Introduction to Competition Policy & Law Rijit Sengupta Role of Trade Unions in Promoting Competition in Zambia 13 th February 2012, Kitwe, Zambia

What is Competition ? The process of rivalry between firms striving to gain sales and make profits Motive: self-interest; outcome mostly beneficial for society (producers and consumers) Competition is not just an event, but a process It is not automatic – needs to be nurtured 2

Benefits from Competition Producer benefits Market predictability (policy and practice) Efficiency (resource allocation) Innovation (productivity gains) Easy entry and exit (no barriers) Consumer welfare Lower prices Better quality More choice Easy access 3

What is Competitiveness? It is a comparative concept Ability and performance of a firm, sub-sector or country to sell and supply goods and/or services in a given market Firm competitiveness: compares a firm with its rivals in terms of quality and ability to supply goods National competitiveness: awareness/preparedness of a country to challenges posed by global competition 4

Impediments to Competition? Government Policy Difficult entry/exit conditions Absence of competitive neutrality (Favourtism) Non-transparent public procurement Implications of other policies Anti-competitive Practices Restrictive Business Practices (Horizontal & Vertical) Unfair Trade Practices (misleading advert, bait & switch, false claims, etc.) Lack of awareness and understanding Lack of buy-in among policymakers Lack of awareness, low public demand/support 5

Competition Reforms 6 COMPETITION REFORMS Promoting Competition Curbing Anti-competitive Practices (ACP) COMPETITION POLICY COMPETITION LAW

Competition Policy National Competition Policy Statement Govt. commitment to promote competition in all sectors Refinement of policies (trade policy, industrial policy, investment policy, procurement policy) for competition Ideally, a precursor to a competition law (sequence not followed) Very few countries have a national competition policy (e.g., Australia, Botswana, Malawi, Mozambique, etc.) Some countries are in the process of developing one (e.g., India, Uganda, Ghana, etc.) 7

Competition Law Aims to protect process of competition and not competitors Consist of a set of rules to curb ACPs Competition Authority (CA) to implement the law Over 130 countries have adopted a Competition Law National and Regional Competition Law (EAC, COMESA, ECOWAS) Often Competition Policy and Competition Law used interchangeably – NOT CORRECT 8

Provisions under a Competition Law Anti-competitive practices of following types are prohibited: Anticompetitive agreements (collusion, cartels, etc.) Abuse of Dominance (exploitative or exclusionary) Anticompetitive Mergers Competition Authority (CA) established with certain Powers & Functions Linkage of CA with line Ministry and other Govt departments Competition Advocacy (CA carries out activities to promote competition – SH sensitisation, policy reforms, public awareness, etc.) 9

Competition Authority Agency created as per the provisions of the Competition Law Main functions – investigative (Competition Commission) and sometimes adjudicative (Competition Tribunal) Maintain functional autonomy, and be accountable Public support is critical for its actions Undertakes competition advocacy (through stakeholder engagements) Cooperate actions with other regulatory agencies 10

Anti-Competitive Practices (ACPs) Two types: Horizontal agreements and Vertical agreements Horizontal agreements - firms in same business (competitors) agreeing not to compete - Bid rigging - Output restrictions - Price fixing - Market allocation Vertical agreements involve firms in a supplier- customer relationship - Exclusive supply/purchase agreements - Tie-ins - Resale price maintenance 11

Abuse of Dominance (AoD) A firm in a dominant position abusing its position Two ways: Exploitative and Exclusionary practices Exploitative practices exploit customers of a dominant firm - Excessive pricing - Discrimination - Tied selling o Exclusionary practices aimed at driving competitors out of business - Predatory pricing - Refusal to deal - Hoarding (raw materials) - Exclusive dealing 12

Anticompetitive Mergers & Acquisition Firms often try to avoid competition through Mergers Three types of Mergers: Horizontal, Vertical and Conglomerate Horizontal mergers involve reduce the number of players Vertical mergers include firms in a supplier-customer relationship and can result in foreclosure Conglomerate mergers involve firms in different lines of business, which could lead to considerable market power 13

Concluding Points Effective competition enforcement results in both consumer welfare and producer benefits SH need to understand their role in promoting competition CAs need to strengthen SH communication/engagement Policymakers need to prioritise competition reforms Business should realise benefits of competition Development partners/donors need to support the process 14

ZIKOMO! NATOTELA! Thank You 15