The Competition Amendment Bill seeks to address two key structural challenges in the South African economy: concentration, and the racially-skewed spread of ownership of firms in the economy.
At the 11th Annual Competition Law, Economics and Policy Conference in September 2017, the Minister of Economic Development, Ebrahim Patel, made the following comment when explaining how economic concentration might be tackled:
“It seems to me to be better that it be done through the trusted and predictable processes of competition regulation and its sound institutions than that it be left to laws that simply mandate the breakup of companies irrespective of the economic logic…”.
Market inquiries are seen as one of the five priorities in addressing this objective. The Background Note published with the Amendment Bill states –
The package of amendments… envisage that market inquiries will become the chief mechanism for analysing and tackling the structural problems in a market, thereby advancing the purposes of the Act. The proposed amendments to the chapter relating to market inquiries will enhance the market inquiry process and will ensure that its outcomes include measures to address concentration and the transformation of ownership.
What is a market enquiry?
The central concept of a market inquiry is to empower the Competition Commission to inquire into a market, and to decide on interventions and remedies to address any features of the market that would enhance competition and advance the purposes of the Competition Act.
The ‘adverse effect’ test
The proposed amendments seek to establish a new test for market inquiries. That is, whether there are any features, or combination of features, in a market that prevent, restrict or distort competition in that market, which constitute an ‘adverse effect’.
This would introduce a lower threshold, to enable intervention by the Commission in circumstances where features of a market impair competition.
When assessing ‘features’ in a market, and in ultimately establishing an adverse effect, the proposed amendments provide that the Commission may look at the following:
- market structure, including the level and trends of concentration and ownership in a market, barriers to entry in a market, as well as past or current advantage arising from state support;
- observed market outcomes, including prices, concentration, customer choice, employment, and entry and exit from a market;
- conduct, whether in or outside a market which is the subject of an inquiry, by firms that supply or acquire goods or services in the market concerned;conscious parallel or coordinated conduct, otherwise known as tacit collusion, and / or
- conduct relating to the market which is the subject of the inquiry of any customers of firms who supply or acquire goods or services.
The Commission’s powers
Importantly, any findings made by the Commission under the proposed amendments (with one exception) would be binding unless challenged by an affected party in the Competition Tribunal. This is in contrast to the current position, where the Commission may only make recommendations to parties following the outcome of an inquiry.
Should the Commission make a finding of an ‘adverse effect’, the amendments would empower the Commission to take all reasonable and practicable action to remedy, mitigate or prevent the adverse effect. The proposed amendments “envisage a range of creative, flexible and bespoke actions that the Commission may undertake where an adverse effect on competition is established”.
These remedies are only required to be reasonable and practicable, and designed to remedy, mitigate or prevent the adverse effect on competition established by the market inquiry.
The exception to this approach is divestiture, which could only be imposed by the Competition Tribunal on the recommendation of the Commission.
Since the introduction of market inquiries in the Competition Act in 2013, we have seen the Commission initiate five market inquiries, two of which were initiated last year.
If the proposed amendments are adopted in their current form, we may see the Commission initiate market inquiries more regularly.
One would hope that the proposed power to recommend divestiture to cure findings of high concentration would be used sparingly, if it is ultimately incorporated into the Act, and only implemented subject to careful analysis of sound factual and economic evidence.