DBU

Business Regulation

Dr. Solomon Abay (PhD)

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Unit 2 - Competition Policy and Law

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The international and Ethiopian developments in
competition policy and law making and enforcement

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 The international developments
Pre-1890:
• Trade
• Non-competition laws influencing competition
indirectly
• Introduction of competition laws – late 1880s
• USA
• Canada
• Austria

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 The international developments – contd.
1890-1990:
• Competition Laws in Europe
• German competition law - 1923
• German like national competition laws across
Europe – 1930s
• EEC and EU competition law developments
- EEC Treaty of Rome of 1957;
- EU Maastricht Treat of 1992;
- EU competition modernization reform
of 2004.

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 The international developments – contd.
Post 1990:
• Economic policy reforms towards free market
• Proliferation of national competition laws with
content converging to source country (USA, EU, Japan)
• No multilateral binding regime for competition
• Works of OECD, UNCTAD, WTO and ICN
• Exclusion of ‘trade and competition’ from the Doha
Round WTO negotiations
• Rise of bilateral agreements and memoranda of
understanding on competition
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 The Ethiopian developments
The Imperial Government
• The Ten Years Programme of Industrial Development of 1947.
• The Rules on unfair trade practices of the Commercial Code of the Empire of Ethiopia Proclamation No.
166/1960, Negarit Gazeta, Year 19, No, 3, Addis Ababa, 5th May 1960.
• The Unfair Trade Practice Decree No 50/1963, Negarit Gazeta, Year 22, No. 22, Addis Ababa, 2 September
1963 - enacted latter as Unfair Trade Practices Proclamation No. 228/1965, Negarit Gazeta, Year 24, No.
19, Addis Ababa, 3rd September 1965.

The Military Government

• No competition policy and law

The Transitional Government

• Ethiopia’s Economic Policy during the Transitional Period (Official Translation, Addis Ababa, November
1991).
• No competition law.
• Tacit application of the rules on unfair trade practice of the Commercial Code of the Empire of Ethiopia
Proclamation No. 166/1960, Negarit Gazeta, Year 19, No, 3, Addis Ababa, 5th May 1960.

The Federal Government

• The Industrial Development Strategy, 1994.
• The Trade Practice Proclamation No 329/2003, Federal Negarit Gazeta, Year 9, No. 49, Addis Ababa, 17th
April 2003.
• The Trade Practice and Consumers Protection Proclamation No 685/2010 Federal Negarit Gazeta, Year
16, No. 49, Addis Ababa, 16th August 2010.
• The Trade Competition and Consumers Protection Proclamation No 813/2013, Federal Negarit Gazeta,
Year 20, No. 28, Addis Ababa, 21st March 2014.
• The Definition of Powers and Duties of the Executive Organs Proclamation No. 1263/2021, Federal Negarit
Gazeta, Year 28, No. 4, Addis Ababa, 25th January 2022, arts. 22(1(o,q) & 2) and 106(2).

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The issues in competition law making and enforcement

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 1. Alternative Policy Paradigms
Question 1: Co-operation or Competition?

Risks to control:
• Concentration of Market
• Rise & abuse of economic power
• Inefficiency
• Economic Instability
• Economic Inequity
Benefits to promote:
• Business decentralization
• Efficiency
• Innovation
• Economic Stability
• Equity
• Consumer welfare
• Economic Development

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 1. Alternative Policy Paradigms – contd.
Question 2: Perfect or workable competition?

Market functions perfectly under the following conditions:

• There are many buyers motivated by self-interest and acting to maximize
utility,
• There are many sellers motivated by self-interest and acting to maximize
profit,
• Individual buyers and sellers are unable to exert control over market price
but are price takers,
• Price serves as means of communicating scarcity and guide for decision
making,
• Products are standardized (homogeneous) and substitutable,
• There are no barriers to entry and exit from product and factor markets,
• There is full market information to buyers and sellers,
• Resources are held in private property and all rights are defined and
assigned,
• Prevailing laws and property rights are fully enforced.
But, the truth in the real world? ---- Hence, Workable Competition

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 1. Alternative Policy Paradigms – contd.
Question 3: Contestable market or market with competition law?

Market open for entry and exit without competition law (contestable)

Market structure, behavior and conduct checked by entry and exit rules plus
competition law

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 2. Rationale of Competition Policy and Law
Rationale for Competition Policy
• The global move from administrative state type to competition and
regulator state type
• The rise of reform motive – towards free market
• The growing recognition that competition:
• Decentralizes decision-making
• Facilitates economic restructuring
• Increases innovation, technology change and economic
efficiency
• Enhances consumer welfare
• Assists economic development
Rationale for Competition Law
• The use of competition law to correct market imperfection.
• The use of competition law to control market abuse.
• The use of competition law to shape business culture.

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 3. Subject Matters of Competition Policy and Law
Anti-competitive agreements

Horizontal agreements - between potential competitors

• E.g. Output-restricting, price-fixing, bid-rigging, market
division, customer allocation, boycotting agreements

Vertical agreements - between suppliers and recipients in the trade chain

• E.g. Resale price maintenance, exclusive distribution,
exclusive dealing, product tie-in and quantity forcing
agreements

Anti-competitive mergers

Abuse of market dominance

Anti-competitive unilateral actions

• E.g. attack to good will; hoarding; refusal to deal with

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 4. Objectives of Competition Policy and Law
The Usual Objectives
Primary Objectives
1. Prevention of abuse of economic power
2. Increase of efficiency and innovation
3. Assurance of consumer welfare
4. Elimination of governmental and private policies and actions that
lessen competition
Related Objectives
1. Decentralization of decision making.
2. Preservation of the free enterprise system:
• (Freedom of individual action, access to market, freedom
of trade, freedom of choice)
3. Maintenance of economic pluralism
4. Moderation of economic instability
5. Control of community breakdown due to anticompetitive actions
6. Protection of small businesses
The Question for Developing Countries:
• Is there nexus between competition policy and economic development?

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5. Tensions in the Design of Competition Policy and Law
1. Tension between consumers' interest to keep the benefits of perfect
competition and sellers' interest to keep the benefits of imperfect
competition
2. Tension between efficiency and public interest approaches

Efficiency approach:
• Sole purpose of competition policy is maximization of economic
efficiency;
• There should be no need for socio-political criteria such as fairness
and equity in the design of competition policy and law.

Public interest approach:

• Competition policy has to be used to balance between and achieve
different economic, social and political objectives;
• Competition policy has to promote multiple economic and non-
economic values that reflect a society’s wishes, culture, history,
institutions and perception.

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5. Tensions in the Design of Competition Policy and Law - contd.
3. Tension between legal (rule per se) and economic (rule-of reason)
approaches:
Legal (rule per se) approach:
• Consider certain market structures or activities as anticompetitive
and make them illegal in general.
Economic (rule-of reason) approach:
• Authorize the case-by-case evaluation of market structures and
activities by a competition authority to determine if they should be
prohibited as anticompetitive.
Practice
• The advanced countries tend to follow the economic (rule-of
reason) approach
• The transition and emerging market countries tend to follow the
legal (rule per se) approach
4. Tension between competition policy and other government policies.
Consider competition policy as a fourth cornerstone of government
economic policy along with fiscal, monetary and trade policies. The
question is how to synchronize between the policies.

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5. Tensions in the Design of Competition Policy and Law - contd.
5. Tension between general application of competition policy and its
application to selected sectors.
Practice
• Advanced countries tend to make competition law a general law
that applies to all economic activities and sectors unless specific
exemptions are granted
6. Tension between proactive and reactive approaches.
Practice
• Advanced countries tend to follow a proactive approach more than
the reactive approach.
7. Tension between judicial and administrative enforcement.
Practice
• Anglo-American countries – judicial enforcement.
• Continental European countries – administrative enforcement

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5. Solution to the Tensions in the Design of Competition Policy and Law

Largely determined by country specific factors and choices

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 6. Enforcement of Competition Policy and Law
Competition Authority
• Independent from government (Financially, Operationally)
• Accountable (to parliament, public)
• Empowered to: make rules, monitor market, investigate anti-
competitiveness, make decisions, enforce sanctions, adjudicate cases,
advocate competition, educate the public
Sanction
• Civil (tort compensation, nullity)
• Administrative (fine, force)
• Criminal
Legal Protection Mechanism
• Internal complaint mechanism
• Judicial review
• Arbitration
• Review by peripheral institutions

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Thank You!

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