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This is what changes to the Competition Act could look like

Cape Town – Government’s intention to give competition authorities more muscle so that they can address over-concentration in certain markets should be coupled with additional resources and appointing more decision-makers if this is to be done meaningfully, according to Gomolemo Kekesi of Bowmans law firm.

In a telephonic interview with Fin24 Kekesi, a partner in competition law practice, said the Competition Commission and Competion Tribunal have clamped down on anti-competitive behaviour and collusive practices with great success.

However, there’s anxiety on the part of government to see more inclusion in the economy, a more even spread of ownership and better entry opportunities for a variety of players, such as those from historically disadvantaged groups.

“Competition law practitioners, such as myself, welcome efforts to strengthen competition enforcement, but we’re concerned that competition authorities may become stretched if greater responsibilities are placed on them.

“Government can increase their level of responsibility, but they need extra capacity and more decision-makers under them or working in parallel with authorities. You don’t want them to be so stretched that they can no longer achieve anything meaningfully,” she said.

'Radical interventions'

Economic Development Minister Ebrahim Patel recently tabled a proposed framework for amendments to the Competition Act that will also enable competition authorities to take action where big players in the market create or heighten barriers to entry which keep smaller players out.

He said the amendments will bring about “radical interventions” to act against companies that perpetuate skewed ownership patterns in the economy, but didn’t go into detail about the nature of the proposals.

READ: Radical changes to competition law underway 

In its present format the Competition Act already allows competition authorities to consider ease of entry into a particular market, and the ability of small businesses or firms owned and/or controlled by historically disadvantaged persons to become competitive.

They can also look into the level of concentration or the degree to which concentration is worsened in respect of mergers and prohibited practices.

In enforcing provisions relating to mergers and prohibited conduct, the commission undertakes an investigation, Kekesi explained.

At the end of a merger probe the competition authorities may decide whether to approve or prohibit it, while at the end of an investigation into prohibited conduct there may either be a finding that there has been no violation of the act or if there has been, a financial penalty (or criminal liability where one is dealing with cartel conduct) may be imposed.

READ: R10m price-fixing for fine for Mpumalanga maize-milling firm 

An investigation is different from a market inquiry. An investigation is launched when there is suspicion of prohibited conduct, whereas with a market inquiry there is not necessarily evidence of prohibited conduct but rather indications that markets are uncompetitive for reasons to be determined through the inquiry.

Kekesi points out that under the current act there are limitations on the interventions competition authorities may make to address this.

“For example, in merger investigations, the ownership structure of the merging parties is considered, including whether an acquiring firm is a black-empowered entity. A merger transaction that creates or enhances barriers to entry, for example, or results in a significant increase in concentration by reducing the number of players generally raises concerns and may require remedies to cure those concerns or it may be prohibited altogether.”

In some mergers, parties may also opt to sell a stake of ownership to historically disadvantaged persons, but this would be voluntary or an agreed concession as the current Competition Act does not empower competition authorities to order the sale of equity to small businesses.

READ: Construction cartel: firms agree to pay R1.5bn to fund 

Over-concentration in a specific market, high entry barriers or skewed ownership however cannot be directly addressed, except where there is some kind of conduct which is found to constitute a violation of one of the prohibited practices (such as abuse of dominance).

“Even then, at most the current act permits authorities to largely only impose a penalty. Therefore, competition authorities generally cannot directly impose conditions which could remedy the general level of concentration or increasing a greater spread of ownership in a given market," Kekesi said.

"In addition, the act empowers the commission to proactively launch a market inquiry into a sector where it appears that there are factors that distort or restrict competition.

"At the end of an inquiry, the commission makes recommendations to various stakeholders (including government, or industry regulators, or market participants) on measures that should be imposed to improve the level of competitiveness."

Extending powers

Previously (when a banking inquiry was done), the commission did not have any meaningful powers, Kekesi said. “For example, it did not have the power to summons evidence or take evidence on oath. Participation by players in the banking sector was voluntary and evidence was given voluntarily.

"Following an amendment of the act, the commission now has more extensive powers – including summonsing powers – but authorities may only make recommendations whose implementation is generally the responsibility of other stakeholders.

“Therefore one wonders what the minister has in mind,” Kekesi said. “There may be revisions to the act that extend the nature of orders that competition authorities may impose to directly deal with over-concentration or ownership structures in relation to investigations (mergers or prohibited conduct).

READ: Competition watchdog to get sharper teeth 

“In addition, one wonders whether competition authorities may be tasked with making binding decisions following market inquiries or be given greater responsibility to oversee the implementation of conditions they consider necessary to improve the level of competitiveness or results in a greater spread of ownership.”

Collective dominance

Another proposed measure, Kekesi said, could include a provision for collective dominance where three or four players with similar market shares could be guilty of dominant behaviour.

“One wonders if there might be appetite for that, as the current act does not make provision for collective dominance.” 

Market dominance is only investigated unilaterally where one big player is involved.

According to Kekesi, the competition authorities have expressed frustration with not being able to investigate collective dominance and complex monopolies. “The frustration has largely related to the poor success rate of prosecuting abuse of dominance. Possibilities that may arise are that the test for abuse of dominance may be lowered or adjusted to make prosecutions easier.

“In addition, the concept of collective dominance may be introduced and be combined with the ability of competition authorities to impose conditions that directly address issues of concentration where, for example, there are few equally-sized firms in a market."

READ: How SA's big supermarket chains keep out small suppliers 

She says complex monopolies (as is currently contemplated in an amendment bill which has not come into force) in a sense seek to enable the commission to investigate markets where there are few players. However, multiple factors need to apply before the commission may impose conditions to improve the level of competition.

“However, I do not think that complex monopolies is what the minister has in mind because if he did, he could just motion for the passing of the complex monopoly provision in its current form," Kekesi said.

This could mean that in the amendments the threshold of what some of those provisions require may be lowered, while there may be a redrafting of the so-called general vertical concern, Kekesi said.

She explains that the current act has a general provision which seeks to prohibit agreements between a firm and its suppliers or distributors and customers, which substantially lessens or prevents competition in a market.

“However, to date such conduct has not been successfully prosecuted under this provision because in order for any vertical conduct to have a substantial impact, one of the firms involved must be dominant."

(Dominance is not a specific requirement, but in essence it does boil down to a firm that needs to have a sufficiently large market share or exercise some power for its conduct to have a big enough impact to distort competition.)

The provision has not been a success and has simply placed pressure on authorities to eradicate anti-competitive vertical restraints, such as exclusive supply agreements or price matching, through the abuse of dominance provisions.  

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