-customer) are prohibited whenever they result in:

a - applying, systematically or occasionally, discriminatory pricing or any other conditions regarding equivalent sale of products or provision of services; b - denying, directly or indirectly, the sale of a some products or services; c - making the closing of contracts conditional to the acceptance by other parties of supplementary conditions which by their nature or according to commercial usage have no connection with the subject-matter of the contracts; d - making the supply of particular goods or services dependent upon the acceptance of different payment conditions or contrary to the normal commercial uses and customs; e - making the commercial relationship dependent upon acceptance of clauses and unjustifiable and/ or anti-competitive commercial conditions; f - imposing on distributors, retailers and distributors of products or services, retail prices, discounts, payment conditions, minimum or maximum volumes, profit margins, or any other marketing conditions related to their business with third parties; g - discriminating against purchasers or suppliers of given products or services by establishing price differentials or discriminatory operating conditions for the sale or performance of services; h - conditioning the sale of a product to the acquisition of another or contracting of a service, or to condition the provision of a service to contracting of another or the subsequent purchase of a product; i - imposing abusive prices, or unreasonably increasing the price of a product or service.” (§10)

Malawi

Mauritius

Mozambique


“(1) Agreements between undertakings, decisions by associations of undertakings or concerted practices by undertakings which have as their object or effect the prevention or substantial lessening of competition in trade in any goods or services in Namibia, or a part of Namibia, are prohibited, unless they are exempt in accordance with the provisions of Part III of this Chapter. […] (3) Without prejudice to the generality of the provisions of subsection (1), that subsection applies in particular to any agreement, decision or concerted practice which -

(a) directly or indirectly fixes purchase or selling prices or any other trading conditions; (b) divides markets by allocating customers, suppliers, areas or specific types of goods or services; [...] (d) involves a practice of minimum resale price maintenance; [...] (f) applies dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (g) makes the conclusion of contracts subject to acceptance by other parties of supplementary conditions which by their nature or according to commercial usage have no connection with the subject of the contracts.

(4) Paragraph (d) of subsection (3) does not prevent a supplier or producer of goods or services from recommending a resale price to a reseller of the goods or a provider of the service, provided

(a) it is expressly stipulated by the supplier or producer to the reseller or provider that the recommended price is not binding; and (b) if any product, or any document or thing relating to any product or service, bears a price affixed or applied by the supplier or producer, the words “recommended price“ appear next to the price so affixed or applied.” (§23)

“(1) It is unlawful for any

(a) association comprising members who are suppliers of goods; or (b) two or more enterprises or agents of enterprises that are suppliers of goods to enter into or carry out any agreement whereby the association, enterprises, or agents of enterprises, as the case may be, undertake to

(i) withhold supplies of goods from dealers (whether parties to the agreement or not) who resell or have resold goods in breach of any condition as to the price at which those goods may be resold; (ii) refuse to supply goods to the dealers referred to in sub-paragraph (i) except on terms and conditions which are less favourable than those applicable in the case of other dealers carrying on business in similar circumstances; (iii) supply goods only to persons who undertake to do any of the acts described in sub-paragraph (i) or (ii).

(2) It is unlawful for any associations or enterprises that are dealers in any goods to enter into or carry out any agreement

(a) whereby they undertake to withhold orders for supplies of goods from suppliers, whether parties to the agreement or not, who

(i) supply or have supplied goods without imposing a condition respecting the minimum price at which goods may be resold; or (ii) refrain from taking steps to ensure compliance with such conditions in respect of goods supplied by them; or

(b) that permits discrimination in their handling of goods supplied by those suppliers. (3) It is unlawful for any association or enterprise referred to in subsection (1) or (2) to enter into or carry out any agreement authorizing

(a) the recovery of penalties, however described, by or on behalf of the parties to the agreement from dealers who re-sell or have resold goods in breach of any condition described in subsection (1) or (2); or (b) the conduct of any proceedings in connection with the recovery of a penalty as described in paragraph (a).

(4) Any agreement that contravenes the provisions of this section is void.” (§14) “(1) Any term or condition of an agreement for the sale of any goods by a supplier to a dealer is void to the extent that it purports to establish or provide for the establishment of minimum prices to be charged on the resale of the goods. (2) Subject to subsections (3) and (4), it is unlawful for a supplier of goods or his agent to

Namibia

Seychelles


(a) include in an agreement for the sale of goods a term or condition which is void by virtue of this section; (b) require, as a condition of supplying goods to a dealer, the inclusion in the agreement of any term or condition or the giving of any undertaking that is void in accordance with subsection (1); (c) notify to dealers, or otherwise publish in relation to any goods, a price stated or calculated to be understood as the minimum price which may be charged on the resale of the goods.

(3) Subsection (2)(a) does not affect the enforceability of an agreement except in respect of the term or condition which is void by virtue of this section. (4) Nothing in subsection (2)(c) shall be construed as precluding a supplier, or an association or agent acting on a supplier’s behalf, from notifying to dealers or otherwise publishing prices recommended as appropriate for the resale of goods supplied or to be supplied by the supplier.” (§15) “(1) It is unlawful for a supplier to withhold supplies of any goods from a dealer seeking to obtain them for resale on the ground that the dealer

(a) has sold goods obtained either directly or indirectly from that supplier at a price below the resale price or has by other means supplied such goods either directly or indirectly to a third party who had done so; or (b) is likely, if the goods are supplied to him, to sell them at a price below that price, or supply them either directly or indirectly to a third party who would be likely to supply the goods at a price below that paid for the goods.

(2) Where under this section it would be unlawful for a supplier to withhold supplies of goods, it is also unlawful for him to cause or procure any other supplier to do so. (3) In this section "the resale price", in relation to a sale of a good of any description, means any price

(a) notified to the dealer or otherwise published by or on behalf of a supplier of the goods in question, whether lawfully or not, as the price or minimum price which is to be charged or is recommended as appropriate, for a sale of a good of that description; or (b) prescribed or purporting to be prescribed to be charged for a good, by an agreement between the dealer and any supplier of the good.” (§17)

“(1) For the purposes of this Part, a supplier of goods shall be treated as withholding supplies from a dealer if

(a) the supplier refuses or fails to supply those goods to the order of the dealer; (b) the supplier refuses to supply those goods to that dealer except at prices, or on terms or conditions as to credit, discount or other matters, which are significantly less favourable than those at or on which he normally supplies those goods to other dealers carrying on business in similar circumstances; or (c) where the supplier enters into an agreement to supply goods to the dealer, the supplier treats the dealer in a manner significantly less favourable than that in which the supplier normally treats other dealers in the goods supplied in respect of times or methods of delivery or other matters arising in the execution of the agreement.

(2) A supplier shall not be treated as withholding supplies of goods on any ground mentioned in section 17(1) if, in addition to that ground, the supplier has other grounds which, standing alone, would justify the withholding of those supplies. (3) Subject to subsection (5), where in proceedings brought against a supplier of goods in respect of a contravention of section 17, the matters specified in subsection (4) are proved, it shall be presumed, unless the contrary is proved, that the supplies were withheld on the ground that the dealer had acted or was likely to act as described in that section. (4) For the purposes of subsection (3) the following are required to be proved:

(a) supplies of goods were withheld from a dealer; (b) during a period ending immediately before the supplies were so withheld, the supplier was doing business with the dealer or was supplying goods of the same description to other dealers carrying on business in similar circumstances; and (c) the dealer, to the knowledge of the supplier, had within the preceding 6 months acted as described in section 17(1)(a) or had indicated his intention to act as described in section 17(1)(b) in relation to the goods in question.


(5) Subsections (3) and (4) do not apply where the proof that supplies were withheld consists only of evidence of requirements imposed by the supplier in respect of the time at which or the form in which payment was to be made for goods supplied or to be supplied.” (§18) “(1) An agreement between parties in a vertical relationship is prohibited if it has the effect of substantially preventing or lessening competition in a market, unless a party to the agreement can prove that any technological, efficiency or other pro-competitive, gain resulting from that agreement outweighs that effect. (2) The practice of minimum resale price maintenance is prohibited. (3) Despite subsection (2), a supplier or producer may recommend a minimum resale price to the reseller of a good or service provided –

(a) the supplier or producer makes it clear to the reseller that the recommendation is not binding; and (b) if the product has its price stated on it, the words “recommended price” appear next to the stated price.” (§5)

No specific rules for vertical agreements. “(1) Any category of agreements, decisions and concerted practices which have as their object the prevention, restriction or distortion of competition to an appreciable extent in Zambia or in any substantial part of it are declared anti-competitive trade practices and are hereby prohibited. (2) Subject to the provisions of subsection (1), enterprises shall refrain from the following acts or behaviour if through abuse or acquisition of a dominant position of market power, they limit access to markets or otherwise unduly restrain competition, or have or are likely to have adverse effect on trade or the economy in general:

[...] (b) discriminatory pricing and discrimination, in terms and conditions, in the supply or purchase of gods or services, including by means of pricing policies in transactions between affiliated enterprises which overcharge or undercharge for goods or services purchased or supplied as compared with prices for similar or comparable transactions outside the affiliated enterprises; (c) making the supply of goods or services dependent upon the acceptance of restrictions on the distribution or manufacture of competing or other goods; (d) making the supply of particular goods or services dependant upon the purchase of other goods or services from the supplier to the consignee; (e) imposing restrictions where or to whom or in what form or quantities goods supplied or other goods may be sold or exported; [...] (g) colluding, in the case of monopolies of two or more manufacturers, wholesalers, retailers, contractors, or suppliers of services, in setting a uniform price in order to eliminate competition.” (§7)

Unfair Business Practices (First Schedule of Competition Act): “Specifying the minimum price at which a product must be resold to customers.” (§9) “Engaging in exclusive dealing, that is-

supplying or offering goods or services at a particular price; or giving or allowing, or offering to give or allow, a discount, allowance, rebate or credit in relation to the supply or proposed supply of goods or services by the company;

on the condition that the person to whom the supplier offers or proposes to supply the goods- (i) shall not acquire goods or services of a particular kind or description, or not acquire them except to a limited extent, directly or indirectly from a competitor of the supplier; (ii) shall not re-supply the goods or services, or not re-supply them except to a limited extent-

A. to particular persons or classes of persons; B. in particular places or classes of places.” (§10)

South Africa

Tanzania

Zambia

Zimbabwe


1.6 Regulation of Market Concentration/Mergers “(1) For the purposes of this Chapter, a merger occurs when one or more enterprises directly or indirectly acquire or establish direct or indirect control over the whole or part of the business of another enterprise. (2) A merger within the terms of subsection (1) may be achieved in any manner, including -

(a) purchase or lease of shares in, of an interest in, or of assets belonging to, the other enterprise in question; (b) amalgamation or other combination with the other enterprise;

(3) A person controls an enterprise if that person - (a) beneficially owns more than one half of the issued share capital of the enterprise; (b) is entitled to vote a majority of the votes that may be cast at a general meeting of the enterprise, or has the ability to control the voting of a majority of those votes, either directly or through a controlled entity of that enterprise; (c) is able to appoint or to veto the appointment of a majority of the directors of the enterprise; (d) is a holding company, and the enterprise is a subsidiary of that company as contemplated in the Companies Act (citation?) (e) in the case of an enterprise being a trust, has the ability to control the majority of the votes of the trustees or to appoint the majority of the trustees or to appoint or change the majority of the beneficiaries of the trust; (f) in the case of the enterprise being a close corporation, owns the majority of the members’ interest or controls directly or has the right to control the majority of members’ votes in the close corporation; or (g) has the ability materially to influence the policy of the enterprise in a manner comparable to a person who, in ordinary commercial practice, can exercise an element of control referred to in paragraphs (a) to (f).” (§74)

“(1) A merger is subject to merger control under this Act if it is a reviewable merger. (2) The Minster shall, before the entry into force of this Part of the Act, specify by regulation the threshold(s) above which a merger shall be reviewable. (3) The threshold(s) shall be expressed in terms of one or both of the following -

(a) the turnover in Lesotho of the enterprise or enterprises being taken over; and/or (b) the value of the assets in Lesotho of the enterprise or enterprises being taken over.

(4) The threshold(s) may be modified from time to time by subsequent regulations.” (§76) “No reviewable merger may be implemented in Lesotho by any enterprise or enterprises unless -

(a) the merger is approved by the Board in accordance with the provisions of this Chapter; and (b) the merger is implemented in accordance with any conditions attached to the approval; or (c) the relevant period referred to in Section 83(4) or in Section 84(4) has elapsed without the Board having made a determination in relation to the merger.” (§77)

“(1) Each of the parties to a reviewable merger shall, before such merger is implemented, submit a notification to the Directorate in a manner prescribed by the Directorate in procedural rules pursuant to Section 27(1). (2) Subject to the protection of confidential information, the Directorate shall publish details of the notification as soon as is practicable unless the circumstance described in subsection (3) applies. (3) The circumstance is that, after receipt of a notification pursuant to subsection (1), the Directorate considers that more information is required to enable it to assess the merger. (4) When subsection (3) applies, the Directorate may, within 30 days of the date of receipt of the notification, request further information in writing from one or more of the enterprises concerned and delay publication of the notification until such further information is received.” (§78)

Lesotho


“(1) In the assessment of the notified merger, it must first be determined whether the merger may be expected to result in a substantial lessening of competition within any market or markets in Lesotho for goods or services. (2) Account may also be taken of any factor which bears upon the broader public interest in the proposed merger, including:

(a) the extent to which the proposed merger would be likely to result in a benefit to the public which would outweigh any detriment attributable to a substantial lessening of competition; (b) the extent to which the merger may improve the production or distribution of goods or the provision of services in Lesotho; (c) the extent to which the merger may promotes technical or economic progress, having regard to Lesotho’s development needs; (d) the extent to which the merger would be likely to affect a particular industrial sector or region; (e) the extent to which the proposed merger would maintain or promote exports from Lesotho or employment in Lesotho; (f) the extent to which the merger may enhance the competitiveness of citizen-owned small and medium sized enterprises in Lesotho; (g) the extent to which the merger may affect the ability of national industries to compete in international markets.” (§ 79)

“(1) Following publication of the notification, the Directorate shall invite any enterprise or person, including a third party which is not a party to the proposed merger, to submit as a matter of urgency such representations, documents, affidavit or other relevant information as they may wish to provide; (2) On the basis of the information supplied by the parties to the merger in the notification and of the information supplied under sub-section (1), the Directorate shall undertake a preliminary assessment of the merger against the criteria of Section 79. (3) The Directorate shall remit its findings to the Board within 30 days of the publication of the notification.” (§ 80) “(1) The Directorate may also consider any undertakings offered by one or more of the parties to the merger to address any concern that has arisen, or may be expected to arise, during the assessment of the merger. (2) The Directorate may, at its discretion, publish any proposed undertakings in draft form (subject to the deletion of confidential material) and invite comments from all parties with an interest in the subject matter of the undertakings. (3) In the event that the Directorate decides to conduct such consultation on undertakings, the time limit specified in Section 80(3) may be extended by such period as the Directorate believes to be reasonable for this purpose. (4) The Directorate shall include in its report to the Board its conclusions regarding the form of undertakings that would be required to enable approval to be given to the merger, together with a summary of the views expressed during the consultation.” (§81) “(1) When a notified merger is remitted to it by the Directorate, the Board shall require the Directorate -

(a) to provide a full report on the Directorate’s findings during its assessment of the merger together with such evidence as is necessary for a full understanding of the case; (b) to report on any proposed undertakings; (c) to provide an officer to appear before the Board to offer such further explanations and comments as may be desirable.

(2) Unless the Board decides otherwise – (a) the fact that the Board has begun its consideration of notified merger shall be published; but (b) the Directorate’s report and its explanations and comments at the time of remittal shall be confidential to the Board.

(3) The Board shall proceed to make its own assessment of the merger against the criteria of Section 79.” (§ 82) “(1) If, following remittal, the Board decides that the available information is sufficient to show that


(a) the merger may not be expected to result in a substantial lessening of competition in the terms of Section 79(1); and/or (b) there are no broader public interest factors that need to be taken into account in the terms of Section 79(2),

the Board may make a determination approving the merger. (2) If the Board considers, following its own assessment of the merger, that any concerns arising from the merger can be satisfactorily addressed through the undertakings proposed by the Directorate, the Board may make a determination approving the merger on the basis of those undertakings so long as the parties confirm to the Board that they are willing to be bound by such undertakings. (3) If the Board does not take a decision in the terms of subsections (1) or (2) because -

(a) the parties will not commit to undertakings in the form proposed by the Directorate; and/or (b) the Board requires the Directorate to obtain further information; and/or (c) the Board considers that the information supplied by the Directorate raises concerns about the impact of the merger on competition or about other issues: and/or (d) the Board intends to conduct hearings,

the Board must give notice to the parties to the merger within a period of 30 days from the date of the remittal indicating that the Board needs an extended period to make its determination. (4) In the absence of such notice, the Board shall be presumed to have given unconditional approval to the merger by default on the expiry of the period of 30 days from the date of remittal.” (§ 83) “(1) If the Board gives the notice referred to in Section 83(3), the Board shall make its final determination, and communicate that determination to the parties to the merger, within a period of 90 days from the date of such notice, unless the circumstance described in subsection (2) applies. (2) The circumstance is that any party to the merger has, when required to do so by the Board, failed to produce information or evidence which the Board deems to be essential to its deliberations on the merger. (3) In such circumstance, the Board shall inform the parties that the deadline for its final determination is extended by such period as the Board considers to correspond to the delay in producing the information or evidence. (4) If the Board has not made its determination within the period specified in subsection (1) or within the extended period provided for in subsection (3), the Board shall be presumed to have given its unconditional approval to the merger by default.” (§84) “(1) In making a determination in relation to a proposed merger, the Board may:

(a) give approval for the implementation of the merger without conditions or subject to such conditions as it considers appropriate; or (b) decline to give approval to the implementation of the merger insofar as it relates to a market in Lesotho.

(2) If conditional approval is given, the Board’s determination may contain such directions as the Board considers necessary, reasonable and practicable to remedy, mitigate or prevent any adverse effects of the merger. Such directions may, inter alia, require an enterprise or enterprises to:

(a) divest such assets or line of business as are specified in the direction within a period also so specified: or (b) to adopt, or desist from, such conduct, including conduct in relation to prices, as is specified in the direction,

before the merger can be implemented. (3) The Board shall give the party or parties to whom the directions are to be addressed the opportunity to make representations on the form of the proposed directions before the directions are made. (4) The Board’s final determination, including any directions, shall be communicated in writing by the Board to the parties involved in the merger.” (§ 86) “(1) The Directorate shall keep under close and continuing review the compliance of enterprises with the determinations and directions of the Board regarding mergers. (2) Where the Directorate has reasonable grounds to suspect that -

(a) one or more parties to a merger provided materially incorrect or misleading information when the Board approved the merger;


(b) one or more parties to a merger are not complying with any condition embodied in a direction allowing a merger to proceed; (c) a merger has been implemented in contravention of the provisions of this Chapter,

the Directorate may exercise in respect of these matter the powers of investigation provided for in Part Four of Chapter Three in respect of matters falling within Chapter Three and, if any of the above practices are found to have occurred or to be occurring, shall submit findings to this effect to the Board. (3) The Board may prepare directions to remedy any one of the situations described in subsection (2) including, but not limited to, directions revoking the Board’s previous approval and requiring that the steps taken to implement a merger should be reversed so as to restore the pre-existing conditions of competition. (4) Before making such directions, the Board shall give notice in writing to the parties involved in the mergers, and to any other person who, in the opinion of the Board, is likely to have an interest in the matter, of its intention to make the appropriate directions and invite them to submit representations within a period of 30 days. (5) On the expiry of such period, the Board may make such directions as it judges requisite and practicable to remedy the non-compliance.” (§ 88) “’controlling interest’, in relation to—

(a) any undertaking means any interest which enables the holder thereof to exercise, directly or indirectly, any control whatsoever over the activities or assets of the undertaking; (b) any asset, means any interest which enables the holder thereof to exercise, directly or indirectly, any control whatsoever over the asset; [...]

‘merger’ means— (a) the acquisition of a controlling interest in—

(i) any trade involved in the production or distribution of any goods or services; (ii) an asset which is or may be utilized for or in connection with the production or distribution of any commodity, where the person who acquires the controlling interest already has a controlling interest in any undertaking involved in the production or distribution of the same goods or services; or

(b) the acquisition of a controlling interest in any trade whose business consists wholly or substantially in—

(i) supplying goods or services to the person who acquires the controlling interest; (ii) distributing goods or services produced by the person who acquires the controlling interest” (§2(1))

“(1) Any person who, in the absence of authority from the Commission, whether as a principal or agent and whether by himself or his agent, participates in effecting—

(a) a merger between two or more independent enterprise; (b) a takeover of one or more such enterprises by another enterprise, or by a person who control another such enterprise,

where such a merger or takeover is likely to result in substantial lessening of competition in any market shall be guilty of an offence. (2) No merger or takeover made in contravention to subsection (1) shall have any legal effect and no rights or obligations imposed on the participating parties by any agreement in respect of the merger or takeover shall be legally enforceable.” (§35) “Any person may apply to the Commission of an order authorizing that person to effect a merger or takeover.” (§36) “(1) The Commission shall investigate any application made under section 36 and for that purpose the Commission shall be entitled to require any participant in the market within which a merger or takeover is proposed to take place to grant to the Commission access to records relating to patterns of ownership and percentages of sales accounted for by participants in the proposed merger or takeover or by other leading enterprises in the relevant sector. (2) The Commission may require any person possessing such records to give to the Commission copies of those records or alternatively to submit such records to the Commission for copying by the Commission.” (§37)

Malawi


“(1) In evaluating an application under section 36, the Commission shall have due regard to the following criteria—

(a) a merger or takeover shall be regarded as disadvantageous to the extent that it is likely to reduce competition in the domestic market and increase the ability of producers of the goods or services in question to manipulate domestic prices, output and sales; (b) a merger or takeover shall be regarded as advantageous to Malawi to the extent that it is likely to result in—

(i) a substantially more efficient unit with lower production or distribution costs; (ii) an increase in net exports; (iii) an increase in employment; (iv) lower prices to consumers; (v) an acceleration in the rate of economic development; (vi) a more rapid rate of technological advancement by enterprises in Malawi.

(2) The Commission shall not authorize a merger or takeover unless on balance that advantages to Malawi outweigh the disadvantages.” (§38) “(1) The Commission shall, within forty-five days of receipt of an application or the date on which the applicants provide the information sought by the Commission if that date is later, make an order concerning an application for authorization of a merger or takeover. (2) An order made under subsection (1) may approve or reject the application, or it may approve the application on condition that certain steps be taken to reduce negative effects of the merger or takeover on competition.” (§39) “(1) For the purposes of this Act and subject to subsection (2), a merger situation means the bringing together under common ownership and control of 2 or more enterprises of which one at least carries its activities, in Mauritius, or through a company incorporated in Mauritius. (2) For the purpose of subsection (1), enterprises shall be regarded as being under common control where they are –

(a) enterprises of interconnected bodies corporate; (b) enterprises carried on by 2 or more bodies corporate of which one person has or groups of persons have control; or (c) 2 distinct enterprises, one carried on by a body corporate and the other carried on by a person having control of that body corporate.

(3) Any person may be treated as bringing an enterprise under his control where – (a) he becomes able to control or materially to influence the policy of the enterprise, but without having a controlling interest in it; (b) being already able to control or materially to influence the policy of the enterprise, he acquires a controlling interest in it; or (c) being already able materially to influence the policy of the enterprise, he becomes able to control that policy.

(4) Where 2 or more enterprises intend to be in a merger situation, any one of the enterprises may apply to the Commission for guidance as to whether the proposed merger situation is likely to result in a substantial lessening of competition within any market for goods or services.” (§47) “A merger situation shall be subject to review by the Commission where – (a) all the parties to the merger, supply or acquire goods or services of any description, and will following the merger, together supply or acquire 30 per cent or more of all those goods or services on the market; or (b) one of the parties to the merger alone supplies or acquires prior to the merger, 30 per cent or more of goods or services of any description on the market; and (c) the Commission has reasonable grounds to believe that the creation of the merger situation has resulted in, or is likely to result in, a substantial lessening of competition within any market for goods or services.” (§48) “(1) Where the Commission determines, after investigation that –

(a) an enterprise is a party to a merger situation; and (b) the creation of the merger situation has resulted, or is likely to result, in a substantial lessening of competition within a market for goods or services,

the Commission may give the enterprise such directions as it considers necessary, reasonable and practicable to –

(i) remedy, mitigate or prevent the substantial lessening of competition; and

Mauritius


(ii) remedy, mitigate or prevent any adverse effects that have resulted from, or are likely to result from, the substantial lessening of competition.

(2) In the case of a prospective merger, a direction may require an enterprise to – (a) desist from completion or implementation of the merger insofar as it relates to a market in Mauritius; (b) divest such assets as are specified in the direction within the period so specified in the direction, before the merger can be completed or implemented; (c) adopt, or desist from, such conduct, including conduct in relation to prices, as is specified in the direction as a condition of proceeding with the merger.

(3) In the case of a completed merger, a direction may require an enterprise to – (a) divest itself of such assets as are specified in the direction within the period so specified in the direction; (b) adopt, or to desist from, such conduct, including conduct in relation to prices, as is specified in the direction as a condition of maintaining or proceeding with the merger.” (§61)

“1 - For the purposes of this law a merger occurs when:

a - there is amalgamation (fusion) of two or more independent firms; b - one or more firms acquire or establish direct or indirect control over the whole or party of the assets and businesses of another firm.

2 - For the purpose of this law, the control may be achieved in any manner, whatever its form, as soon as it derives - considering the factual and legal circumstances - a controlling influence in the business of that other firm, including through:

a - purchase of the whole or party of the shares; b - purchase of the whole or party of the assets or related rights of the firm; c - purchase of voting rights or entering into contracts that derives in the ability to influence in the composition or decisions of the firm.” (§14)

“1 - Any merger involving firms with or resulting in a substantial market share, business volume or annual turnover will be subject to notification. 2 - The merger subject to subsection (1) shall be notified to the regulatory authority within seven days after the conclusion of the agreement or the announcement of the public offer for purchase or exchange of shares. 3 - The threshold of substantial market share, business volume or annual turnover and their method for calculating will be determined by the Minister responsible upon proposal of the regulatory authority and will be subject to periodical review. 4 - The requirements indicated in subsection (1) may be determined in general or in relation to a specific production sector.” (§15) “1 - No merger required to be notified can be implemented before notification and final written or tacit decision of no opposition. 2 - The validity of any contract established in contravention of this provision depends upon written or tacit authorization of the merger. 3 - The regulatory authority may, upon specific request by the firm or firms involved, before or after notification, grant an exemption from applicability of the provisions of subsection (1).” (§16) “1 - The regulatory authority may start an investigation on the mergers and request notification of the said mergers within six months after the publication, whereby the merger:

a - is likely to prevent, falsify or substantially lessen competition; b - is not subject to any exemption based on the public interest.

2 - The regulatory authority shall make a determination in respect of the merger within sixty days and may approve, approve subject to conditions or prohibit the merger. 3 - Pending the decision on the merger, according to the previous subsection, the merger cannot be implemented. 4 - The parties involved in the merger can voluntarily notify the merger at any time, collectively or individually.” (§18) “Notification of the proposed merger must be communicated [...] through the appropriate form as established by the regulatory authority and must include information and documentation as requested.” (§36)

Mozambique


“Within five days from the date of notification, the regulatory authority will order the publication of all the essential elements of the proposed merger in two national newspapers, at the expenses of the authors of the notifications, in order to allow third parties to present their own arguments within established deadlines, not exceeding ten days.” (§37) “1 - Within thirty days from the date of notification, the regulatory authority will complete the preliminary procedure. 2 - If during the preliminary procedure the regulatory authority decides that, in order to consider the proposed merger, it requires further information or additional documentation, it may notify the parties, establishing a reasonable deadline to gather or correct such information or documentation. 3 - The notification prescribed on the previous paragraph will suspend the deadline referred to in subsection 1, with effects from the day after its dispatch and the suspension will end the day after reception of the requested elements by the regulatory authority. 4 - During the preliminary procedure the regulatory authority may request to other public or private institutions further information deemed relevant to make the decision, and such information must be provided for within the deadline prescribed by the regulatory authority.” (§38) “1 - Upon the end of the deadline referred to in subsection (1) of article 38, the director of the executive body will review the final report of the preliminary procedure and will make an assessment on the merger which may:

a - State that the merger does not fall under the requirement of notification referred to in article 15; b - Submit the case to the deliberative body for final decision; c - Order a more detailed investigation, if it consider that the merger may, according to the available data, result in an enterprise acquiring a dominant position which would be likely to prevent or lessen effective competition in the national market or in a substantial part, according to the criteria set up in article 15.

2 - A lack of decision within the time specified in subsection (1) corresponds to a decision of non opposition for the implementation of the merger.” (§39) “1 - Within ninety days from the date of the decision referred to in subsection (1) (c) of Article 39, the Director of the executive body may undertake further investigations as deemed necessary. 2 - Article 39 subsection 2 applies with the necessary changes to the investigation referred to in the preceding subsection. 3 - Within the period set in subsection (1) of the previous article, the director of the executive body may decide:

a - that the merger do not fall under the requirement of notification referred to in article 15; b - submit the case to the deliberative body for final decision.” (§40)

1 - Upon the end of period referred to in subsection (1) of the preceding article, the deliberative body may decide:

a - not to oppose the implementation of the merger; b - decline to give approval for the implementation of the merger and, in the case the merger is already in place, ordering measures in order to restore effective competition, namely declaring void the merger and therefore order the separation of the enterprises, shares and cease the control of the Board.

2 - The determination referred to in subsection (1) (a) will be made if the deliberative body is satisfied that the proposed merger as proposed or amended will not result in an enterprise acquiring a dominant position which would be likely to prevent or lessen effective competition in the national market or in a substantial way. . 3 - The determination referred to in subsection (1) (a) may be subject to conditions and obligations directed to the enterprises in order to safeguard effective competition. [...] 5 - Lack of decision within the time specified in subsection (1) corresponds to a decision of non opposition for the implementation of the merger.” (§41) “1 - The determination referred to in articles 39 and 40 must be taken upon conclusion of the oral representations of the authors of the notification and counterparts.


2 - The regulatory authority will exclude the hearings if the decision of non opposition referred to in article 41 (3) (a) and subsection (1) (a) of this article, do not bear conditions. 3 - For the purposes of this article, counterparts mean the concerns or persons that during the procedure opposed the merger. 4 - The hearing of the parties will suspend the deadlines referred to in article 38 (1) and article 41 (1).” (§42) “Notwithstanding the corresponding penalties, will be subject to the procedure ex officio:

a - The mergers that were not notified according to this law; b - The mergers whose favourable decision (tacit or written) was based on materially incorrect or misleading information and for which a party to the merger is responsible; c - The mergers that disregard, partially or totally, the conditions set upon them in the decision of non opposition.

2 - In the case referred to in subsection (1) (a), the regulatory authority will inform the infringing enterprises to proceed with the notification according to this law, within a reasonable time, and may impose monetary penalty. 3 - The deadlines indicated in the articles 38 to 41 do not apply to the cases referred to in subsection (1) (a) and (b). 4 - In the cases referred to in subsection (1) (c) the decision of the regulatory authority to start a procedure ex officio will have effects from the date of notification of any of the enterprises or persons part of the merger.” (§44) “Any legal agreement or contracts are void if these contravene the decision of the regulatory authority aimed at:

a - declining the merger; b - imposing conditions to its implementation; c - ordering any measure to ensure restoration of effective competition.” (§45)

“(1) For the purposes of this Chapter, a merger occurs when one or more undertakings directly or indirectly acquire or establish direct or indirect control over the whole or part of the business of another undertaking. (2) A merger contemplated in subsection (1) may be achieved in any manner, including -

(a) purchase or lease of shares, an interest, or assets of the other undertaking in question; or (b) amalgamation or other combination with the other undertaking.

(3) A person controls an undertaking if that person - (a) beneficially owns more than one half of the issued share capital of the undertaking; (b) is entitled to vote a majority of the votes that may be cast at a general meeting of the undertaking, or has the ability to control the voting of a majority of those votes, either directly or through a controlled entity of that undertaking; (c) is able to appoint, or to veto the appointment, of a majority of the directors of the undertaking; (d) is a holding company, and the undertaking is a subsidiary of that company as contemplated in the Companies Act, 1973 (Act No. 61 of 1973); (e) in the case of the undertaking being a trust, has the ability to control the majority of the votes of the trustees or to appoint the majority of the trustees or to appoint or change the majority of the beneficiaries of the trust; (f) in the case of the undertaking being a close corporation, owns the majority of the members’ interest or controls directly or has the right to control the majority of members’ votes in the close corporation; or (g) has the ability to materially influence the policy of the undertaking in a manner comparable to a person who, in ordinary commercial practice, can exercise an element of control referred to in paragraphs (a) to (f).” (§42)

“(1) This Chapter applies to every proposed merger not falling within a class which the Minister, with the concurrence of the Commission, has determined and specified by notice in the Gazette to be excluded from the provisions of this Chapter. (2) The Minister may under subsection (1) determine a class or classes of proposed mergers on any basis which the Minister considers appropriate, including with reference to -

(a) the aggregate value of the assets of the parties to the proposed merger, or the value of the assets of any one or more of them;

Namibia


(b) the aggregate turnover over a specified period of the parties to the proposed merger, or the turnover of any one or more of them; (c) specified industries or categories of undertakings; (d) the number of parties involved in the proposed merger.

(3) No person, either individually or jointly or in concert with any other person, may implement a proposed merger to which this part applies, unless -

(a) the proposed merger is - (i) approved by the Commission in accordance with the provisions of this Chapter; and (ii) implemented in accordance with any conditions attached to the approval; or

(b) the relevant period referred to in paragraph (a), (b) or (c) of subsection (1), or subsection (2), of section 45, as the case may be, has elapsed without the Commission having made a determination in relation to the proposed merger.” (§43)

“(1) Where a merger is proposed each of the undertakings involved must notify the Commission of the proposal in the prescribed manner. (2) If, after receipt of a notification in terms of subsection (1), the Commission is of the opinion that in order to consider the proposed merger it requires further information, it may, within 30 days of the date of receipt of the notification, request such further information in writing from any one or more of the undertakings concerned.” (§44) “(1) Subject to subsection (2), the Commission must consider and make a determination in relation to a proposed merger of which it has received notification in terms of section 44(1) -

(a) within 30 days after the date on which the Commission receives that notification; or (b) if the Commission requests further information under section 44(2), within 30 days after the date of receipt by the Commission of the information; or (c) if a conference is convened in accordance with section 46, within 30 days after the date of conclusion of the conference.

(2) If the Commission is of the opinion that the period referred to in paragraph (a), (b) or (c) of subsection (1) should be extended due to the complexity of the issues involved it may, before expiry of that period, by notice in writing to the undertakings involved extend the relevant period for a further period, not exceeding 60 days, specified in the notice.” (§45) “(1) If the Commission considers it appropriate it may determine that a conference be held in relation to a proposed merger. (2) If the Commission determines that a conference must be held it must, before expiry of the period referred to in paragraph (a) or (b) of subsection (1) of section 45 or subsection (2) of that section, as the case may be, give reasonable notice to the undertakings involved in writing -

(a) convening the conference; (b) specifying the date, time and place for the holding thereof; and (c) stipulating the matters to be considered thereat.” (§46)

“(1) In making a determination in relation to a proposed merger the Commission may either - (a) give approval for the implementation of the merger; or (b) decline to give approval for the implementation of the merger. (2) The Commission may base its determination of a proposed merger on any criteria which it considers relevant to the circumstances involved in the proposed merger, including -

(a) the extent to which the proposed merger would be likely to prevent or lessen competition or to restrict trade or the provision of any service or to endanger the continuity of supplies or services; (b) the extent to which the proposed merger would be likely to result in any undertaking, including an undertaking not involved as a party in the proposed merger, acquiring a dominant position in a market or strengthening a dominant position in a market; (c) the extent to which the proposed merger would be likely to result in a benefit to the public which would outweigh any detriment which would be likely to result from any undertaking, including an undertaking not involved as a party in the proposed merger, acquiring a dominant position in a market or strengthening a dominant position in a market; (d) the extent to which the proposed merger would be likely to affect a particular industrial sector or region; (e) the extent to which the proposed merger would be likely to affect employment;


(f) the extent to which the proposed merger would be likely to affect the ability of small undertakings, in particular small undertakings owned or controlled by historically disadvantaged persons, to gain access to or to be competitive in any market; (g) the extent to which the proposed merger would be likely to affect the ability of national industries to compete in international markets; (h) any benefits likely to be derived from the proposed merger relating to research and development, technical efficiency, increased production, efficient distribution of goods or provision of services and access to markets.

(3) For the purpose of considering a proposed merger the Commission may refer the particulars of the proposed merger to an inspector for investigation and a report in relation to the criteria referred to in subsection (2), and must inform the undertakings involved of such referral. (4) As soon as practicable after a referral in terms of subsection (3), the inspector concerned must

(a) investigate the proposal so referred; and (b) before the date specified by the Commission, furnish the Commission with a report of the investigation.

(5) Any person, including a person not involved as a party in the proposed merger, may voluntarily submit to an inspector or the Commission any document, affidavit, statement or other relevant information in respect of a proposed merger. (6) The Commission may give approval for the implementation of a proposed merger on such conditions as the Commission may consider appropriate. [...]” (§47) “(1) The Commission may at any time, after consideration of any representations made to it in terms of subsection (2), revoke a decision approving the implementation of a proposed merger if -

(a) the decision was based on materially incorrect or misleading information for which a party to the merger is responsible; or (b) any condition attached to the approval of the merger that is material to the implementation is not complied with.

(2) If the Commission proposes to revoke its decision under subsection (1), it must - (a) give notice in writing of the proposed action to every undertaking involved in the merger, and to any other person who in the opinion of the Commission is likely to have an interest in the matter; and (b) call upon such persons to submit to the Commission, within 30 days of the receipt of the notice, any representations which they may wish to make in regard to the proposed action.” (§48)

“(1) Not later than 30 days after notice is given by the Commission in the Gazette in terms of section 47(7) of the determination made by the Commission in relation to a proposed merger, a party to the merger may make application to the Minister, in the form determined by the Minister, to review the Commission’s decision. (2) Within 30 days after receiving an application in terms of subsection (1), the Minister must by notice in the Gazette -

(a) give notice of the application for a review; and (b) invite interested parties to make submissions to the Minister in regard to any matter to be reviewed within the time and manner stipulated in the notice.

(3) Within 4 months after the date that an application for a review was made, the Minister must make a determination either -

(a) overturning the decision of the Commission; (b) amending the decision of the Commission by ordering restrictions or including conditions; or (c) confirming the decision of the Commission. [...]” (§49)

“If a merger is being, or has been, implemented in contravention of the provisions of this Chapter, the Commission may make application to the Court for -

(a) an interdict restraining the parties involved from implementing the merger; (b) an order directing any party to the merger to sell or dispose of in any other specified manner, any shares, interest or other assets it has acquired pursuant to the merger; (c) declaring void any agreement or provision of an agreement to which the merger was subject; (d) the imposition of a pecuniary penalty.” (§51)


“’merger’ means the acquisition or establishment, direct or indirect, by one or more persons or enterprises, whether by purchase of shares or assets or by lease of assets, by amalgamation or by combination or otherwise, of control over the whole part or a part of the business of an immediate competitor, supplier, customer, or other enterprise” (§2(1)) “(1) From the commencement of this Act, all mergers involving an enterprise that

(a) by itself controls, or (b) together with any other enterprise with which it intends to effect the merger is likely to control

60 per cent or more of any market or such other amount of the market as the Minister may by regulations prescribe are prohibited unless permitted by the Commission in accordance with this section. (2) Where an enterprise referred to in subsection (1) is desirous of effecting a merger, it shall apply to the Commission for permission to effect the merger. (3) An application referred to in subsection (2) shall be accompanied by the prescribed information. (4) Subsection (2) shall apply to any public bid for the control of an entity. (5) Within 1 month after the receipt of an application under subsection (2), or as soon as practicable thereafter the Commission shall determine whether to grant or refuse permission and notify the applicant in writing of its determination. (6) Before granting permission the Commission shall conduct an investigation into the proposed merger in order to satisfy itself that the proposed merger would not affect competition adversely or be detrimental to consumers. (7) The Commission, in the conduct of its investigation under subsection (6), shall take into account

(a) the structure of the markets likely to be affected by the proposed merger; (b) the degree of control exercised by the enterprises concerned in the proposed merger in the market and particularly the economic and financial power of the enterprises; (c) the availability of alternatives to the services or goods provided by the enterprises concerned in the merger; (d) the likely effect of the proposed merger on consumers and the economy; (e) the actual or potential competition from other enterprises and the likelihood of detriment to competition.

(8) Where the merger proposed is likely to result in unfair competition, the Commission may direct the enterprises within an agreed period to divest interests or part of their combined business or operations if the Commission is satisfied that such divestment would make the merger less likely to lessen competition or to affect adversely the interests of consumers or the economy. (9) An enterprise that contravenes subsection (1) or fails to comply with a direction given pursuant to subsection (8) is guilty of an offence and is liable on conviction on indictment to a fine of SR______ or to __ per cent of the turnover of the enterprise for the financial year preceding the date of the commission of the offence; whichever is the greater.” (§10) “(1) A merger may be permitted if the parties establish that

(a) the merger is likely to bring about gains in real as distinct from pecuniary efficiencies that are greater than or more than offset the effects of any limitation on competition that result or are likely to result from the merger; or (b) one of the parties to the merger is faced with actual or imminent financial failure, and the merger represents the least anti-competitive among the known alternative uses for the assets of the failing business.

(2) A person seeking permission for a merger under section 10(2) shall demonstrate (a) that if the merger was not completed it is not likely that the relevant efficiency gains would be realised by means that would limit competition to a lesser degree than the merger; or (b) that reasonable steps have been taken within the recent past to identify alternative purchasers for the assets of the failing business and describe in detail the results of the search for alternative purchasers.

(3) Where, before the completion of a merger, the Commission determines that the merger does not qualify for permission under section 10, the Commission shall

(a) prohibit completion of the merger; or (b) prohibit completion of the merger unless

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(i) it is modified by changes specified by the Commission; or (ii) the relevant parties enter into legally enforceable agreements as specified by the Commission.” (§11)

“(1) Where the Commission is of the opinion that enterprises have, without obtaining the permission of the Commission under section 11, structured themselves in such a way as to constitute a merger within the meaning of this Act the Commission may by notice in writing direct the enterprises concerned to determine the merger within such time as is specified in the direction. (2) Before giving a direction under subsection (1), the Commission shall give the enterprises an opportunity to be heard. (3) Where an enterprise fails to comply with a direction under subsection (1) the Commission shall impose a fine on the enterprise.” (§12) “(1) The Minister, in consultation with the Competition Commission, must determine—

(a) A lower and a higher threshold of combined annual turnover or assets, or a lower and a higher threshold of combinations of turnover and assets, in the Republic, in general or in relation to specific industries, for purposes of determining categories of mergers contemplated in subsection (5); and (b) a method for the calculation of annual turnover or assets to be applied in relation to each of those thresholds. [...]

(5) For purposes of this Chapter— (a) “a small merger” means a merger or proposed merger with a value at or below the lower threshold established in terms of subsection (1)(a); (b) “an intermediate merger” means a merger or proposed merger with a value between the lower and higher thresholds established in terms of subsection (1)(a); and (c) “a large merger” means a merger or proposed merger with a value at or above the higher threshold established in terms of subsection (1)(a).” (§11)

“(1) (a) For purposes of this Act, a merger occurs when one or more firms directly or

indirectly acquire or establish direct or indirect control over the whole or part of the business of another firm. (b) A merger contemplated in paragraph (a) may be achieved in any manner, including through -

(i) purchase or lease of the shares, an interest or assets of the other firm in question; or (ii) amalgamation or other combination with the other firm in question.

(2) A person controls a firm if that person— (a) beneficially owns more than one half of the issued share capital of the firm; (b) is entitled to vote a majority of the votes that may be cast at a general meeting of the firm, or has the ability to control the voting of a majority of those votes, either directly or through a controlled entity of that person; (c) is able to appoint or to veto the appointment of a majority of the directors of the firm; (d) is a holding company, and the firm is a subsidiary of that company as contemplated in section 1(3)(a) of the Companies Act, 1973 (Act No. 61 of 1973); (e) in the case of a firm that is a trust, has the ability to control the majority of the votes of the trustees, to appoint the majority of the trustees or to appoint or change the majority of the beneficiaries of the trust; (f) in the case of a close corporation, owns the majority of members’ interest or controls directly or has the right to control the majority of members’ votes in the close corporation; or (g) has the ability to materially influence the policy of the firm in a manner comparable to a person who, in ordinary commercial practice, can exercise an element of control referred to in paragraphs (a) to (f).” (§12)

“(1) Whenever required to consider a merger, the Competition Commission or Competition Tribunal must initially determine whether or not the merger is likely to substantially prevent or lessen competition, by assessing the factors set out in subsection (2), and—

(a) if it appears that the merger is likely to substantially prevent or lessen competition, then determine—

South Africa


(i) whether or not the merger is likely to result in any technological, efficiency or other pro-competitive gain which will be greater than, and offset, the effects of any prevention or lessening of competition, that may result or is likely to result from the merger, and would not likely be obtained if the merger is prevented; and (ii) whether the merger can or cannot be justified on substantial public interest grounds by assessing the factors set out in subsection (3); or

(b) otherwise, determine whether the merger can or cannot be justified on substantial public interest grounds by assessing the factors set out in subsection (3).

(2) When determining whether or not a merger is likely to substantially prevent or lessen competition, the Competition Commission or Competition Tribunal must assess the strength of competition in the relevant market, and the probability that the firms in the market after the merger will behave competitively or co-operatively, taking into account any factor that is relevant to competition in that market, including—

(a) the actual and potential level of import competition in the market; (b) the ease of entry into the market, including tariff and regulatory barriers; (c) the level and trends of concentration, and history of collusion, in the market; (d) the degree of countervailing power in the market; (e) the dynamic characteristics of the market, including growth, innovation, and product differentiation; (f) the nature and extent of vertical integration in the market; (g) whether the business or part of the business of a party to the merger or proposed merger has failed or is likely to fail; and (h) whether the merger will result in the removal of an effective competitor.

(3) When determining whether a merger can or cannot be justified on public interest grounds, the Competition Commission or the Competition Tribunal must consider the effect that the merger will have on— (a) a particular industrial sector or region; (b) employment; (c) the ability of small businesses, or firms controlled or owned by historically disadvantaged persons, to become competitive; and (d) the ability of national industries to compete in international markets.” (§12A) “(1) A party to a small merger—

(a) is not required to notify the Competition Commission of that merger unless the Commission requires it to do so in terms of subsection (3); and (b) may implement that merger without approval, unless required to notify the Competition Commission in terms of subsection (3).

(2) A party to a small merger may voluntarily notify the Competition Commission of that merger at any time. (3) Within 6 months after a small merger is implemented, the Competition Commission may require the parties to that merger to notify the Commission of that merger in the prescribed manner and form if, in the opinion of the Commission, having regard to the provisions of section 12A, the merger—

(a) may substantially prevent or lessen competition; or (b) cannot be justified on public interest grounds.

(4) A party to a merger contemplated in subsection (3) may take no further steps to implement that merger until the merger has been approved or conditionally approved. (5) Within 20 business days after all parties to a small merger have fulfilled all their notification requirements in the prescribed manner and form, the Competition Commission —

(a) may extend the period in which it has to consider the proposed merger by a single period not exceeding 40 business days and, in that case, must issue an extension certificate to any party who notified it of the merger; or (b) after having considered the merger in terms of section 12A, must issue a certificate in the prescribed form —

(i) approving the merger; (ii) approving the merger subject to any conditions; (iii) prohibiting implementation of the merger, if it has not been implemented; or (iv) declaring the merger to be prohibited.


(6) If, upon the expiry of the 20 business day period provided for in subsection (5), the Competition Commission has not issued any of the certificates referred to in that subsection or, upon the expiry of an extension period contemplated in subsection (5)(a), the Commission has not issued a certificate referred to in subsection (5)(b), the merger must be regarded as having been approved, subject to section 15. [...]” (§13) “(1) A party to an intermediate or a large merger must notify the Competition Commission of that merger in the prescribed manner and form. (2) In the case of an intermediate or a large merger, the primary acquiring firm and the primary target firm must each provide a copy of the notice contemplated in subsection (1) to -

(a) any registered trade union that represents a substantial number of its employees; or (b) the employees concerned or representatives of the employees concerned, if there are no such registered trade unions.

(3) The parties to an intermediate or large merger may not implement that merger until it has been approved, with or without conditions, by the Competition Commission in terms of section 14(1)(b), the Competition Tribunal in terms of section 16 (2) or the Competition Appeal Court in terms of section 17.” (§13A) “(1) Within 20 business days after all parties to an intermediate merger have fulfilled all their notification requirements in the prescribed manner and form, the Competition Commission —

(a) may extend the period in which it has to consider the proposed merger by a single period not exceeding 40 business days and, in that case, must issue an extension certificate to any party who notified it of the merger; or (b) after having considered the merger in terms of section 12A, must issue a certificate in the prescribed form —

(i) approving the merger; (ii) approving the merger subject to any conditions; or (iii) prohibiting implementation of the merger.

(2) If, upon the expiry of the 20 business day period provided for in subsection (1), the Competition Commission has not issued any of the certificates referred to in that subsection or, upon the expiry of an extension period contemplated in subsection (1)(a), the Commission has not issued a certificate referred to in subsection (1)(b), the merger must be regarded as having been approved, subject to section 15. (3) The Competition Commission must—

(a) publish a notice of the decision in the Gazette; and (b) issue written reasons for the decision if

(i) it prohibits or conditionally approves the merger; or (ii) requested to do so by a party to the merger.” (§14)

“(1) After receiving notice of a large merger, the Competition Commission -

(a) must refer the notice to the Competition Tribunal and to the Minister; and (b) within 40 business days after all parties to a large merger have fulfilled all their prescribed notification requirements, must forward to the Competition Tribunal and the Minister a written recommendation, with reasons, whether or not implementation of the merger should be—

(i) approved; (ii) approved subject to any conditions; or (iii) prohibited.

(2) The Competition Tribunal may extend the period for making a recommendation in respect of a particular merger upon an application by the Competition Commission, but the Tribunal may not grant an extension of more than 15 business days at a time. (3) If, upon the expiry of the period contemplated in subsection (1), or an extended time contemplated in subsection (2), the Competition Commission has neither applied for an extension or a further extension as the case may be, nor forwarded a recommendation to the Competition Tribunal, any party to the merger may apply to the Tribunal to begin the consideration of the merger without a recommendation from the Commission. (4) Upon receipt of an application by a party contemplated in subsection (3), the Tribunal must set a date for proceedings in respect of that merger.” (§14A) “(1) The Competition Commission may revoke its own decision to approve or conditionally approve a small or intermediate merger if—


(a) the decision was based on incorrect information for which a party to the merger is responsible; (b) the approval was obtained by deceit; or (c) a firm concerned has breached an obligation attached to the decision.

(2) If the Competition Commission revokes a decision to approve a merger under subsection (1), it may prohibit that merger even though any time limit set out in this Chapter may have elapsed.” (§15) “(1) If the Competition Commission approves -

(a) a small or intermediate merger subject to any conditions, or prohibits such merger, any party to the merger, by written notice and in the prescribed form, may request the Competition Tribunal to consider the conditions or prohibited merger; or (b) an intermediate merger, or approves such merger subject to any conditions, a person who, in terms of section 13A (2), is required to be given notice of the merger, by written notice and in the prescribed form, may request the Competition Tribunal to consider the approval or conditional approval, provided the person had been a participant in the proceedings of the Competition Commission.

(2) Upon receiving a referral of a large merger and recommendation from the Competition Commission in terms of section 14A(1), or a request in terms of subsection (1), the Competition Tribunal must consider the merger in terms of section 12A, and the recommendation or request, as the case may be, and within the prescribed time -

(a) approve the merger; (b) approve the merger subject to any conditions; or (c) prohibit implementation of the merger.

(3)Upon application by the Competition Commission, the Competition Tribunal may revoke its own decision to approve or conditionally approve a merger and section 15, read with the changes required by the context, applies to a revocation in terms of this subsection. (4) The Competition Tribunal must—

(a) publish a notice of the decision made in terms of subsection (2) or (3) in the Gazette; and (b) issue written reasons for any such decision.” (§16)

“(1) Within 20 business days after notice of a decision by the Competition Tribunal in terms of section 16, an appeal from that decision may be made to the Competition Appeal Court, subject to its rules, by—

(a) any party to the merger; or (b) a person who, in terms of section 13A(2), is required to be given notice of the merger, provided the person had been a participant in the proceedings of the Competition Tribunal.

(2) The Competition Appeal Court may— (a) set aside the decision of the Competition Tribunal;

(b) amend the decision by ordering or removing restrictions, or by including or deleting conditions; or (c) confirm the decision.

(3) If the Competition Appeal Court sets aside a decision of the Competition Tribunal, the Court must—

(a) approve the merger; (b) approve the merger subject to any conditions; or (c) prohibit implementation of the merger.” (§17)

“(1) In order to make representations on any public interest ground referred to in section 12A(3), the Minister may participate as a party in any intermediate or large merger proceedings before the Competition Commission, Competition Tribunal or the Competition Appeal Court, in the prescribed manner. (2) Despite anything to the contrary in this Act, the Competition Commission may not make a decision in terms of section 13(5)(b) or 14(1)(b), and the Competition Tribunal may not make an order in terms of section 16(2), if the—

(a) merger constitutes— (i) an acquisition of shares for which permission is required in terms of section 37 of the Banks Act, 1990 (Act No. 94 of 1990); or


(ii) a transaction for which consent is required in terms of section 54 of the Banks Act, 1990 (Act No. 94 of 1990); and

(b) the Minister of Finance has, in the prescribed manner, issued a notice to the Commissioner specifying the names of the parties to the merger and certifying that—

(i) the merger is a merger contemplated in paragraph (a)(i) or (ii); and (ii) it is in the public interest that the merger is subject to the jurisdiction of the Banks Act, 1990 (Act No. 94 of 1990) only.

(3) Sections 13(6) and 14(2) do not apply to a merger in respect of which the Minister of Finance has issued a certificate contemplated in subsection (2).” (§18) “’acquisition’ in relation to shares or assets means acquisition, either alone or jointly with another person, of any legal or equitable interest in such shares or assets but does not include acquisition by way of charge only. [...] ‘asset'’ includes any real or personal property, whether tangible or intangible, intellectual property, goodwill, chose in action, right, licence, cause of action or claim and any other asset having a commercial value. [...] ‘merger’' means an acquisition of shares, a business or other assets, whether inside or outside Tanzania, resulting in the change of control of a business, part of a business or an asset of a business in Tanzania.” (§1(2)) “(1) A merger is prohibited if it creates or strengthens a position of dominance in a market. (2) A merger is notifiable under this section if it involves turnover or assets above threshold amounts the Commission shall specify from time to time by Order, in the Gazette, calculated in the manner prescribed in the Order. (3) if, within 14 days after receipt of a notification of a merger under sub-section (2), the Commission determines that the proposed merger should be examined, the merger shall be prohibited for a period of 90 days thereafter or such further period as the Commission determines under sub-section (4), unless the Commission earlier determines the merger should not be prohibited. (4) The Commission may extend the period of 90 days referred to in sub-section (3) -

(a) for such further period not exceeding 30 days as the Commission sees fit; and(a) (b) in addition, where the Commission determines its consideration of the merger has been delayed in obtaining information from any of the parties to the proposed merger, for such further period as the Commission considers it has been so delayed.

(5) Without limiting the operation of sub-section (1), a person shall not give effect to a notifiable merger unless it has, at least 14 days before doing so, filed with the Commission a notification of the proposed merger supplying such information as the Commission may by Order require to be included in such notification. (6) Any person who intentionally or negligently acts in contravention of the provisions of this section, commits an offence under this Act.” (§11) “(1) The Commission may, upon the application of a party to a merger, grant an exemption for that merger, either unconditionally or subject to such conditions as the Commission sees fit, if the Commission is satisfied in all the circumstances that paragraph (a) and either paragraph (b) or (c) applies:

(a) the merger is likely to create or strengthen a position of dominance in a market; (b) the merger results or is likely to result in benefits to the public in one or more of the following ways:

(i) by contributing to greater efficiency in production or distribution; (ii) by promoting technical or economic progress; (iii) by contributing to greater efficiency in the allocation of resources; or (iv) by protecting the environment and the merger: (v) prevents, restrains or distorts competition no more than is reasonably necessary to attain those benefits; and (vi) the benefits to the public resulting from the merger outweigh the detriments caused by preventing, restraining or distorting competition;

(c) in the case of a merger resulting in the change of control of a business, the business faces actual or imminent financial failure and the merger offers the least anti-competitive alternative use of the assets of the business.

(2) When granting an exemption under this section the Commission shall fix a period, not exceeding one year from the date the exemption is granted, as the period of the exemption.

Tanzania


(3) A merger exempted under this section is not prohibited by section I 1 during the period of the exemption. (4) The Commission may revoke or vary an exemption at any time during the period of the exemption if it is satisfied that circumstances since the grant of the exemption have materially changed or the exemption was granted wholly or partly on the basis of false, misleading or incomplete information.” (§13) “(1) Any persons who in the absence of authority from the Commission whether as a principal or agent and whether by himself or his agent, participates in effecting-

(a) a merger between two or more independent enterprises engaged in manufacturing or distributing substantially similar goods or providing substantially similar services; (b) a takeover of one or more such enterprises by another enterprise, or by a person who controls another such enterprise;

shall be guilty of an offence and shall be liable, upon conviction, to a fine not exceeding ten million Kwacha or imprisonment not exceeding five years or to both. (2) No merger or takeover made in contravention of subsection (1) shall have any legal effect and no rights or obligations imposed on the participating parties by any agreement in respect of the merger or takeover shall be legally enforceable.” (§8) “’controlling interest’, in relation to –

(a) any undertaking, means any interest which enables the holder thereof to exercise, directly or indirectly, any control whatsoever over the activities or assets of the undertaking; (b) any asset, means any interest which enables the holder thereof to exercise, directly or indirectly, any control whatsoever over the asset; [...]

‘merger’ means the direct or indirect acquisition or establishment of a controlling interest by one or more persons in the whole or part of the business of a competitor, supplier, customer or other person whether that controlling interest is achieved as a result of-

(a) the purchase or lease of the shares or assets of a competitor, supplier, customer or other person; (b) the amalgamation or combination with a competitor, supplier, customer or other person; or (c) any means other than as specified in paragraph (a) or (b) [...]” (§2(1))

“Subject to this Act, the Commission may make such investigation as it considers necessary – [...]

(b) in order to ascertain – (i) whether any merger has been, is being or is proposed to be made; (ii) the nature and extent of any controlling interest that is held or may be acquired in any merger or proposed merger; [...]” (§28(1))

“At any time after embarking on an investigation under section twenty-eight the Commission may publish a notice doing either or both the following -

(a) prohibiting or staying any restrictive practice or merger that is the subject of the investigation; (b) directing that any action be taken which, in the Commission’s opinion, will prevent or stay any restrictive practice or merger that is the subject of the investigation;

pending the outcome of the investigation.” (§29(1)) “(1) The Commission may at any time negotiate with any person with a view to making an arrangement which, in the Commission’s opinion, will – [...]

(b) terminate, prevent or alter any merger or monopoly situation which exists or may come into existence;

whether or not the Commission has embarked on an investigation into the restrictive practice, merger or monopoly situation concerned. (2) Where the Commission has made an arrangement after negotiations under subsection (1), it may embody the arrangement in an order.” (§30) “[...] (2) If the Commission is satisfied, having regard to the matters referred to in section thirty-two, that any actual or proposed merger or monopoly situation is or will be contrary to the public interest, the Commission may make any one or more of the following orders in respect of that merger or monopoly situation -

Zambia

Zimbabwe


(a) declaring it to be unlawful, except to such extent and in such circumstances as may be provided by or under the order, to make or to carry out any agreement or arrangement which is specified in the order and which, in the Commission’s opinion, will lead to or maintain the merger or monopoly situation; (b) in the case of a monopoly situation, requiring any person who exercises control over the business or economic activity concerned to take such steps as are specified in the order to terminate the monopoly situation within such time as is specified in the order; (c) prohibiting or restricting the acquisition by any person named in the order of the whole or part of any undertaking or assets, or the doing by that person of anything which will or may result in such an acquisition, if the acquisition is likely, in the Commission’s opinion, to lead to a merger or monopoly situation; (d) requiring any person to take steps to secure the dissolution of any organization, whether corporate or unincorporated, or the termination of any association, where the Commission is satisfied that the person is concerned in or a party to the merger or monopoly situation; (e) requiring that, if any merger takes place or any monopoly situation exists, any party thereto who is named in the order shall observe such prohibitions or restrictions in regard to the manner in which he carries on business as are specified in the order. (f) generally, making such provision as, in the opinion of the Commission, is reasonably necessary to terminate or prevent the merger or monopoly situation, as the case may be, or alleviate its effects.

(3) Notwithstanding any other law and without derogation from the generality of subsection (2), an order made in respect of a merger or monopoly situation may provide for any of the following matters -

(a) the transfer or vesting of property, rights, liabilities or obligations; (b) the adjustment of contracts, whether by their discharge or the reduction of any liability or obligation or otherwise; (c) the creation, allotment, surrender or cancellation of any shares, stocks or securities; (d) the formation or winding up of any undertaking or the amendment of the memorandum or articles of association or any other instrument regulating the business of any undertaking. [...]” (§31)

“(1) In determining, for the purposes of section thirty-one, whether or not any restrictive practice, merger or monopoly situation is or will be contrary to the public interest, the Commission shall take into account everything it considers relevant in the circumstances, and shall have regard to the desirability of –

(a) maintaining and promoting effective competition between persons producing or distributing commodities and services in Zimbabwe; and (b) promoting the interests of consumers, purchasers and other users of commodities and services in Zimbabwe, in regard to the prices, quality and variety of such commodities and services; and (c) promoting, through competition, the reduction of costs and the development of new techniques and new commodities, and of facilitating the entry of new competitors into existing markets. [...]

(4) For the purposes of section thirty-one, the Commission shall regard a merger as contrary to the public interest if the Commission is satisfied that the merger -

(a) has lessened substantially or is likely to lessen substantially the degree of competition in Zimbabwe or any substantial part of Zimbabwe; or (b) has resulted or is likely to result in a monopoly situation which is or will be contrary to the public interest.

(4a) When determining whether or not a merger is likely to substantially prevent or lessen competition the Commission shall consider any of the following factors as many be relevant-

(a) the actual and potential level of import competition in the market; (b) the ease of entry into the market, including tariff and regulatory barriers; (c) the level, trends of concentration and history of collusion in the market; (d) the degree of countervailing power in the market; (e) the likelihood that the acquisition would result in the merged parties having market power; (f) the dynamic characteristics of the market including growth, innovation and product differentiation; (g) the nature and extent of vertical integration in the market;


(h) whether the business or part of the business of a party to the merger or proposed merger has failed or is likely to fail; (i) whether the merger will result in the removal of efficient competition. [...]” (§32)

“(1) The Minister shall, in consultation with the Commission, prescribe-

(a) a threshold of combined annual turnover or assets in Zimbabwe, either in general or in relation to specific industries, at or above which this Part will apply with regard to mergers; (b) a method for the calculation of annual turnover and assets.

(2) For the purpose of this Part- “notifiable merger” means a merger or proposed merger with a value at or above the threshold prescribed in terms of subsection (1). “notifiable merger” means a merger or proposed merger with a value below the threshold prescribed in terms of subsection (1).

(3) The Commission may require parties to a non-notifiable merger to notify the Commission of that merger if it appears to the Commission that the merger is likely to substantially prevent or lessen competition or is likely to be contrary to public interest in terms of section 32.” (§34) “(1) A party to a notifiable merger shall notify the Commission in writing of the proposed merger within thirty days of-

(a) the conclusion of the merger agreement between the merging parties; or (b) the acquisition by any one of the parties to that merger of a controlling interest in another.

(2) Notification in terms of subsection (1) shall be made in such form and manner as may be prescribed and shall be accompanied by the prescribed fee, if any, and such information and particulars as may be prescribed or as the Commission may reasonably require. (3) The Commission may impose a penalty if the parties to a merger-

(a) fail to give notice of the merger as required by subsection (1); (b) proceed to implement the merger without the approval of the Commission as required by subsection (2).

(4) A penalty imposed in terms of subsection (3) may not exceed ten per centum of either or both of the merging parties’ annual turnover in Zimbabwe as reflected in the accounts of any party concerned for the preceding financial year. (5) When determining an appropriate penalty, the Commission shall consider the following factors-

(a) the nature, duration, gravity and extent of the contravention; and (b) any loss or damage suffered as a result of the contravention; and (c) the behaviour of the parties concerned; and (d) the market circumstances in which the contravention took place; and (e) the level of profit derived from the contravention; and (f) the degree to which the parties have co-operated with the Commission; and (g) whether the parties have previously been found in contravention of this Act.

(6) Civil proceedings for the recovery of any penalty imposed in terms of subsection (3) may be brought against the party or parties concerned by the Commission.” (§34A)

1.7 Remedies and Penalties Remedies in cases of prohibited horizontal and vertical agreements: “The Board may give the enterprise or enterprises concerned such directions as are required to bring the breach of the prohibition to an end including a direction to terminate or modify the agreement in question if it is still in force.” (§60) Penalties in cases of prohibited horizontal and vertical agreements: “The Board may, in addition to, or instead of, giving a direction, make an order imposing a financial penalty on the enterprise or enterprises concerned. The penalty shall be calculated in accordance with the guidelines published under Section 27(1)(b), and the Board shall set out its reasons for determining the level of penalty to be imposed in each case by reference to these guidelines.

Lesotho


The Board may not impose the financial penalty [...] unless it is satisfied that the breach of the prohibition was committed intentionally or negligently. The amount of the penalty shall not exceed 10% of the turnover of the enterprise in Lesotho [OR 10% of the worldwide turnover of the enterprise] during the period of the breach of the prohibition up to a maximum of three years. [...] Sections 31 and 32 of this Act do not create an offence.” (§61) Remedies in cases of other agreements and abuse of dominance: “(1) The Board shall give the enterprise or enterprises concerned such directions as it considers necessary, reasonable or practicable –

(a) to remedy, mitigate or prevent the adverse effects on competition that have been identified; or (b) to remedy, mitigate or prevent any detrimental effects on users and consumers so far as they have resulted from, or may be expected to result from, the adverse effects on, or absence of, competition.

(2) A direction given under subsection (1) may include, but is not limited to, a requirement that the enterprise to which it is given must –

(a) terminate or amend an agreement; (b) cease or amend a practice or course of conduct including conduct in relation to prices; (c) observe specified conditions, including conditions regarding prices, in relation to the continuation of an agreement or conduct; (d) supply goods or services, or grant access to facilities, either generally or to named parties; (e) separate or divest itself of any enterprise, line of business or assets; (f) provide the Directorate with specified information on a continuing basis.” (§64)

Penalties in cases of enforcement obstructions: “A person commits an offence if he hinders, opposes, obstructs or unduly influences any person who is exercising a power or performing a duty conferred or imposed on that person by this Act.” (§109) “A person commits an offence if -

(a) having been required [...] to produce information to the Directorate, he fails without reasonable excuse to provide that information; (b) having been duly summoned to attend a hearing, he fails, without reasonable excuse, to attend; or (c) being in attendance as required –

(i) he refuses to take the oath or affirmation lawfully required by the Board; (ii) he refuses, after having taken the oath or an affirmation, to answer any question to which the Board may lawfully require an answer or gives evidence which the person knows is false; (iii) he fails to produce any document or thing in his possession or under his control lawfully required by the Board to be produced to it.” (§110)

“A person commits an offence if -

(a) he does anything calculated improperly to influence the Directorate or any Commissioner, concerning a matter connected with the exercise of any power of the performance of any function of the Directorate or Board; (b) he does anything in connection with an investigation that would constitute contempt of court had the proceedings occurred in a court of law; (c) he knowingly provides false information to the Directorate or Board; (d) being the Director, a staff member of the Directorate or an inspector, he contravenes Section 10(2); (e) being a Commissioner, he contravenes Section 23(1); (f) he contravenes Section 105(1).” (§111)

“A person guilty of an offence under this Chapter, is liable -

(a) on summary conviction, [TO BE DECIDED] (b) on conviction on indictment, [TO BE DECIDED]” (§112)


Penalties in cases of substantive violations of the law: “Any person who—

(a) contravenes or fails to comply with any provision of this Act or any regulation made hereunder, or any directive or order lawfully given, or any requirement lawfully imposed under this Act or any regulations made hereunder; (b) omits or refuses—

(i) to furnish any information when required by the Commission to do so; or (ii) to produce any document when required to do so by a notice sent by the Commission; or

(c) knowingly furnishes any false information to the Commission, shall be guilty of an offence.” (§50)

“A person guilty of an offence under this Act for which no specific penalty is provided shall be liable to a fine of K500,000 or of an account equivalent to the financial gain generated by the offence, if such amount be greater, and to imprisonment for five years.” (§51) Note: Anticompetitive horizontal agreements (§33), anticompetitive trade practices of associations (§34), participation in mergers which substantially lessen competition (§35), abuse of dominance (§41) and unfair trade practices (§43) are defined as offences in the law. “Any person who suffers injury, loss or harm as a result of any agreement, arrangement, undertaking, act or omission which is prohibited under this Act may recover damages by way of civil proceedings in the High Court from the person responsible for any such agreement, arrangement, undertaking, act or omission.” (§52) Penalties in cases of enforcement obstructions: Any person who, without lawful excuse—

(a) hinders or prevents an investigating officer from exercising any power under subsection (1) [investigations]; or (b) fails or refuses to comply with any requirements of an investigating officer under subsection (1); or (c) upon being required under subsection (1) or disclose any information, fails or refuses to do so or provides information that is false or which he does not believe on reasonable grounds to be true,

shall be guilty of an offence and, upon conviction, be liable to a fine of K10,000 or to imprisonment for two years.” (§46(2)) Remedies “(1) Where a restrictive agreement falls within the scope of sections 41, 42 and 43, the Commission may give the enterprise such directions as the Commission considers appropriate to ensure that the enterprise ceases to be a party to the restrictive agreement. (2) A direction under subsection (1) may, in particular, require the enterprise to terminate or modify the agreement within such period as may be specified by the Commission. […]” (§58) (1) Where the Commission determines, after review, that an enterprise is a party to a restrictive agreement falling within the terms of section 44 or 45 or that it is a party to a monopoly situation falling within the terms of section 46, and that –

(a) in relation to the restrictive agreement, the agreement has the object or effect of preventing, restricting or distorting competition; or (b) in relation to the monopoly situation, any conduct of the enterprise –

(i) has the object or effect of preventing, restricting or distorting competition, or (ii) in any other way, constitutes exploitation of the monopoly situation,

the Commission may give the enterprise such directions as it considers necessary, reasonable and practicable to –

(A) remedy, mitigate or prevent the adverse effects on competition that the Commission has identified; or (B) remedy, mitigate or prevent any detrimental effects on users and consumers so far as they have resulted from, or are likely to result from, the adverse effects on, or the absence of, competition.

Malawi

Mauritius


(2) In determining, in any particular case, the remedial measures required to be taken, the Commission shall have regard to the extent to which any of the offsetting benefits specified in section 50(4) are present in that case. (3) Subject to subsections (1) and (2), a direction under this section may include, but is not limited to, a requirement that the enterprise to which it is given shall –

(a) terminate or amend an agreement; (b) cease or amend a practice or course of conduct, including conduct in relation to prices; (c) supply goods or services, or grant access to facilities; (d) separate or divest itself of any enterprise or assets; (e) provide the Commission with specified information on a continuing basis. […]” (§60)

Penalties in cases of substantive violations of the law: “(1) The Commission may, in relation to a restrictive agreement falling within the scope of sections 41, 42 and 43, in addition to, or instead of, giving a direction, make an order imposing a financial penalty on the enterprise. (2) The Commission shall not impose a financial penalty unless it is satisfied that the breach of the prohibition was committed intentionally or negligently. (3) Where the Commission imposes a financial penalty on an enterprise, the financial penalty shall not exceed 10 per cent of the turnover of the enterprise in Mauritius during the period of the breach of the prohibition up to a maximum period of 5 years. […]” (§59) Penalties in cases of enforcement obstructions: (1) Any person who –

(a) fails without reasonable excuse to comply with a requirement imposed on him under this Act; (b) in response to a requirement, or otherwise in connection with any of the functions of the Commission under this Act, gives to the Commission information which he knows is false or misleading in a material particular, or recklessly gives to the Commission information which is false or misleading in a material particular; (c) gives to the Executive Director information which he knows is false or misleading in a material particular, or recklessly gives to the Executive Director information which is false or misleading in a material particular; (d) knowing of the making of a requirement for the production of a document, alters, suppresses or disposes of it, or causes it to be altered, suppressed or disposed of; (e) obstructs the execution of a warrant issued under section 53; (f) refuses to take an oath at a hearing before the Commission; (g) fails to answer fully and satisfactorily to the best of his knowledge and belief any question put to him by the Commission in the exercise of powers under sections 52 and 53; or (h) insults, interrupts or otherwise commits any contempt of the Commission,

shall commit an offence. (2) Any person who contravenes subsection (1) shall commit an offence and shall, on conviction, be liable to a fine not exceeding 500,000 rupees and to imprisonment for a term not exceeding 2 years. […]” (§71) “The plenary will make the decision which may:

a - declare that the restrictive practice should be stopped, ordering the concerned party prompt cessation of damaging acts and the resumption of the preceding situation within the prescribed period of time; b - impose fines and any other penalties as directed by this law; c - authorize an agreement, imposing conditions where applicable.” (§31)

“1 - The following acts constitute an offence which shall be punished with a fine that could not exceed 10% of the annual turnover of the preceding business year of each of the enterprises involved in the infringement:

a - The violation of the provision of the article 8 (1); b - Any implementation of a suspended merger, as referred to in the article 16, or declined mergers by a decision taken pursuant article 41 (1) (a); c - Any violation of a decision that implies provisional measures, referred to in the article 26;

Mozambique


d - Any violation of the conditions imposed upon enterprises by the regulatory authority, as referred to in article 16 (4), 41 (3) and 40 (2).

2 - In the case of associations of enterprises, the monetary penalty referred to in the preceding subsection shall not exceed 10% of the aggregated annual turnover of the associated enterprises involved in the prohibited practice. 3 - The following constitutes an offence which shall be punished with a fine that could not exceed more than 1% of the annual turnover of the preceding business year of each of the enterprises involved in the infringement:

a - failing to give notice of the merger as required by article 15; b - failing to provide or providing inaccurate or misleading information upon request of the regulatory authority during the exercise of his supervision or sanction powers; c - failing to collaborate with the regulatory authority or obstruction of his powers referred to in article 19.

4 - In the case of unjustifiable absence of witnesses, experts or representatives of the plaintiff or respondent during the process, the regulatory authority may impose fines not exceeding ten minimum salaries. 5 - In the cases referred to in the preceding subsections, if the offence consists in the violation of a legal order of the regulatory authority, the fine will not excuse the offender from the execution of the order, provided that it is still possible. 6 - Negligent behaviour is punishable.” (§54) “The monetary penalties referred to in the preceding article shall be determined after due consideration of the following factors:

a - the gravity and extent of the infringement in respect to the maintenance of effective competition in the national market; b - effective completion or execution of the infringement; c - the good faith of the parties concerned; d - the level of profit that the infringing enterprises have derived from the contravention; e - whether the parties have previously been found in contravention of this law; f - the degree to which the parties have participated in the contravention; g - the degree to which the parties have co-operated with the regulatory authority until the end of the procedure; h - the degree to which the parties have co-operated in the elimination or restoration of the damages caused to the competition.” (§55)

“Notwithstanding the provision of article 54 or for the sake of public interest, the regulatory authority may impose the following penalties:

a - Publication of the decision rendered at the end of the procedure defined in this law in the official gazette and in a national, regional or local newspapers, according to the geographical market relevant to the prohibited practice. This publication is made at the expenses of the offender; b - Exclusion of the offender in public tenders for the period of at least five years; c - Prohibition to enter in contracts or contract debt with financial institutions for the period of three years; d - Enterprise’s spin-off, transfer of corporate control, sale of assets, partial discontinuance of activities, or any other antitrust measure required in order to root out the negative impact in the competition.” (§56)

“The regulatory authority may decide to impose a compulsory monetary penalty that shall not exceed 5% of the daily turnover rate of the last year, per each day of delay, from the date established in the decision in the following cases:

a - non compliance of a decision of the regulatory authority that imposes a penalty or an order to adopt a certain measure; b - failing to give notice of the merger as required by article 15; c - failing to provide or providing not accurate or misleading information during the merger notification procedure.” (§57)

Remedies “[...] the Commission may institute proceedings in the Court against the undertaking or undertakings concerned for an order -

Namibia


(a) declaring the conduct which is the subject matter of the Commission’s investigation, to constitute an infringement of the Part I or the Part II prohibition [restrictive agreements and abuse of dominance]; (b) restraining the undertaking or undertakings from engaging in that conduct; (c) directing any action to be taken by the undertaking or undertakings concerned to remedy or reverse the infringement or the effects thereof; (d) imposing a pecuniary penalty; or (e) granting any other appropriate relief.” (§38)

Penalties in cases of substantive violations of the law: “(1) The Court may impose a pecuniary penalty -

(a) for contravention of the Part I or the Part II prohibition [restrictive agreements and abuse of dominance]; (b) for contravention of, or non-compliance with, a condition attached to an exemption granted under Part III of Chapter 3 [exemptions]; (c) for contravention of, or non-compliance with, an order of the Court; (d) for the implementation of a merger to which Chapter 4 is applicable -

(i) without the approval of the Commission as required by that Chapter; (ii) in contravention of a decision of the Commission prohibiting the merger under that Chapter; or (iii) in a manner contrary to a condition under which approval for the merger was given by the Commission under that Chapter.

(2) A pecuniary penalty may be imposed under subsection (1) for any amount which the Court considers appropriate, but not exceeding 10 per cent of the global turnover of the undertaking during its preceding financial year. (3) In determining an appropriate penalty, the court must have regard to all relevant matters concerning the contravention, including -

(a) the nature, duration, gravity and extent thereof; (b) the nature and extent of any loss or damage suffered by any person as a result thereof; (c) the behaviour of any undertaking involved; (d) the market circumstances in which it took place; (e) the level of profit derived therefrom; (f) the degree to which the undertaking involved has co-operated with the Commission and the Court; and (g) whether the undertaking has previously been found by the Court to have engaged in conduct in contravention of this Act.” (§53)

“(1) A person who has suffered damage as a result of an infringement of the Part I or the Part II prohibition may not commence an action in any court for an award of damages or for the assessment of damages if that person has been awarded damages in a consent agreement confirmed in accordance with section 40. (2) If a person who has not been awarded damages in a consent agreement contemplated in subsection (1) institutes proceedings in a court for an award of damages allegedly suffered as a result of an infringement of the Part I or the Part II prohibition, that person must file with the Registrar of the Court or the Clerk of the Court a notice from the chairperson of the Commission in the prescribed form certifying, either -

(a) that the conduct on which the action is based has been found by the Court, following proceedings instituted by the Commission in terms of section 38, to be an infringement of the Part I or the Part II prohibition, and stating the date of that finding; or (b) that a consent agreement was confirmed in accordance with section 40 in relation to the conduct on which the action is based, and that no award for damages is provided for in that agreement for the benefit of the plaintiff, and stating the reasons therefor; or (c) that, following an investigation by the Commission in accordance with Part IV of Chapter 3 into the conduct on which the action is based, the Commission has decided not to take any action contemplated in section 38, and stating the reasons for the Commission’s decision; or (d) that the Commission, having received a complaint or a request to investigate an alleged infringement of the Part I or the Part II prohibition in respect of the conduct on which the action is based, has in terms of section 33(2) decided not to conduct an investigation, and stating the reasons for the Commission’s decision.” (§54)


Penalties in cases of enforcement obstructions: “A person commits an offence who hinders, opposes, obstructs or unduly influences any person who is exercising a power or performing a duty conferred or imposed on that person by this Act.” (§60) “A person commits an offence who -

(a) having been duly summoned to attend before the Commission, without reasonable excuse fails to do so; or (b) being in attendance as required -

(i) refuses to take an oath or affirmation lawfully required by the Commission; (ii) refuses, after having taken the oath or an affirmation, to answer any question to which the Commission may lawfully require an answer or gives evidence which the person knows is false; (iii) fails to produce any document or thing in his or her possession or under his or her control lawfully required by the Commission to be produced to it.” (§61)

“A person commits an offence who contravenes or fails to comply with an interim or final order of the Court given in terms of this Act.” (§62) “A person commits an offence who -

(a) does anything calculated to improperly influence the Commission or any member concerning any matter connected with the exercise of any power or the performance of any function of the Commission; (b) anticipates any decision of the Commission concerning an investigation in a way that is calculated to influence the proceedings or decision; (c) does anything in connection with an investigation that would constitute contempt of court had the proceedings occurred in a court of law; (d) knowingly provides false information to the Commission; (e) defames a member in his or her official capacity; (f) contravenes section 10(1) or (3); (g) contravenes section 55; (h) contravenes section 56.” (§63)

“A person convicted of an offence in terms of this Act, is liable -

(a) in the case of a contravention of section 62, to a fine not exceeding N$500 000 or to imprisonment for a period not exceeding 10 years, or to both a fine and imprisonment; (b) in the case of a contravention of section 55, to a fine not exceeding N$50 000 or to imprisonment for a period not exceeding three years, or to both a fine and imprisonment; or (c) in any other case, to a fine not exceeding N$20 000 or to imprisonment for a period not exceeding one year, or to both a fine and imprisonment.” (§64)

Remedies: "(1) Where the Commission finds that the abusive practice constitutes tied selling, the Commission, by notice in writing, shall direct the enterprise concerned to discontinue that practice. (2) Subject to subsection (4), the Commission shall act in accordance with subsection (3) if it finds that exclusive dealing or market restriction is likely to

(a) impede entry into or expansion of an enterprise in the market; (b) impede the introduction of goods into or expansion of sales of goods or the provision of services in the market; or (c) have any other exclusionary effect in the market, with the result that competition is or is likely to be lessened substantially.

(3) The Commission shall direct the supplier referred to in subsection (2) to discontinue engaging in market restriction or exclusive dealing and require that supplier to take such other action as, in the Commission’s opinion, is necessary to restore or stimulate competition in relation to the supply of goods or services in the market. (4) The Commission shall not take action under this section where, in its opinion, exclusive dealing or market restriction is or will be engaged in only for a reasonable period of time to facilitate entry of new goods or a new supplier of goods or services into a market." (§8)

Seychelles


Penalties in cases of substantive violations of the law: "(1) A person who

(a) contravenes any provision under Part II, III or V [anticompetitive agreements, abuse of dominant position, mergers; resale price maintenance; anticompetitive business conduct] is guilty of an offence and, where no other penalty has been imposed in respect of the offence, is liable on conviction

(i) where the person is an individual, to a fine of SR________ or to imprisonment for a term of 6 months or to both; (ii) where the person is a corporate entity, to a fine of SR________ or to imprisonment for a term of 6 months or to both;

(b) refuses or fails to comply with a direction or order of the Commission is guilty of an offence and is liable on conviction on indictment

(i) where the person is an individual, to a fine of SR________ or to imprisonment for a term of __ months or to both; (ii) where the person is a corporate entity, to a fine of SR________ or to imprisonment for a term of __ months or to both.

(2) Where the person referred to in subsection (1) is a corporate entity, every director or officer of that entity is severally liable to a fine of SR__________ or to imprisonment for __ months unless the director or officer can prove that he took all necessary and proper means to obey and carry out the direction of the Commission and that he was not at fault for the failure to obey the direction." (§33) "(1) Every person who engages in conduct that constitutes

(a) a contravention of any of the obligations or prohibitions imposed in Part II, III or V; (b) aiding, abetting, counselling or procuring the contravention of any provision referred to in paragraph (a); (c) the inducing by threats, promises or otherwise, of the contravention of any provision; (d) being knowingly concerned in or party to any contravention referred to in paragraph (a); or (e) conspiring with any other person to contravene any provision referred to in paragraph (a),

is liable in damages for any loss caused to any other person by such conduct." (§34) Penalties in cases of enforcement obstructions: "Subject to section ___ of the Seychelles Commission of Fair Trading Act [see below], any person who, in any manner, impedes, prevents or obstructs any investigation or inquiry by the Commission or any authorised officer in the execution inquiry is guilty of an offence and is liable on summary conviction to a fine of SR_______ or to imprisonment for a term of __ months or to both." (§29) "A person who destroys or alters any document which that person is required to produce to the Commission, or causes such document to be destroyed or altered, is guilty of an offence and is liable on conviction on indictment

(a) where the person is an individual, to a fine of SR________ or to imprisonment for a term of ___ months or to both; and (b) where the person is a corporate entity, to a fine of SR_________ or to imprisonment for a term of __ months or to both." (§30)

"A person who gives to the Commission or an authorised any information which he knows to be false or misleading is guilty of an offence and is liable on conviction to a fine of SR__________ or to imprisonment for a term of __ months or to both." (§32) “Where the Commission serves a notice on a director or officer of a business enterprise directing him or her to furnish to the Commission any information which the business enterprise may be required to furnish under this Act or any other law relating to consumer protection or fair competition that the Commission has jurisdiction to administer, and the director or officer wilfully refuses or fails to furnish the information in the manner directed by the Commission, and at or within the time stated in the notice, the director or officer commits an offence and is liable on conviction to −

(a) a fine of SR_______; and


(b) a further fine of SR_______ for each day or part thereof during which the offence continues.” (§49 Fair Trading Commission Act)

Remedies: "(1)In addition to its other powers in terms of this Act, the Competition Tribunal may -

(a) make an appropriate order in relation to a prohibited practice, including - (i) interdicting any prohibited practice; (ii) ordering a party to supply or distribute goods or services to another party on terms reasonably required to end a prohibited practice; (iii) imposing an administrative penalty, in terms of section 59, with or without the addition of any other order in terms of this section; (iv) ordering divestiture, subject to section 60; (v) declaring conduct of a firm to be a prohibited practice in terms of this Act, for the purposes of section 65; (vi) declaring the whole or any part of an agreement to be void; (vii) ordering access to an essential facility on terms reasonably required; (viii) imposing appropriate conditions;

(b) confirm a consent agreement in terms of section 49D as an order of the Tribunal; or (c) subject to sections 13(6) and 14(2), condone, on good cause shown, any non-compliance of -

(i) the Competition Commission or Competition Tribunal rules; or (ii) a time limit set out in this Act." (§58)

Penalties in cases of substantive violations of the law: "(1) The Competition Tribunal may impose an administrative penalty only -

(a) for a prohibited practice in terms of section 4(1)(b), 5(2), 8(a), (b), (d) or 10A(5); (b) for a prohibited practice in terms of section 4(1)(a), 5(1), 8(c) or 9(1), if the conduct is substantially a repeat by the same firm of conduct previously found by the Competition Tribunal, or previously acknowledged by the firm in a consent order, to be a prohibited practice; (c) for contravention of, or failure to comply with, an interim or final order of the Competition Tribunal or the Competition Appeal Court; or (d) if the parties to a merger have -

(i) failed to give notice of the merger as required by Chapter 3; (ii) proceeded to implement the merger in contravention of a decision by the Competition Commission or Competition Tribunal to prohibit that merger; (iii) proceeded to implement the merger in a manner contrary to a condition for the approval of that merger imposed by the Competition Commission in terms of section 13 or 14, or the Competition Tribunal in terms of section 16; or (iv) proceeded to implement the merger without the approval of the Competition Commission or Competition Tribunal, as required by this Act.

(2) An administrative penalty imposed in terms of subsection (1) may not exceed 10% of the firm’s annual turnover in the Republic and its exports from the Republic during the firm’s preceding financial year. (3) When determining an appropriate penalty, the Competition Tribunal must consider the following factors:

(a) the nature, duration, gravity and extent of the contravention; (b) any loss or damage suffered as a result of the contravention; (c) the behaviour of the respondent; (d) the market circumstances in which the contravention took place; (e) the level of profit derived from the contravention; (f) the degree to which the respondent has co-operated with the Competition Commission and the Competition Tribunal; and (g) whether the respondent has previously been found in contravention of this Act." (§59)

"(1) If a merger is implemented in contravention of Chapter 3, the Competition Tribunal may -

(a) order a party to the merger to sell any shares, interest or other assets it has acquired pursuant to the merger; or (b) declare void any provision of an agreement to which the merger was subject.

South Africa


(2) The Competition Tribunal, in addition to or in lieu of making an order under section 58, may make an order directing any firm, or any other person to sell any shares, interest or assets of the firm if -

(a) it has contravened section 8, and (b) the prohibited practice –

(i) cannot adequately be remedied in terms of another provision of this Act; or (ii) is substantially a repeat by that firm of conduct previously found by the Tribunal to be a prohibited practice.

(3) An order made by the Competition Tribunal in terms of subsection (2) is of no force or effect unless confirmed by the Competition Appeal Court. (4) An order made in terms of subsection (1) or (2) may set a time for compliance, and any other terms that the Competition Tribunal considers appropriate, having regard to the commercial interests of the party concerned." (§60) "(6) A person who has suffered loss or damage as a result of a prohibited practice-

(a) may not commence an action in a civil court for the assessment of the amount or awarding of damages if that person has been awarded damages in a consent order confirmed in terms of section 49D(1); or (b) if entitled to commence an action referred to in paragraph (a), when instituting proceedings, must file with the Registrar or Clerk of the Court a notice from the Chairperson of the Competition Tribunal, or the Judge President of the Competition Appeal Court, in the prescribed form -

(i) certifying that the conduct constituting the basis for the action has been found to be a prohibited practice in terms of this Act; (ii) stating the date of the Tribunal or Competition Appeal Court finding; and (iii) setting out the section of this Act in terms of which the Tribunal or the Competition Appeal Court made its finding.

(7) A certificate referred to in subsection (6)(b) is conclusive proof of its contents, and is binding on a civil court. (8) An appeal or application for review against an order made by the Competition Tribunal in terms of section 58 suspends any right to commence an action in a civil court with respect to the same matter. (9) A person’s right to bring a claim for damages arising out of a prohibited practice comes into existence -

(a) on the date that the Competition Tribunal made a determination in respect of a matter that affects that person; or (b) in the case of an appeal, on the date that the appeal process in respect of that matter is concluded." (§65)

“(1) A person commits an offence if, while being a director of a firm or while engaged or purporting to be engaged by a firm in a position having management authority within the firm, such person—

(a) caused the firm to engage in a prohibited practice in terms of section 4(1)(b); or (b) knowingly acquiesced in the firm engaging in a prohibited practice in terms of section 4(1)(b).

(2) For the purpose of subsection (1)(b), ‘knowingly acquiesced’ means having acquiesced while having actual knowledge of the relevant conduct by the firm. (3) Subject to subsection (4), a person may be prosecuted for an offence in terms of this section only if—

(a) the relevant firm has acknowledged, in a consent order contemplated in section 49D, that it engaged in a prohibited practice in terms of section 4(1)(b); or (b) the Competition Tribunal or the Competition Appeal Court has made a finding that the relevant firm engaged in a prohibited practice in terms of section 4(1)(b).

(4) The Competition Commission— (a) may not seek or request the prosecution of a person for an offence in terms of this section if the Competition Commission has certified that the person is deserving of leniency in the circumstances; and (b) may make submissions to the National Prosecuting Authority in support of leniency for any person prosecuted for an offence in terms of this section, if the Competition Commission has certified that the person is deserving of leniency in the circumstances.


(5) In any court proceedings against a person in terms of this section, an acknowledgement in a consent order contemplated in section 49D by the firm or a finding by the Competition Tribunal or the Competition Appeal Court that the firm has engaged in a prohibited practice in terms of section 4(1)(b), is prima facie proof of the fact that the firm engaged in that conduct. (6) A firm may not directly or indirectly—

(a) pay any fine that may be imposed on a person convicted of an offence in terms of this section; or (b) indemnify, reimburse, compensate or otherwise defray the expenses of a person incurred in defending against a prosecution in terms of this section, unless the prosecution is abandoned or the person is acquitted.’’ (§73a)

Penalties in cases of enforcement obstructions: "It is an offence to hinder, oppose, obstruct or unduly influence any person who is exercising a power or performing a duty delegated, conferred or imposed on that person by this Act." (§70) "A person commits an offence who, having been summoned in terms of section 49A, or directed or summoned to attend a hearing –

(a) fails without sufficient cause to appear at the time and place specified or to remain in attendance until excused; or (b) attends as required, but -

(i) refuses to be sworn in or to make an affirmation; or (ii) fails to produce a book, document or other item as ordered, if it is in the possession of, or under the control of, that person." (§71)

"A person commits an offence who, having been sworn in or having made an affirmation -

(a) subject to section 49A(3) or 56, fails to answer any question fully and to the best of that person’s ability; or (b) gives false evidence, knowing or believing it to be false." (§72)

"(1) A person commits an offence who contravenes or fails to comply with an interim or final order of the Competition Tribunal or the Competition Appeal Court. (2) A person commits an offence who -

(a) does anything calculated to improperly influence the Competition Tribunal or Competition Commission concerning any matter connected with an investigation; (b) anticipates any findings of the Tribunal or Commission concerning an investigation in a way that is calculated to influence the proceedings or findings; (c) does anything in connection with an investigation that would have been contempt of court if the proceedings had occurred in a court of law; (d) knowingly provides false information to the Commission; (e) defames the Tribunal or the Competition Appeal Court, or a member of either of them, in their respective official capacities; (f) wilfully interrupts the proceedings or misbehaves in the place where a hearing is being conducted; (g) acts contrary to a warrant to enter and search; (h) without authority, but claiming to have authority in terms of section 46 or 47 -

(i) enters or searches premises; or (ii) attaches or removes an article or document." (§73)

"Any person convicted of an offence in terms of this Act, is liable -

‘‘(a) in the case of a contravention of section 73(1), or section 73A, to a fine not exceeding R500 000-00 or to imprisonment for a period not exceeding 10 years, or to both a fine and such imprisonment; or (b) in any other case, to a fine not exceeding R2 000-00 or to imprisonment for a period not exceeding six months, or to both a fine and imprisonment." (§74)

Remedies: "(1) Where the Commission is satisfied that a person has committed or is likely to commit an offence against this Act [...], it may make a compliance order under this section against that person and any person involved in the offence. (2) A person against whom a compliance order is made commits an offence if that person fails to comply with the order.

Tanzania


(3) A compliance order may require a person to refrain from conduct in contravention of this Act or to take actions to comply with this Act, and shall specify the time for compliance with the order and the duration of the order. (4) The Commission may make an interim compliance order pending a proper consideration of a matter if the Commission is of the opinion that there is an imminent danger of substantial damage to a person if a threatened or likely offence is committed or there are other good reasons for making such an order. (5) Without limiting the generality of sub-section (3), where the Commission is satisfied that a person (in this sub-section referred to as the ''acquirer'') has acquired shares or other assets in breach of sub-section (1) of section 11 [mergers and acquisitions], the Commission may make an order at any time within three years after the acquisition

(a) requiring the acquirer to dispose of some or all of the shares or assets within such time as the Commission specifies in the order; or (b) declaring the acquisition to be void, requiring the acquirer to transfer some or all of the shares or assets back to the person from whom the acquirer acquired the shares or assets (in this sub-section referred to as the ''vendor'') and requiring the vendor to refund to the acquirer some or all of the amounts received by the vendor in respect of the acquisition, as the Commission specifies in the order. [...]

(8) The Commission may enter into an agreement in writing, referred to in this section as a "compliance agreement'', whereby a person undertakes to the Commission to refrain from conduct in contravention of this Act from a date, and for a period of time, specified in the compliance agreement or for the disposal of shares or assets and other matters referred to in sub-section (5), on such terms and conditions as the Commission deems appropriate." (§58) Penalties in cases of substantive violations of the law: "(1) Where a person commits an offence against this Act [...] or is involved in such an offence, the Commission may impose on that person a fine of not less than five percent of his annual turnover and not exceeding ten percent of his annual turnover. (2) If the Commission is satisfied that a monetary value can reasonably be placed on the damage including loss of income suffered by a person as a result of an offence against this Act, the convicted person shall, in addition to any other penalty which may be imposed, be liable to a fine of two times such monetary value, which the Commission shall order to be paid to the person suffering the damage. (3) Where a person charged with an offence under this Act is a body corporate, every person who, at the time of the commission of the offence, was a director, manager or officer of the body corporate may be charged jointly in the same proceedings with such body corporate and where the body corporate is convicted of the offence, every such director, manager or officer of the body corporate shall be deemed to be guilty of that offence unless he proves that the offence was committed without his knowledge or that he exercised all due diligence to prevent the commission of the offence. (4) For the purposes of this section, any partner of a firm shall be jointly and severally liable for the acts or omissions of any other partner of the same firm done or omitted in the course of the firm's business." (§60) "(1) Any person who suffers loss or damage as a result of an offence against this Act [...] may apply to the Commission for compensatory orders under this section against the person who committed the offence and any person involved in the offence, whether or not they have been convicted of the offence. (2) An application under sub-section (1) may be made at any time within three years after the loss or damage was suffered or the applicant became aware of the offence, whichever is the later. (3) The Commission may make orders under this section against the person who committed the offence and any person involved in the offence (in this section referred to as the ''respondents'') as the Commission considers appropriate to compensate the applicant for the loss or damage suffered by the applicant or to prevent or reduce such loss or damage, including the orders in sub-section (4). (4) The orders referred to in sub-section (3) are:

(a) an order requiring the respondents to pay money; (b) an order requiring the respondents to supply goods or services for specified periods or on specified terms and conditions; (c) an order declaring void, terminating or varying a contract;


(d) an order requiring the respondents to pay the costs of the applicant or of a person appearing at the hearing or producing documents.

(5) Any person against whom a compensatory order is made commits an offence if that person fails to comply with the order." (§59) Penalties in cases of enforcement obstructions: "(1) Any person who-

(a) when summoned, fails or refuses to attend without reasonable excuse; (b) having attended as a witness refuses or fails to take an oath or make an affirmation as required by the Tribunal; (c) makes any statement before the Tribunal which he knows to be false or which he has no reason to believe to be true; (d) omits or suppresses any information required by the Tribunal in the discharge of its functions or relevant to the discharge of those functions; or (e) in any manner misleads, obstructs, insults or disturbs the Tribunal, commits an offence.

(2) The Tribunal shall be empowered to impose a fine of not less than one hundred thousand shilling and not exceeding five million shillings on a person that commits an offence under sub-section (1) of this section." (§88) "(1) Any person who-

(a) contravenes or fails to comply with any provisions of this Act or any regulations made hereunder, or any directive or order lawfully given, or any requirement lawfully imposed under this Act or any regulations made hereunder, for which no penalty is provided; (b) omits or refuses-

(i) to furnish any information when required by the Commission to do so; or (ii) to produce any documents when required to do so by a notice sent by the Commission: or

(c) knowingly furnishes any false information to the Commission; shall be guilty of an offence and shall be liable upon conviction to a fine not exceeding ten million Kwacha or imprisonment for a term not exceeding five years or to both. (2) If the offence is committed by a body corporate, every director and officer of such body corporate, or if the body of persons is a firm, every partner of that firm, shall be guilty of that offence provided that o such director, officer or partner shall be guilty of the offence is he proves on a balance of probability that such offence was committed without his knowledge or consent, or that he exercised all due diligence to prevent the commission of the offence." (§15) Remedies: "(1) If the Commission is satisfied, having regard to the matters referred to in section thirty-two, that any restrictive practice which exists or may come into existence is or will be contrary to the public interest, the Commission may make any one or more of the following orders in respect of that restrictive practice –

(a) prohibiting any person named in the order, or any class of persons, from engaging in the restrictive practice or from pursuing any other course of conduct which is specified in the order and which, in the Commission’s opinion, is similar in form and effect to the restrictive practice; (b) requiring any party to the restrictive practice to terminate the restrictive practice, either wholly or to such extent as may be specified in the order, within such time as is specified therein; (c) requiring any person named in the order, or any class of persons, to notify prices to the Commission, with or without such further information as may be specified in the order; (d) regulating the price which any person named in the order may charge for any commodity or service: Provided that the Commission shall not make any such order unless it is satisfied that the price being charged by the person concerned is essential to the maintenance of the restrictive practice to which the order relates; (e) prohibiting any person named in the order, or any class of persons, from notifying persons supplying any commodity or service of a price recommended or suggested as appropriate to be charged by those persons; (f) generally, making such provision as, in the opinion of the Commission, is reasonably necessary to terminate the restrictive practices or alleviate its effects.

Zambia

Zimbabwe


(2) If the Commission is satisfied, having regard to the matters referred to in section thirty-two, that any actual or proposed merger or monopoly situation is or will be contrary to the public interest, the Commission may make any one or more of the following orders in respect of that merger or monopoly situation -

(a) declaring it to be unlawful, except to such extent and in such circumstances as may be provided by or under the order, to make or to carry out any agreement or arrangement which is specified in the order and which, in the Commission’s opinion, will lead to or maintain the merger or monopoly situation; (b) in the case of a monopoly situation, requiring any person who exercises control over the business or economic activity concerned to take such steps as are specified in the order to terminate the monopoly situation within such time as is specified in the order; (c) prohibiting or restricting the acquisition by any person named in the order of the whole or part of any undertaking or assets, or the doing by that person of anything which will or may result in such an acquisition, if the acquisition is likely, in the Commission’s opinion, to lead to a merger or monopoly situation; (d) requiring any person to take steps to secure the dissolution of any organization, whether corporate or unincorporated, or the termination of any association, where the Commission is satisfied that the person is concerned in or a party to the merger or monopoly situation; (e) requiring that, if any merger takes place or any monopoly situation exists, any party thereto who is named in the order shall observe such prohibitions or restrictions in regard to the manner in which he carries on business as are specified in the order. (f) generally, making such provision as, in the opinion of the Commission, is reasonably necessary to terminate or prevent the merger or monopoly situation, as the case may be, or alleviate its effects.

(3) Notwithstanding any other law and without derogation from the generality of subsection (2), an order made in respect of a merger or monopoly situation may provide for any of the following matters -

(a) the transfer or vesting of property, rights, liabilities or obligations; (b) the adjustment of contracts, whether by their discharge or the reduction of any liability or obligation or otherwise; (c) the creation, allotment, surrender or cancellation of any shares, stocks or securities; (d) the formation or winding up of any undertaking or the amendment of the memorandum or articles of association or any other instrument regulating the business of any undertaking." (§31)

Penalties in cases of substantive violations of the law: "Any person who enters into, engages in or otherwise gives effect to an unfair trade practice shall be guilty of an offence and liable -

(a) in the case of an individual, to a fine not exceeding fifty thousand dollars or to imprisonment for a period not exceeding two years or to both such fine and such imprisonment; (b) in any other case, to a fine not exceeding one hundred and fifty thousand dollars." (§42(3))

"(1) Any person who suffers injury, loss or harm as a result of any agreement, arrangement, undertaking, act or omission referred to in section forty-three [unfair business practice, incl. anticompetitive practices] may recover damages, by proceedings in a court of competent jurisdiction, from every person responsible for the agreement, arrangement, undertaking, act or omission. (2) Subsection (1) shall not limit any person’s remedy under any other law for injury, loss or harm that has been or may be occasioned to him by any agreement, arrangement, undertaking, act or omission referred to in section forty-three." (§44) Penalties in cases of enforcement obstructions: "Any person who, when required to furnish the Commission with information [...]-

(a) fails or refuses to do so; or (b) furnishes the Commission with information which he knows to be false or does not believe on reasonable grounds to be true;


shall be guilty of an offence and liable to a fine not exceeding five thousand dollars or to imprisonment for a period not exceeding six months or to both such fine and such imprisonment." (§45(2)) "Any person who, without lawful excuse -

(a) hinders or prevents an investigating officer from exercising any power under subsection (1) [entry and inspection]; or (b) fails or refuses to comply with any requirement of an investigating officer under subsection (1); or (c) upon being required under subsection (1) to disclose any information, fails or refuses to do so or provides information that is false or which he does not believe on reasonable grounds to be true;

shall be guilty of an offence and liable to a fine not exceeding five thousand dollars or to imprisonment for a period not exceeding six months or to both such fine and such imprisonment." (§47(3)) "any person who contravenes or fails to comply with any provision of an order with which it is his duty to comply shall be guilty of an offence and liable to a fine not exceeding twenty thousand dollars or to imprisonment for a period not exceeding two years or to both such fine and such imprisonment." (§33(7))