Overview of the Act:
In this comment, we briefly outline prohibitions contained in the Competition Act of South Africa. The purpose of this overview is to provide a brief summary of the main competitive concerns detailed in the Act. It is simplified as much as possible, and provides comment where we think necessary. For more detail, have a look at the peer review document available on the comptrib.co.za web site (http://www.comptrib.co.za/Publications/Reports/OECD%20Peer%20Review%20Report.htm). This comment is intended as an executive summary of the prohibitions under our Act.
The Competitions Act prohibits two types of practices. The first relates to practices that restrict competition. The second to any practice that abuses a dominant position. We will deal with each in turn. Exemptions and mergers are a subject for another day.
Practices that Restrict Competition – Horizontal Practices
Practices at restrict competition can be divided into two categories. The categories deal with the relationship between a company and its markets. The first type of category is that relating to horizontal relationships. A horizontal relationship is a relationship between competitors in a market
A horizontal relationship is presumed to exist between two firms if;
a. any one of those firms owns a significant interest in the other or,
b. if the firms have at least one director in common or,
c. if the firms have at least one substantial shareholder in common.
d. The above presumptions do not apply to a company and its wholly owned subsidiaries or to an economic entity having a similar structure.
The following horizontal practices are prohibited outright, and do not require any effect on competition to be proven. They are simply not permitted:
a. Directly or indirectly fixing a purchase or selling price or any other trading condition.
b. Dividing markets by allocating customers, suppliers, territories, or specific types of goods or services.
c. Collusive tendering.
In addition, an agreement between firms is prohibited if the agreement;
a. Has the effect of substantially preventing, or lessening, competition in a market unless
b. it can be proven that a technological, efficiency or other pro-competitive gain outweighs the anti-competitive effect of that agreement.
Practices that Restrict Competition – Vertical Practices
A vertical relationship is defined as being a relationship between a firm and its suppliers or customers or both. Note that such a relationship does not extend to a relationship between competitors.
a. This part of the Act prohibits the practice of resale price maintenance outright. There is no defence to this practice. In other words, any practice that attempts to hinder or prevent proper price competition for products or services in a market is prohibited.
b. In addition, any agreement that has the effect of substantially preventing or lessening competition in a market is prohibited unless;
c. it is proven that a technological, efficiency or other pro-competitive gain outweighs the anti-competitive effect of that agreement.
Abuse of a Dominant Position.
The definition of a dominant firm is covered elsewhere in this series. The definitions are in the Act and available there if needed. It is sufficient to know that a firm is dominant if it possesses the ability to act independently of its customers, suppliers or competitors.
If a firm is dominant, it may not;
a. charge an excessive price to the detriment of consumers (no competitive effects required);
b. refuse to give a competitor access to an essential facility when it is economically feasible to do so (no competitive effects required);
c. engage in any of the following acts that impede or prevent a firm from entering into or expanding within a market unless the competitive effect is on balance pro-competitive (onus on defendant to prove pro-competitive effects):-
i. require or induce a supplier or customer to not deal with a competitor;
ii. refuse to supply scarce goods to a competitor when supplying those goods is economically feasible;
iii. engage in conditional selling unrelated to the object of a contract;
iv. force a buyer to accept conditions unrelated to the object of a contract;
v. sell goods or services at below their marginal or average variable cost;
vi. buy up a scarce supply of intermediate goods or resources required by a competitor.
d. engage in any act other than those listed above, that impedes or prevents a firm from entering into, or expanding within a market and which act on balance has a provable anti-competitive effect (complainant must prove anti-competitive effects);
We must note that the onus of proof regarding competitive effects varies, depending on the particular prohibition. This is very important because of the presumption regarding proof and who has to prove the competitive effects. If the onus is on the other side to prove competitive effects, they have to do all the running. We do however have some idea as to how the Tribunal will view the proof of competitive effects.
We should therefore note a comment made by the Tribunal in the Sappi (62/CR/Noc01 p. 13 @ 43) case. Comment is necessary in order to understand the effect of proving the effect of pro-competitive consequences. The comment was made in a matter concerning abuse of dominance but enlightens us as to the thought processes of our competitions authorities, but its application is of a more general nature. It was as follows:
“Hence, by way of example, if the firm imposing an alleged tie was, in addition to being dominant in terms of the Act, actually a monopoly supplier then we would inevitably conclude that it would have to show massive pro-competitive gains in order to outweigh the effect of its monopoly status – a would be purchaser of product produced by the dominant firm would have literally no choice but to use the monopolist’s product and thus accept any condition imposed in a contract of sale.
If on the other hand, the firm, despite its formally dominant status, nevertheless faced significant competition, we might well conclude when doing the balancing that the anti-competitive consequences were relatively minor and the pro-competitive showing required, concomitantly less onerous.
But we repeat it is not necessary to establish that the act is indeed exclusionary or anti-competitive – it is sufficient to establish that the respondent is dominant and that it perpetrated the act alleged.”
The action of a dominant supplier, as a seller of goods or services is prohibited if;
i. it is likely to have the effect of substantially preventing or lessening competition;
ii. it relates to the sale of goods or services of like grade and quality, in equivalent transactions, to different purchasers and;
iii. it involves discriminating between those purchasers by way of price, discount, allowance, rebate or credit, the provision of services or payment for services provided in connection with the goods or services sold.
iv. The dominant supplier is then given a “get out of jail free” card. If the supplier can prove any of the following, then price discrimination is not a prohibited action if;
a) only reasonable allowance is made for differences in cost or the likely cost of manufacture, distribution, sale, promotion or delivery that result from … the differing places to which, methods by which or quantities in which the goods or services are supplied to different purchasers or;
b) in good faith, the discrimination is effected in order to meet a price or benefit offered by a competitor or;
c) it is in response to changing conditions affecting the market for the goods or services including things such as;
i. responses to actual or imminent deterioration of perishable goods;
ii. responses to the obsolescence of goods
iii. liquidation sales
iv. sales in good faith as a consequence of the cessation of the business in that good or service.
Market Power & Dominance
The Act uses the language of competition. It focuses on the power of the firm to control markets. Since dominance can only be present within a market, market definitions are crucial. A large firm may be dominant is some markets within its product range, but not so in others. Simple factors such as grade and quality may differentiate markets. Equally, geographical considerations may do the same.
An analysis of market power is therefore crucial at all levels of product. Such an analysis should form part of each annual product review. Within the greater strategic context, divisional analysis of potential competition contraventions would be a sound and worthwhile practice. Attention to compliance with the Act is no longer an option.
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Disclaimer: This site does not profess to offer legal assistance or interpretation. It’s content reflects the view and experience gained by of the author during a hearing at the Competitions Tribunal of South Africa. It may help you to figure out what happens & why.