Goals of Competiton Law Essay
Goals of Competiton Law
According to Barry Rodger and Angus Macculoch,competition law concerns intervention in the market place, when there is some problem with the competitive process or when there is market failure. This includes public authority intervention and is based on different concerns of the principal legal systems. They go on to state that monopolies, cartels and mergers are the three principal issues of interest for most competition law systems, the major concern with cartels and mergers being that, eventually they will achieve a monopoly position, dominate the market and exploit their position. Generally, the fundamental purpose of competition law is to ensure that markets for producing and selling products are effectively contestable.Competition law therefore exists to regulate the conduct of businesses, by preventing them from entering into anticompetitive agreements and abusing a dominant position, to ensure open and fair competition for both consumers and businesses.
Nations adopt competition laws for various reasons hence it is important to state expressly if possible, in the legislation the goal that it seeks to achieve for easier implementation. Various goals have been put across to justify the existence of competition law which are discussed in the ensuing discussion at length. DISCUSSION: The consumer interest and protection from anticompetitive behaviours by cartels and firms with market power, has been stressed as the primary goal of competition law. In any economy there are competing interests between industry and consumers hence the former wish to amass wealth at the expense of the latter. It is therefore necessary for competition law to protect the ignorant consumer from the gluttony competitive tendencies of firms. Under the UK Enterprise Act 2002, section 11, the importance of the consumer is seen where super complaints are made to the Office of Fair Trading (OFT) by designated consumer bodies.
Also, the OFT fined Manchester United, and other football clubs for their role in harming the consumer by resale price maintenance, of replica football strips. Another goal is to ensure preservation of liberty and prevention of the concentration of economic power. R. Whishcharacterized this as “the promotion of economic equity rather than economic efficiency”. It is a political ideal that relates to the pure competition objective, that economic power should be fairly distributed and is based on the idea that economic corporations should not become more influential than elected democratic governments.Jones and Suffrin therefore argue that competition law may serve the purpose of upholding the foundation of liberal democracy, by precluding the creation of excessive private power and that it decentralizes and disperses private power and protects individual freedoms, in a competitive market structure, where individual sellers and buyers are insignificant in relation to the size of the market.
Competition law also aims at protecting competitors and ensuring fair competition. The argument behind this goal is based on the premise that, competition law should be applied to foster the ability of smaller companies to compete more directly with established larger companies. R.Whish argues that the competiton authorities should, ‘hold the ring and ensure that the “small guy” is given a fair chance to succeed’. That competition law should be concerned with both competitors and the process of competition. This is also known as the “populist goal” and has been heavily criticized by the Chicago school of antitrust analysis, who argue that antitrust intervention to protect competitors from their more efficient rivals is harmful to consumer welfare, since small inefficient firms may take wealth from consumers.
I subscribe to the view that where a smaller firm is equally or more efficient than a rival but because of its financial resources it cannot survive a price war, competition law should protect it. Creation of unified markets and prevention of artificial barriers to trade is another goal of competition law. This is also called market integration, which led to the birth of the European Union (EU). Its overall aim was to integrate the member states, to create more united Europe, with a common; market, economic and monetary union, to achieve sustainable economic growth and economic development, to compete favourably in the world market. Indeed this resulted into the eventual birth of the Treaty on the Functioning of the European Union which regulates a total of 27 European country markets and protects the regional economy of the EU. Competition law may also service social, economical or industrial, environmental and regional goals. For instance, before approval of a merger competition authorities may look at other issues outside competition like job creation or job losses.
Such goals should however be accommodated in other governmental arrangements to allow for meaningful competition. On analyzing the above goals, it can be concluded that there is need for competition law in a poor country like Kenya or Tanzania, to attain economic development. G.R Bhatiai stresses that the absence of fair competition eludes stakeholders the benefits of competition, persuading countries to either enact competition law or to modernize their existing legislation and to revamp Competition Authorities.
In the discussion below I majorly focus on Tanzania as per the question, considering her past socio-economic stages, the most fundamental being, the Arusha Declaration 1967 which led to nationalization of all major means of production, then liberalization of the economy in the mid 80s, leading to a dominant role of the private sector in commerce, though ‘state owned monopolies in the provision of social services, education and health still do exist. According to Louise du Pleiss et al, the challenges faced by developing countries Like Tanzania justify the need for competition law. That the general challenge faced by developing countries is high barriers to entry, yet for effective participation by any producer in the market, degree of accessibility to the market is important. These take the form of unrestrained business legalities such as licensing procedures, high taxes that limit imports of raw materials and a high degree of state intervention in the form of state owned enterprises.
Her market like any other developing country is also generally smaller compared to their developed counterparts, making a limited number of firms to realize equitable distribution of resources and economies of scale. High production costs also act as a barrier to entry. Electricity for example costs US$ 1.11kwh, in Tanzania. In Uganda the same unit costs US$ 0.075 and KenyaUS$0.035, making it easier for investors to access the latter markets. However, competition law can serve to improve, infrastructure for instance, which if underdeveloped limits competitiveness in the domestic market by barring entry. In Tanzania export Gross Domestic Product (GDP) declined the period between 1995-1999 and so did the import GDP, one of the causes being closure in manufacturing firms due to rising costs of production, hence making the market small ,with few or no substitutable goods. Also, the structure of the economy of Tanzania is such that a bulk of the wealth is held by a disproportionate minority of its population.
Competition law serves as a solution by which these inequalities can be addressed.Major industries according to Louise du Pleiss such as water, electricity, transportation tend to be dominated by the ‘state owned monopolies’ who in turn abuse their positions by charging excessive prices and tying goods and services. In Tanzania the Tanzania Electric Supply Company (TANESCO), monopolises distribution of electricity and takes advantage of this to charge high prices. It is argued that such monopolies discourage innovation, but through the promulgation and enforcement of a well-designed competition law, attainment of equality is possible since provisions to curb abuses by dominant firms will have a positive impact on the proper functioning of markets and equitable distribution of wealth.
For instance, Section 59 (2) of the The Botswana Competition Act, 2009 permits the Competition Authority to assess whether a proposed merger may interalia, enhance competitiveness of a citizen owned small and medium size enterprise, to encourage fair competition in the market. Competition law however, serves as a tool in the alleviation of poverty, through the regulation of firms by ensuring that they do not charge high prices, which directly affects the consumer. It has been stated that due to Cartel conduct, countries such as Tanzania, Chile and Malawi have suffered a rise in food prices hence more than 100 million people have been pushed to deeper poverty.
However in South Africa, two pharmaceutical giants accused of engaging in excessive pricing of branded antiretroviral had to engage in a settlement agreement hence medication fell between 58% and 88% in South Africa. It has been argued however that due to interalia lack of resources, skill and capacity to implement competition law, other concerns like poverty, illiteracy, and health should be attended to. The severe shortage of trained professionals to assess the complex competition law concepts also questions the need for competition law in poor country like Tanzania.Also competition law perse cannot achieve the goals stated above for it to be beneficial to Tanzania. Furthermore, the Fair Competition Act needs to be amended, to deal with the challenges discussed above to instill confidence in investors in the market and to protect consumers.
Though arguments for and against the need for competition law have been advanced, it remains relevant to a greater extent and it must go hand in hand with the goals it aims to achieve. The question however which must be addressed is, whether competition law based on US or European models is relevant for an immature market like Tanzania’s which, like any other African country has virtually no culture of consumer advocacy and its small market can only accommodate a few suppliers. The answer should be in the negative but in this era of globalization, neocolonialism is evident which has made it a challenge to effectively implement competition law.
University/College: University of Chicago
Type of paper: Thesis/Dissertation Chapter
Date: 2 December 2016
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