The overriding intention of South Africa’s Competition Amendment Bill of 2018, introduced in parliament on 12 July 2018, is to address perceived high levels of concentration and the skewed ownership profile of the South African economy. The competition authorities have consistently expressed concerns about the large number of dominant firms operating in the economy which they view as contributing to the ‘concentration problem’. Being dominant (having market shares from 35% upwards or less than that but with market power) is not prohibited but there are special rules that restrict what dominant firms can do for markets to operate competitively.
Abuses of a dominant position are notoriously complex cases to prove and the Bill introduces extensive changes to the abuse of dominance provisions in the Competition Act. These changes are designed to make it easier for the competition authorities to prosecute abuses of a dominant position and also to protect small and medium businesses from exclusionary and exploitative practices by dominant firms.
Some of the proposed changes will have negative consequences and will make doing business more uncertain for dominant firms.
Currently, conduct by a dominant firm can be considered an exclusionary act if it impedes or prevents other firms from entering into or expanding within a market. The Bill expands the definition of exclusionary act to also mean impeding or preventing other firms from participating in a market. There are also new restrictions regarding the price at which dominant firms are supplied or at which they can supply. These provisions are aimed at protecting small and medium firms (still to be defined) and firms owned or controlled by historically disadvantaged individuals.
What does participating in a market mean?
Participate, as defined in the Bill, means the ability of or opportunity for firms to sustain themselves in the market. The proposed introduction of the term ‘participation’ into South Africa’s competition law regime is rooted in the preamble to the Act, which provides for ‘for full and free participation in the economy’.
Participation by firms other than dominant firms will be relevant not only for determining whether a dominant firm has engaged in an exclusionary act, but also for an assessment of a dominant firm’s purchase prices from a small and medium business or a firm controlled or owned by a historically disadvantaged person. When it comes to price discrimination (on purchase or selling prices by a dominant firm), the onus will be on the dominant firm to show that its actions did not impede the ability of small and medium business or a firm controlled or owned by a historically disadvantaged person to participate effectively. It is not clear that this reverse onus is warranted in these circumstances nor is it apparent how a dominant firm will be able to prove that its actions did not have negative effects on participation of any firm.
What concerns arise for dominant firms?
The definition of ‘participate’ is broad and vague. It does not make any allowance for an assessment of whether the participating firm needs to be an efficient firm nor does it indicate how long a firm should be able to ‘sustain’ itself in the market. Therefore it is unclear whether these provisions will protect an inefficient small or medium sized firm regardless of the possible detriment to consumers.
Although the intention of these changes is to encourage transformation and market participation which is a welcome aim, these goals should be carefully balanced against the benefits of a competitive market for consumers.
It is unclear how a dominant firm would be able to determine whether its conduct impacts on another firm’s ability to sustain itself in the market and to what extent a dominant firm would be obliged to investigate the impact of its conduct on other firms and to prove that this is not the case.
Will the changes inadvertently limit competition?
What is particularly concerning is that these changes mean that a dominant firm is under an obligation to ensure that its conduct does not prevent its rivals from sustaining themselves in a market. At the very essence of a competitive market is rivalry among competitors rather than cooperation or supporting one’s competitors. It will be a difficult balance for dominant firms to ensure that they do not inhibit the ability of a firm (which may be an inefficient firm) to sustain itself in a market whilst simultaneously competing aggressively.
Have your say
The proposed changes will make it difficult for dominant firms to determine whether their conduct constitutes an exclusionary act or if their pricing is permissible.
There is still an opportunity to comment on the changes proposed in the Bill until 17 August 2018. The proposals will have a major impact on how dominant firms operate in South Africa.
Please reach out to anyone in the Norton Rose Fulbright competition team for assistance in understanding how these proposals will impact on your business operations.