Law Around Business Competition Practices in South Africa and Examples
- Featured article by LAWYERS-ONLINE.CO.ZA - March 2019
South Africa has a well regulated business sector when it comes to competition practices as a result of the Competition Act 89 of 1998. Due to this act, companies are allowed to compete with one another in a healthy market atmosphere – and with healthy competition in place, companies are challenged to be less complacent and more creative in order to retain their slice of the market. The competition practices laid out in the Competition Act are in line with international standards, and works in tandem with the free market principles that our economic system is based on, while still keeping a controlled lid on competition. Interesting fact but South Africa actually ranked 8th out of 148 countries in 2013 to 2014 for competition law!
But what does this all mean? Well, the act established an entity called the Competition Commission, who is responsible for implementing the provisions in the act. The act has seen many amendments since its inception, the most recent taking place in February 2019. It also established the Competition Tribunal and Competition Appeal Court, and the main aim of the act is to prevent anti-competitive conduct in the industry.
So what constitutes anti-competitive behaviour? Let’s lay out a few examples below:
Restrictive horizontal and vertical practices
In the horizontal sense a restrictive practice occurs when two competing companies come to an agreement to lessen the competition in the market. For example, when two bread companies agree to sell their bread for the same price, at a lower price than their competitors who are not in on the gig (this is called price fixing). Other practices under this heading also include:
- Collusive tendering
- A division of the market through allocating customers
In the restrictive sense, the prohibited action occurs between a company and its suppliers. So using our bread example above, it could be an agreement between the bread bakers and the company making the flour for the bread to settle on a minimum resale price. This creates a trading condition that goes against the provisions of the Competition Act.
Abuse of a dominant position
In this case, a dominant company (one with the biggest market share) may use that position to set prices and exclude the competition from certain actions. This is clearly anti-competitive behaviour and gets in the way of smaller business getting a slice of the market.
Horizontal and vertical mergers
Mergers may often be used as a means to get around anti-competition legislation, as a company cannot be accused of collusion if it owns the competition. Therefore mergers and acquisitions must be investigated by the Competition Commission in order to protect the interests of consumers. If prices go unregulated, and no competition exists to curb these prices, the market will become too expensive for consumers.
Of course, the act covers far more than just price fixing and collusion, it also oversees social objectives such as BEE, employee rights and the rights of smaller business.
So, what happens if a company is found to be engaging in anti-competition practises? Well once the Competition Commission confirms their investigation, the matter is referred to the Competition Tribunal and thereafter the Competition Appeal Court, where prosecution can take place.
Should you have any questions related to business competition practices in South Africa, let us know and we can put you in contact with a business attorney who may be able to assist.