Competition law must balance needs

Trudi Makhaya

South Africa’s gradual shedding of the legacy of a highly concentrated, racially exclusive and calcified apartheid economy is aided by the enforcement powers of the competition authorities.

The cases that the Competition Commission has brought before the Competition Tribunal have not only exposed and penalised prohibited anti-competitive behaviour by companies, they have also introduced an awareness of the role of competition as the driving force of a market economy.

Recently, calls have been made for the commission to investigate the government’s financial policies towards state-owned entities (SAA and the African Exploration Mining and Finance Corporation).

Insofar as those calls are made with reference to the government’s actions as owner and policymaker, and not the market conduct of these firms, this article seeks to clarify the limits of competition law and the possibilities of competition policy.

Over the past decade or so, the competition authorities have scored well-publicised triumphs such as the prosecution of the cartels in the bread value chain.

The authorities have also taken on anti-competitive behaviour by state-owned enterprises such as SAA and Telkom.

As a consequence of this enforcement record, the dominant discourse that has developed around the work of the competition authorities revolves around “crime and punishment”.

This discourse limits the role of competition policy to that of enforcement. Yet the scope of enforcement is bounded by two important factors. One relates to the nature of South African competition law, which reflects the context in which it was crafted. The second relates to the broad range of factors that may create impediments to competition, some of which have little do with firm behaviour and more to do with the construction of markets.

Competition law is agnostic as to size, market share or ownership. Being big, dominant or state-owned (and financed) matters not; what matters is how a company behaves in markets capable of competition and in regulated markets where the commission has concurrent jurisdiction.

But it is not a simple matter of the law being very prescriptive on the authorities’ mandate. There are circumstances where competitive markets do not function optimally due to deficiencies such as a natural monopoly, externalities or information asymmetries. And government actions can contradict competition goals. These are not matters that can be cured by traditional competition law enforcement tools.

In the case of a natural monopoly, where it is not economically feasible for there to be more than one supplier of a good or service, regulation is required to ensure that a firm that enjoys such an advantage does not exploit its power at the expense of consumers.

Where regulation is weak or incomplete, it is natural to turn to the competition authorities to restore competition. This is not the best solution because it may be the case that the monopoly in question has not contravened the law.

Even in cases where a regulated firm has contravened the law, prevention is usually better than cure.

It is less damaging to the economy to regulate markets proactively to prevent competitive harm, rather than allowing regulated firms to undermine competition.

Economic policy in South Africa recognises the important role that competitive forces play in keeping prices down and encouraging innovation. Nonetheless, government actions may introduce distortions that skew the competitive landscape by creating barriers to entry or bestowing advantages on a parastatal that are not enjoyed by its commercial rivals.

These competition-distorting actions often reflect policy decisions that are taken in pursuit of other socially desirable outcomes, such as maintaining safety standards or pursuing a universal access model that requires soft financing.

South Africa needs robust competition policy implementation, which includes pro-competitive regulation and pro-competitive state action in the economy. It is encouraging that the commission is increasingly being consulted by state institutions as they contemplate policies and actions that have implications for competition.

Trudi Makhaya is the divisional manager for advocacy and stakeholder relations at the Competition Commission.