What is competition law?
16 Sep 2022
Competition law is a branch of law built on the rules established with an aim to protect competition in the markets for goods and services. Competition law is designed to create a level playing field where both big and small businesses can compete fairly and effectively. Free and fair competition benefits consumers in terms of choice and lower prices.
Competition law affects businesses positively as it establishes a business culture which maintains competition, thus allowing businesses to improve and develop in order to remain a strong competitor in the field.
In addition, competition law aims to promote the ability of effective entry into, participation in, or expansion within a market by small and medium businesses or firms controlled by historically disadvantaged persons.
In summary, the South African Competition Act (“the Competition Act”) seeks “to promote and maintain competition” in South Africa so that, in turn:
- the “efficiency, adaptability and development” of the South African economy is promoted;
- consumers are provided with “competitive prices and product choices”;
- employment is promoted and the “social and economic welfare of South Africans” is advanced;
- “opportunities for South African participation in world markets” are expanded and “the role of foreign competition” is recognised; and
- “small and medium-sized enterprises have an equitable opportunity to participate in the economy”.
These rules which concern the acts and transactions of firms engaged in economic activities in the markets for goods and services are generally grouped under three major elements set out below:
- Prohibited practices – these practices include restricted horizontal and vertical practices. Horizontal practices are practices that govern contracts, arrangements or understanding, whether or not legally enforceable, between competitors. The Commission has stated that, “firms will be regarded as competitors if they compete in the same market in respect of the same or interchangeable or substitutable goods or services.” These practices prohibit agreements between competitors that lessen or prevent competition, as well as collusion (price fixing, market division and collusive tendering). Vertical practices are practices that govern contracts, arrangements or understanding, whether or not legally enforceable, between parties in a vertical relationship. Parties are in a vertical relationship if they operate at different levels of the supply chain. These practices prohibit agreements between suppliers and customers that lessen or prevent competition, as well as the practice of minimum resale price maintenance.
- Abuse of dominance – abuse of a dominant position occurs when a dominant firm in a market, or a dominant group of firms, engage in conduct that is intended to eliminate or discipline a competitor or to deter future entry by new competitors, with the result that competition is prevented or lessened substantially.
- Merger, amalgamations and acquisitions of control – the Competition Act regulates mergers having an effect within South Africa. No party may implement a notifiable merger without the prior approval of the competition authorities. The authorities must assess whether the merger is likely to substantially lessen or prevent competition in the relevant market and the probability that the firms in the market will behave competitively or co-operatively after the merger. Irrespective of the impact on competition, the competition authorities must determine whether the merger can or cannot be justified on public-interest grounds.
The failure of a firm to comply with the provisions of the Competition Act undermines the competition law objectives. Accordingly, an administrative penalty may be imposed by the South African Competition Tribunal. The administrative penalty may be 10% of the firm’s annual turnover in South Africa and its exports from South Africa during its preceding financial year. A penalty of 25% may be imposed on a firm for repeat conduct. The purpose of the penalties are to deter firms from further prohibitions of the Competition Act.
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(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)