An extract from The Dominance and Monopolies Review - 7th edition

Market definition and market power

i Dominance

According to the Act, dominance can be attained either by way of market share or market power. Market power is defined as the power of a firm to control prices, to exclude competition or to behave, to an appreciable extent, independently of its competitors, customers or suppliers.

Section 23(1) of the Act defines a dominant undertaking as an undertaking that produces, supplies, distributes or otherwise controls not less than one-half of the total goods of any description that are produced, supplied or distributed in Kenya or any substantial part thereof; or that provides or otherwise controls not less than half of the services that are rendered in Kenya or any substantial part thereof.

Section 23(2) of the Act provides that:

notwithstanding subsection (1), an undertaking shall also be deemed to be dominant for the purposes of this Act where the undertaking–
(a) though not dominant, controls at least forty per cent but not more than fifty per cent of the market share unless it can show that it does not have market power; or
(b) controls less than forty per cent of the market share but has market power.

Section 4(2) sets out the additional factors to be considered in determining dominance to include the importation of goods or the supply of services by persons not resident or carrying on business in Kenya; and 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.

To provide further clarity to market participants, the CAK has published its Consolidated Guidelines on Substantive Assessment of Restrictive Trade Practices (RTP Guidelines), which detail the factors the CAK will consider when determining if an undertaking is dominant. These include:

  1. potential and actual competition;
  2. barriers to entry into the market;
  3. the degree to which countervailing market powers can impact an undertaking's ability to exercise its power in a market;
  4. product differentiation;
  5. the stability of market shares; and
  6. the ability of an undertaking to act independently of its customers and competitors.
ii Collective dominance or relative dominance

The Act does not provide for collective or relative dominance, but collective actions by undertakings may be captured under the prohibited restrictive trade practices. There are also specific provisions relating to the arrangements trade associations may have under the Act.

iii Market definition

Section 4(1)(c) defines the term 'market' as a market in Kenya or a substantial part of Kenya, and refers to the range of reasonable possibilities for substitution in supply and demand between particular kinds of goods or services and between suppliers or acquirers of those goods and services.

The Competition Authority Guidelines on Relevant Market Definition (Market Definition Guidelines) take an economics-based approach in defining the relevant market. A market, for competition law purposes, has two dimensions: product market and geographical market.

A product market 'constitutes all the goods and/or services which are regarded as reasonably interchangeable or substitutable by the consumers, by reason of the products' characteristics, their prices and their intended use'. On the other hand, a geographical market is 'the area within which undertakings concerned are involved in the supply and demand of goods or services, in which the conditions of competition are sufficiently homogeneous and which can be distinguished from neighbouring areas because the conditions of competition are appreciably different in those areas'.

The Market Definition Guidelines provide for a demand-side substitution approach and a supply-side substitution approach in defining a product market; however, demand substitutability is the key factor considered in market definition. The demand-side substitution approach seeks to identify the alternative products that consumers may turn to when there is an increase in the price of a particular product. The supply-side substitution approach seeks to identify whether undertakings would start supplying a new product were prices to rise.

The Market Definition Guidelines give a practical example of the application of the demand-side approach in the alcoholic beverages (wines) sector to determine whether different flavours of wines belong to the same market. The question to determine would be whether consumers of flavour 'A' would switch to other flavours in the event of a permanent price increase of 5 to 10 per cent. All other flavours to which a sufficient number of consumers would switch, to the extent that the price increase for flavour 'A' would no longer be profitable owing to resulting loss of sales, would form part of the same market.