The importance of curbing anti-competitive conduct cannot be overstated. The World Bank estimates the monopoly rent extracted from developing countries alone by a few international cartels prosecuted in the 1990s totalled $24-billion a year — nearly half the development aid provided to developing countries.
Countless national and local cartels are prosecuted. These aren’t technical transgressions or “victimless crimes”. Consumers everywhere pay for them.
The Competition Act, which came into force in October 1999, bans two categories of conduct: anti-competitive agreements between firms, particularly agreements between competitors or “cartels”, and unilateral abuses by dominant firms.
Collusive deals are the anti-trust heartland. Proof of the existence of agreements to fix prices and carve up markets is enough to convict. Complainants do not have to establish anti-competitive effects, and defendants cannot present pro- competitive justifications.
Abuse of dominance refers mostly to conduct blocking rivals from entering or growing in a market — “exclusionary” conduct — but also to “exploitative” conduct like excessive pricing.
This is an extremely complex area. Firms generally become dominant by making better products more cheaply than their rivals — the very stuff of competition. A firm that gains and holds dominance by making better and cheaper mousetraps should not have to fear anti-trust authorities.
But there is a thin line between robust pro-competitive conduct and unlawful exclusion. Both seek to best, even eliminate, competitors. The authorities must intervene to protect competition, not competitors.
Take a dominant firm’s refusal to supply a product to someone wanting to use it in his/her own business. The refusal may result from commercial conflict — the seller may think the buyer is a credit risk — or because the seller believes the buyer will undermine the product’s competitiveness by using it carelessly or dangerously.
In other words, the refusal to supply may be pro-competitive.
But the seller may be leveraging dominance in the upstream market to acquire power downstream. This may amount to anti-competitive abuse.
In weighing abuses of dominance, modern anti-trust thinking no longer relies only on legal rules. It supplements these with economic reasoning.
The Act established the Competition Commission, responsible for investigation, prosecution and advocacy; the Competition Tribunal, which adjudicates the commission’s recommendations on mergers and hears complaints of anti-competitive practices referred by the commission or private parties; and the Competition Appeal Court, a division of the high court, which hears appeals from the tribunal.
The aim is to ensure the decision-making body, an administrative tribunal, has the mix of skills to apply both legal rules and economic reasoning. The separation of investigative and adjudicative functions and the appeal court ensure that the Act complies with the Constitution’s standards of due process and administrative fairness.
The commission may initiate inquiries or act on complaints. If it declines to prosecute a complaint, the complainant can approach the tribunal directly. It has significant investigative powers, including powers of search and seizure.
The tribunal’s hearings are public, and it must publish fully reasoned decisions. It has inquisitorial powers allowing it to intervene in a trial by, for example, issuing subpoenas to witnesses and instructing the commission to investigate further.
It can interdict anti-competitive practices, void contracts or impose administrative penalties of up to 10% of annual turnover. A complainant who wins at the tribunal can approach the high court for civil damages.
Bringing to trial an allegation of anti-competitive conduct is laborious — the law and its constitutional environment are new and relatively untested.
Defendants inevitably subject the law and the authorities’ actions to the rigorous constitutional tests of fairness, often entailing costly litigation sometimes designed to divert the authorities.
But the stakes are high — competition law imposes limits on property rights, so the authorities’ actions should be subject to rigorous review. Even in Europe and North America, it takes years to finalise a restrictive practices inquiry and trial.
More worrying is the resource imbalance between the public authorities and private defendants who can muster awesome firepower.
A massive capacity-building programme is needed, going beyond training in the intricacies of competition law and economics. It should leverage experienced legal and economic thinking through mentoring programmes and by using — with safeguards — the revolving door between the public sector, universities and private sector. This has served mature competition regimes in the United States, Europe and Australia.
Our authorities’ record in tackling anti-competitive practices is impressive. Several restrictive practices cases have been brought to trial. Important precedents are being established.
The tribunal recently imposed the first significant administrative penalty of R3-million in a vertical price fixing case against a US motor spares distributor. The commission has settled important complaints, including one of price-fixing against lawyers in Pretoria. Firms are beginning to adjust their behaviour to comply with the Act.
In addition, far-reaching price-fixing and abuse inquiries are under way.
David Lewis is chairperson of the Competition Tribunal. Next week: mergers