Incorrectly termed monopolies and competition law
A monopoly is usually described as a natural phenomenon in the marketplace by those seeking to ‘reign in’ the ‘anarchy’ of free markets. One finds that true monopolies exist due to state protections for certain businesses that bar others from competing. If a business can theoretically enter a market, then that market cannot be said to be monopolised.
In South Africa we know this clearly. Eskom has a monopoly on energy, and this is due to state protection. Prior to the changes to regulations which now allow for private generation of electricity, subject to state licensing of course, all energy activities were monopolised by Eskom solely. Theoretically, there cannot be a company that can enter the energy market and compete with Eskom. This is an example of a monopoly.
The area of law that professes to deal with monopolies is Competition or Anti-Trust Law. One would think that, surely, there would be a case to be made against the monopolisation that is state led? Not even a peep from South African competition authorities is heard. Instead, private businesses, that have competitors, are deemed ‘effective’ monopolies for simply being freely chosen by consumers.
Consumers do not have a choice, nor the latitude to create a choice, when it comes to their energy provision; it is either Eskom or going off grid. Yet, we do not see parties who will call for big business to be reined in, calling for the same with Eskom. Consumers freely choose Google for instance, even when they know that Yahoo, Duck Duck Go and the TOR search engine exist. Therefore, when Google will be called a monopoly even though I just listed 3 of its competitors, then what will actual monopiles as we have just described Eskom, be called!
Economic literature is littered with the disadvantages of monopolies. These restrict choice for consumers, restrict output as is the case with Eskom and its rolling blackouts, and higher prices than in a competitive market as shown by the always above inflation increases to tariffs for which Eskom lobbies from the National Energy Regulator of South Africa. All these are problems stemming from monopolies, yet it is not eery big business that is a monopoly, this is a key distinction.
The problem with Anti-Trust Law, globally, is that it endeavours to solve a problem it was not acutely aware of nor had the know-how to solve. Dating back to the promulgation of the Sherman Act of the United States and the historic dissolution of Standard Oil, Anti-Trust has had its priorities misplaced.
Standard Oil was a company that was not enjoying any state protection from the US government. There was a possibility of another player, entering the Oil business and competing with the company which started out small and grew to its height of over 80% market share to 65% market share when the US government brought an Anti-Trust case against it. Its market share was not acquired because there was a law barring it from being competed with, but because it was willingly patronised by Americans at the time.
The main point of mentioning Standard Oil is because from the outset another company could have competed with Standard Oil, yet still the company was sanctioned. This error in the use of state force, which should always be reserved for those who are harming others, has been perpetuated to the modern day.
Logically, competition cannot be legislated as it is a process driven by entrepreneurs. Unless the state is the organiser of economic activity – as would be the case in a Socialist and/or Communist economy - then competition is a natural organic process happening in the market. Barring any state protection of certain business and markets which creates monopolies, the state cannot do anything else to ‘help’ competition.
Bringing legal sanction on entities that are willingly patronised, more so than their competitors, is contrary to justice and economic sense. It certainly is not promoting competition since or ensuring a market in which consumers have choice since a part of doing the former involves respecting consumers choices, even if they benefit one entity alone in comparison to others.
Africa due to its uniquely peculiar past, cannot afford to use what is done internationally without any interrogation of their own. Irrespective of what other jurisdictions are doing, we need to have a competition legal field that does not consider business the enemy, nor one that will punish consumer beneficial success just because it came at the expense of ‘inducing customers not to deal with a competitor’ and succeeding.
True competition will include unequal outcomes, stemming from the mere fact that the world is not homogenous nor populated by homogenous beings. Allowing competition will include businesses that will have massive success, and others that will only last a week. The outcome of this competition should not be the focus, but rather its very possibility should be what we encourage.
BA Law (Wits) LLB (Wits) is a legal researcher at the Free Market Foundation.
Publish date: 13 October 2022
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The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation. This article may be republished without prior consent but with acknowledgement to the author.