South African competition law is highly regarded internationally. In 2018, the Global Competition Review (GCR) ranked the Competition Commission as the best regulator globally.
With such praise, one would expect the economy to be the most competitive in the world. This is not the case. Instead, South Africa ranks very poorly in the Fraser Institute's Economic Freedom of the World report, which measures the freedom of economies globally with standards like regulatory burden, property rights protection, intervention and the general ease of opening and doing business in a country.
The competitiveness of the economy
There seems to be a disconnect between the intentions of the Competition Commission and the Competition Act on the one hand, and the consequences of our competition regime on the competitiveness of the South African economy on the other.
In South Africa, this disconnect is exemplified by the Competition Act's abuse of dominance provisions, and the Competition Commission's understanding of them. The most damning of these provisions is section 8(d)(i).
Once a firm is deemed to be apparently dominant through its market share, then it amounts to abuse of dominance if a firm induces its suppliers or customers not to patronise competitors.
This standard was applied in the case of Patensie Citrus, whereby a fruit packager was said to have abused its dominance by requiring in their contracts that farmers supply them with all their produce. The packaging company was found guilty of having abused its dominance.
Yet, businesses are solely concerned with inducing their suppliers as well as customers to not deal or patronise their competitors. That is competition and business itself! The basis of the abuse of dominance provision, then, is the criminalisation of something that is central to the operations of all businesses.
The practice of inducing
By trying to provide you with better products and services, and trying to be better marketers, KFC induces its customers to only buy its chicken rather than that of Chicken Licken.
Your local barber induces you to use only their services rather than another by being located closer to home. This is the same conduct that is criminalised when done by a company that is considered 'dominant'.
Whether the inducing is done by way of contract, peerless services or goods, or otherwise, the fact remains that businesses are primarily concerned with making you spend your money with them and not their competitors. This behaviour – business itself – is considered illegal by the Competition Act.
We wonder why the South African economy is increasingly ranked among the least free in the world.
Using the Patensie Citrus case as an example, the farmers could have simply chosen to not enter into contracts with the packaging company, and contract with another or even start their own. Free enterprise is morally superior because commercial transactions are not coerced – they are always voluntary.
If enough customers stop patronising the business, then it will have to change, lest their customers be attracted by its competitors and the business dies a natural death. There is also the possibility of a new entrant entering the market, and serving the customers who are not content, better.
Abuse of dominance
A company ought not be penalised for being innovative in their model and including an exclusion clause against dealing with their competitors.
Rather than the restrictive interpretation of competition legislation which fines and penalises businesses for activities that are considered normal business operations. We could, instead, adopt an understanding of competition law that is cognisant of the inherent contradiction between passing legislation and freedom.
In the words of Bruno Leoni, legislation is an inhibition on liberty by nature, thus it cannot be said to bring about competition, which is only made possible through liberty and free enterprise.
Therefore, abuse of dominance could be applied to companies that benefit from artificial state barriers to entry in a market. The current conception of abuse of dominance, which sees normal business practice being deemed illegal, must be done away with.
The Competition Act and its institutions achieve the antithesis of what they ostensibly seek to do. They seek to stimulate competition in the economy by regulating enterprises. This, however, imposes a cost on these businesses that is not associated with delivering goods and services. These costs would not exist without the state interfering in the economy and commercial transactions of individuals and labelling it 'justice'.
The problematic abuse of dominance provision is merely a sliver of the multiple issues of South African competition law.
The end sought by competition law has not been met as our unfree, uncompetitive economy proves. The situation has gotten progressively worse with the passing years.
Since the adoption of the Competition Act and other legislation after the short free market era of the 1990s transition, the freedom of our economy has been eroded year on year.
For true competition, liberty is the answer. The liberty to induce customers not to deal with competitors, to charge any prices, and to run a business as the market – the consumer – dictates, rather than as the overpaid state bureaucrats decree.
This article was first published on BBrief on 12 January 2021