Rationale for Competition Policy Presentation by Busi Ngwenya

Rationale for Competition Policy Presentation by: Busi Ngwenya Competition Commission SA

Purpose of the Presentation Ø What is Competition Policy and how is it different from Competition Law? Ø Objectives and Scope of Competition Policy and Law Ø What are Anti-competitive Practices and how do they affect consumers? Ø A Merger Analysis

What is Competition? Competition is defined as: “Rivalry between suppliers providing goods or services for a market” “The situation when anybody who wants to buy or sell has a choice of possible suppliers or customers” Policy is defined as: "Policy can be viewed basically as a course of action or inaction towards the accomplishment of some intended or desired end. It embraces both what is actually intended and what occurs as the result of the intention" (Harman, 1978), http: //www. slaq. org. au/Sub. Committees/Murrumba/PD/whatispolicy. htm 3

What is Competition Policy? Competition Policy: ØThe design, effective implementation and enforcement of competition law Competition Law: ØTo remove or prohibit (eliminate or curtail) restrictive business practices which hinder or prevent firms from competing freely with one another in domestic markets 4

Objectives and Scope Principle Objectives of Competition Law and Policy: To improve economic efficiency To contribute to economic development, through innovation Reduction of barriers to entry 5

Objectives and Scope Secondary Objectives of Competition Law and Policy: Limit further increases in the concentration of economic power; Create an enabling environment for small and medium-sized companies Provide consumer choice and competitive pricing 6

Objectives and Scope: It applies or should apply to all economic activities within the country or member states (Europe); Create an enabling environment for small and medium-sized companies Provide consumer choice and competitive pricing 7

Objectives and Scope Malawian Act’s objectives: ØTo encourage competition in the economy by prohibiting anti-competitive trade practices; ØTo establish the Competition & Fair Trading Commission ØTo regulate & monitor monopolies & concentrations of economic power; ØTo protect consumer welfare; ØTo strengthen the efficiency of production & distribution of goods & services; ØTo secure the best possible conditions for the freedom of trade; ØTo facilitate the expansion of the base of entrepreneurship; and ØTo provide for matters incidental thereto or connected therewith 8

Anticompetitive Practices Malawian Act’s definition: “Any category of agreements, decisions and concerted practices which are likely to result in the prevention, restriction or discretion of competition to an appreciable extent in Malawi or in any substantial part of it” Agreement will include a contract, arrangement or understanding, whether or not legally enforceable Concerted practice means co-operative, or co-ordinated conduct between firms, achieved through direct or indirect contact, that replaces their independent action, but which does amount an agreement (SA Act) 9

What the Law deals with Ø Prohibited Practices v Restrictive Horizontal Practices v Restrictive Vertical Practices v Abuse of Dominance Ø Exemptions ØMerger Control

Prohibited Practices Two approaches ØRule of Reason Prohibition v Adverse effects of restriction on competition weighed against possible efficiency/pro-competitive gains ØPer Se Prohibitions v No defense once proven

Prohibited Practices Two approaches ØRule of Reason Prohibition v Horizontal and vertical agreements ØPer Se Prohibitions v v Price fixing Division of markets Collusive tendering Minimum resale price maintenance

Effect on consumers Ø The Commission concluded a consent agreement with United South African Pharmacies (“USAP”), an association of retail pharmacies, in respect of conduct in terms of which USAP decided on a ‘group boycott’ against Anglo American Corporation Medical Scheme (“AACMED”) and Engen Medical Fund in contravention of the Competition Act. Complaints were lodged by AACMED and Engen Medical Fund respectively alleging that USAP, after the two schemes individually failed to agree to the discount offered by USAP on chronic and acute medication, ordered a ‘boycott’ to the effect that its retail pharmacies would not supply chronic and acute medication to AACMED and Engen Medical Fund. USAP further put the two schemes on its “C” list, which means ‘not recommended’, a list that USAP circulated to all its members. USAP also refused to give AACMED and Engen Medical Fund credit, thus requiring members of the two schemes to pay cash or buy on agreed credit terms. 13

Effect on consumers Ø In December 2006 the Commission referred a milk cartel investigation to the Tribunal for possible prosecution. The investigation had established that milk processors had exchanged sensitive information on production price, colluded to fix the selling price, allocate geographical markets and removal of surplus milk from the market amongst others. As a result most producers and small scale farmers were forced to exit the market as they were paid below market price and could not break-even and were prohibited from finding alternative markets for surplus milk. The country also faced severe milk shortages and retailers did not have milk on their shelves for weeks which had an impact on the economy and consumers, i. e. high prices and limited stock or no stock at all in certain areas. 14

Effect on consumers VITAMIN CARTELS In 2001, the European Commission fined eight companies (among which Hoffman-La Roche) for their participation in cartels designed to eliminate competition in the vitamin sector. Vitamins are used in a wide variety of products, such as cereals, biscuits, drinks, animal feed, pharmaceuticals and cosmetics. This was reflected in the fine of more than EUR 800 million. For almost 10 years, the companies were able to charge higher prices than if there had been real competition between them, harming consumers and allowing the companies to make illicit profits. CAR SALES BETWEEN EU MEMBER STATES In 1998, following many complaints from consumers, the European Commission fined Volkswagen AG EUR 90 million for banning its Italian dealers from meeting orders from German and Austrian customers attracted by lower prices in Italy. It is illegal for car manufacturers to discourage their dealers from selling to customers resident in other EU Member States. The European Commission publishes a six-monthly review of pretax car prices in each of the EU Member States to help consumers to identify the country in which the car they might want to buy is cheapest 15

Benefits of competition Ø Facilitates entry into markets, especially of new products Ø Encourages innovation and efficiency Ø Prohibits collusion Ø Promotes or encourages expansion within markets 16

Some limitations on Competition Law Ø Does not seek to change the structure of the market; Ø Monopolies may continue to earn monopoly profits; Ø Applies to domestic markets only; Ø Must not contradict other economic policies affecting competition 17

ZIKOMO/THANK YOU

Questions Discussion Clarification