Competition Law (CPT 431)
Lecture Notes
Week 2: 24/02
In-person lecture
The market determines the price of the product, e.g. bread.
Government imposes regulations in order to regulate the price – in order to prevent collusion,
which could lead to price fixing.
Co-Ordination = Control = Unofficial Monopolies = Cartels (where there should not be a monopoly)
Side Note: NESA has to approve Eskom increases.
Relationship with competition law and other branches of law:
Corporate law = mergers and acquisitions
International Business Law = joint ventures; economics
Contract Law = restraint of trade agreements
Tesla’s USP = ability to innovate/use technology as a feature to improve user experience
MARKET POWER: can you increase the price of the product, and the demand does not change,
e.g. Apple products, if you are able to = Market Power; create a sense of brand loyalty (how
consumers make decisions)
Homogeneous goods = goods which are either physically identical or are viewed as identical in the
eyes of consumers, e.g. bottled water; bread, etc. (the consumer makes the purchase based on
price alone)
Giffen good = is a low income, non-luxury product that defies standard economic and consumer
demand theory. Demand for Giffen goods rises when the price rises and falls when the price falls.
The type of product can determine whether you can increase the price
South Africa has a hybrid approach to competition law = consumer welfare + transformation
Week 3: 28/02
Online Lecture
Objective: South Africa needs to consider social objectives as a result of the country’s history in a
manner to redistribute resources. Markets are open to other races. Therefore, S.A. uses both
approaches. HARVARD APPROACH IS USED IN SA.
The core objective is to ensure markets remain open and free. There is no consensus as to what
the correct approach should be.
Main challenge – influenced by politics. Competition law agenda is driven by politicians. How to try
to introduce competition law in terms of the ideology. ( in US = Anti-Trust Law)
Markets should be able to guide themselves – markets are self-correcting. Supplying too much
petrol, reduce demand. Difficult view. Operates on the principle that businesses act in good faith –
operate to make profit therefore ethics (good faith) takes a backseat
Horizontal = Spar; Checkers; Pick n Pay; Woolworths; etc.
Vertical = Coca-Cola sets a minimum price
Merger & Acquisition = removal of competitor; Google & Facebook have used this
Dominance = nothing illegal about dominance when company abuses dominance (becomes
problematic). Assessment, what is the criteria?
Competition Commission: Investigates and prosecutes companies which are in contravention.
Mero motu make investigations in specific markets (Acts as the NPA – National Prosecuting
Authority for competition matters)
Competition Tribunal: court of first instance in competition matters
Constitutional provisions = access to justice
Demand: Inverse relationship between price and quantity demand. Luxury goods demand curve is
upwards; shift in TPI moves demand curve up & down
Week 3: 03/03
In-person lecture
Side note: Substitute in the car market: Haval (mid-range market) R309 000; only difference is the
brand of car. Income = less than what they had in their pocket last year
Supply curve faces upward = positive relationship
Price is high = supply is more
Kink in curve = initial costs before you start selling
Fixed and variable costs – supply (cost of labour can be both a fixed/variable
Adding FC + VC = Total Cost
Average cost: TC divided by units produced
Marginal cost: How much it costs to make an additional unit; costs you x amount to more to create
additional unit.
Competitive market: Milk/Cheese. Defining market by product or region
- Homogeneous goods: no big difference between products
- Doesn’t cost a lot of money to enter and exit the market (difference in the car market
because of patents, costs of setting up facilities, etc.)
- Are you going to be competitive? Only barrier. Are you going to survive competition?
- Try to sell as much product as possible (ideal with volumes)
- Takes the price you get from overall market. Market condition determine price.
- Costs incurred by business can effect price
- Don’t make a loss when making more units
- Product to a point where MC = MR
- Profit – below demand; loss – above demand
Companies can sustain selling at a loss – makes competition unfair (e.g. Amazon)
Companies always breakeven in the long-term
Monopolistic market: Eskom (Government regulation)
GET COPY OF COMPETITION ACT
Week 4: 07/03
Online Lecture
Monopolies:
Found in markets where there is governmental control; where there is control of a resource and
natural monopolies
Barriers
- Government control:
- Control of a resource
- Natural monopolies:
Monopolies are problematic because they control the price; deny customers the ability to have
choice in the market. Difficult for competitors to enter into the market
Competition affords consumers choice
Not efficient in the way they create their product
Monopsonies:
e.g. coal mining town, coal mine pays most of the town’s salaries (that company determines the
salary/wage amount of that area)
Oligopoly:
Network companies; car companies
A few companies who have a lot of market power
How do they take each other into consideration? E.g. in the car industry – a car at a particular
price there are certain features one expects in all cars, fuel efficiency, Apple play, Bluetooth, etc.
Cellphone are similar to the car industry. COMPETITORS CREATE STANDARDS. Do not make
decisions in isolation.
HORIZONTAL RESTRICTIVE PRACTICES:
The companies have to be on the same level of the production chain, potential for collusion in
terms of pricing.
Same market segment
What is the problem with collusion? Could potentially exploit the consumers and consumers would
be deprived of access to variety in pricing.
Companies start behaving as a monopoly
e.g. Telekoms company, MTN wants more clients - Cell C not doing too great, mergers with Cell C
to get their clients
S4(1)(a) certain types of HRPs are prohibited
Network using other network’s infrastructure, e.g. Samsung and Apple (Samsung manufactures
Apple’s batteries)
Week 4: 10/03
In-person lecture
S4(1)(b) 3 types of conduct prohibited:
i) Price fixing; supplier/retailer agree on what price they’ll charge
ii) Market allocation, e.g. KFC operates in northern suburbs, Steers in southern suburbs
and McDonald’s in Atlantic seaboard – do not need to compete with one another
iii) Collusive tendering
Three forms of collusion [S4(1)(a)]
Because many agreements are actually legal (wouldn’t have a paper trail when executing a
particular arrangement) extend definition of an agreement – engaged in anti-competitive conduct
(wider than law of contract)
Concerted practice: Reign in certain contracts that are not an agreement, but conduct is still anti-
competitive. Can only be determined by the conduct of the parties (no other evidence).
No agreement that can be traced.
Show collaboration amongst themselves. No longer the action of one party trying to outsmart
competition; groups of people who try to defeat the challenges of competition
Assess the conduct of parties in relations to typical market conduct. Type of behaviour not akin to
normal practice
Two elements of concerted practice:
1) Co-operation: at the beginning; implementation of co-operation results in parties if you do
not engage there are certain sanctions one may face (goes against agreement) – may force
competition out of the market
2) Co-ordination
Case Law: Dyestuff Case (European Union)
EXAMPLE: is it normal practice? Would not happen organically. Actions were deliberate due to
time frame. Manipulate the market. You can trade in Rands in Namibia (it’s possible for prices to
be the same = same currency = same conditions)
Zimbabwe v SA = Zimbabwe is a landlocked country as a result cost structure is different (goods
cannot be charged at the same price as in SA)
Therefore Zimbabweans would rather buy a Toyota in SA because they’re cheaper
Unlikely that there would be uniform increases (co-operation in the market)
Price announcements: Netflix; Showmax – you already know the price is going to change in 2023.
Not anti-competitive because it’s up to consumers to decide whether or not they’re going to
purchase the product. It’s not standard to get price announcements on milk for example.
Week 5: 14/03
Online lecture
What are cartels? Collection of businesses who try to manipulate a price of a product/service;
cooperate instead of competing, e.g. spaza shops acting as a cartel.
S4(1)(b) prohibits cartel behaviour, they actually have to compete in order for consumers to have
access to best possible prices; if there is no competition consumers are robbed of that
e.g. Spaza shops purchasing stock together, they can offer product at lower price. What kind of
behaviour is prohibited outright and what kind of behaviour has to be assessed? Lower price
benefits consumers = pro-competitive. Yes, it is cartel behaviour but it has some form of pro-
competitive gain
Sanction = 10% of annual turnover
Repeat offenders = 25% (Amendment of Competition Act) – reason if only charge 10% act as an
incentive as 10% penalty may be more than profit
Turnover still have chance of making profit
Sanction on profit has bigger impact than that which is levied on the turnover
Competitors affected may claim damages (civil action)
Competition Act decriminalised as they weren’t successful as it had to go through SAPS – SAPS
did not know how to handle it as they were not trained (niche area of the law)
Specialised institutions when act was remodelled in 1998
In cartel some firms may have a bigger role to play than others (different levels of commitment)
Could contain agreements and concerted practice = complex
Difficult to unearth because of complexity
Extent of connection can differ, e.g. at the beginning a lot of co-ordination, conversation, etc.
Cartel agreements change all the team
In European Court = dual characteristics, agreement between cartel and existence of concerted
practices
Single continuing agreement = based on regular and institutionalised meetings, even though the
nature of the parties can change, the purpose of the cartel stays the same, even though the
commitment of firms may change
What happens if they attend meeting, but no reaction? Can they be sanctioned in the same way?
Involvement = a part of cartel (you must distance yourself from the get-go)
Voluntarily report the conduct to commission ito leniency programme – no sanction in exchange
for details of what is taking place. Leniency programme used to unearth or attain evidence.
What do cartels need to be successful ito behaviour?
- Sufficiently large proportion of firms in the market (small number of firms may not have an
impact if other firms behave the same way – potential success diminished if small amount
of participation)
- Effective communication & exchange of information – what the bids are, who’s going to
subtract bid? – requires communication and exchange of information
- There must be a way to punish firms who deviate from agreement (if there are 20 players in
market and 3 deviate = choking them out of the market forcing them out ito pricing)
- Barriers to enter and exit
- Ability to hide agreement = central to activities of cartels
Indicators:
- Concentrated market with a few firms (easy for them to co-ordinate)
- High barriers to entry
- Homogeneous products
- Increasing/stable demand
- Lack of powerful sellers/buyers
- High market transparency – you know what your competitors are doing
Per se & rule of reason = IMPORTANT
Speak to certain types of conduct in the market
Per se rule = automatically prohibited conduct, price fixing, collusive tendering & minimum price
maintenance [S4(1)(b)]
Rule of reason = what is the conduct? Is the conduct anti-competitive? Is there potential benefit?
Perhaps conduct leads to developing technology, better pricing, etc. [S4(1)(a)]
Act does not contain above language, adopted from the US
US uses quick look approach – before committing resources to investigation, try to be certain that
there is a cartel (for example)
Competition Commission struggles with funding – decide what the prospects of success would
(prosecute based on that)
Fixed list of per se prohibitions; only 3 – price fixing, collusive tendering & minimum price
maintenance; market allocation
Difference between Europe & SA – Europe does not have a fixed list = open list [Article 101 of
TEFU] What is prohibited is not the same.
SA act does not talk about controlling production (b)
Price fixing prohibited because if certain sellers of goods and services fix their price challenging
because it takes away the benefit consumers could have ito better prices, where someone else
could offer price for less benefit is withdrawn from consumers – takes away from consumer
welfare (no benefit for consumers)
Minimum price has a significant impact on consumer; outcome is more anti-competitive; e.g. if
minimum price of iPhone is R13000 someone could charge R20000, but if max price is set at
R25000 nothing can be charged above. Minimum from that price to infinity can be charged
therefore more anti-competitive
Sellers prefer min price
Buyers want max price
Exemptions in S10 of the Act
- Maintenance/promotion of exports
- See slide 15 & 16
Price fixing goes against tenets of competitive market
Market allocation: dividing markets by competitors (ster-kinekor & nu metro – operates in certain
provinces to avoid competition with each other)
Can also be divided ito output (you produce 10000 units; I produce 1000 units) – no prohibited in
SA
Collusive tendering – see slide 20
Week 5: 17/03
In-person lecture
Cartels:
Competitors coming together to influence the market
Effect of co-ordination and collaboration
Price fixing
Collusive tendering
How are cartels displayed? Agreement or concerted practice
Side note: Competition Act has been decriminalised. How is it enforced? Law enforcement and
courts were not competent enough to deal with it; specialised court; administrative penalty
Case Law: Competition Commission v Pioneer Foods (a)
- Bread cartel
[Handpick certain cases]
Leniency programme (self-report): able to report anti-competitors conduct (smaller fine). Those
involved in anti-competitive conduct are able to report themselves in exchange escape penalty.
Give Competition Court/Tribunal a chance to find out what’s happening in the market
Competition Commission is currently going against Meta (Owners of Facebook, WhatsApp, etc.)
Challenge is finding information
A case of who reports first. At what stage report also plays a factor. Report at start before enjoying
any profits may receive no/reduced fine
(a) Competition Commission v Pioneer Foods:
Companies will do anything to avoid paying penalties
Revealed: operating in a cartel; price fixing, etc.
Culture of information sharing used to meet about business activities and strategies
4 main players who are dominant
Vertically integrated (not involved in one part of production chain – involved in more than one)
Low margins = incentive for anti-competitive practice
Competition Act does not try to cripple business
Week 6: 24/03
In-person lecture
No lecture on Monday because of public holiday
SAB can be setting a price for the retailers; charge the price that SAB is giving out
Difference between horizontal and vertical restrictive practices
VERTICAL RESTRICTIVE PRACTICES (VRPs):
Is there a certain benefit to VRPs? Are they anti-competitive?
HRPs are selling substitute/similar goods in the same class or range. One writing pad is similar to
another; selling same goods and can therefore collaborate. Somebody producing the goods.
Wholesaler dictates what the reseller should do.
Consumer welfare: market is not efficient if price is set. Minimum price of Coca-Cola = R10 can be
charged any price above that. Maximum price has potential to be pro-competitive, why? These
companies will not be able to fix prices, if max. price is set it cannot go beyond that price (e.g.
taking a plane and buying a coke = R45)
S5(1) of the Competition Act:
Per se prohibition: price fixing; market allocation; collusive tendering (absolute prohibitions in the
sense that if they happen, they are automatically prohibited – lessen competition in the market)
Maximum retail price maintenance (not able to price at whatever price they want). Max price
protects consumer. Does not allow consumers to be exploited
- S5(1) rule of reason
S5(2) of the Competition Act:
Practice of minimum price maintenance is prohibited = per se prohibition, e.g. you could be doing
wrong, but the wrong is right (robbing rich, but giving to the poor)
You can restrict competition in the market but there has to be a certain good to it
Max price of can of coke = R30 (no value to consumer) therefore it will be anti-competitive.
Selling at R9 and business can still make a profit.
S5(1) looks at situation on case-by-case basis, is there a benefit for consumer?
S5(2) Prohibited from the start
It is possible to recommended price to be given provided that it is non-binding, e.g. Coca-Cola
cans, NikNaks (recommended price) best value for the product, just a recommendation
What will happen if recommendation is made to be binding? S5(2) will step in. Practice of
minimum price maintenance. Issue with S5(3) on the product the price must be marked as a
recommended price
S5(1) An agreement between parties in a vertical relationship is prohibited if it has the effect of
substantially preventing or lessening competition in a market, unless a party to 45 the agreement
can prove that any technological, efficiency or other pro-competitive, gain resulting from that
agreement outweighs that effect.
Difference between above and S4(1)(a) of the Competition Act says that An agreement between
or concerted practice by firms, or a decision by an association of firms, is prohibited if— (a) it is
between parties in a horizontal relationship and it has the effect of substantially preventing or
lessening competition in a market, unless a party the agreement, concerted practice. or decision
can prove that any technological, efficiency or other pro-competitive, gain resulting from it
outweighs that effect;
S5 – Federal Mogul Case
END OF TERM 1
