Competition laws are laws and regulations that ensure that there is fair competition between businesses. They stabilize the market condition by regulating the monopoly and unfair business practices.
Competition law aims to protect the interest of the consumers and essentially prohibits agreements which curtails free trading and businesses as well as anti-competitive practices such as predatory pricing and price gouging.
Various jurisdictions have different legislation that deal with competition by providing conditions for mergers and acquisitions that may lead to among other things, market dominance. An example can be give of Kenya where there is the competition Authority of Kenya set by an Act of Parliament (The Competition Act) to deal with practices that are considered anti-competitive.
Competition policy generally seeks to deal with restrictive private businesses as well as public policy that may prevent redeployment of scarce resources from lower to higher value users. The aim is to make firms become efficient and offer and products and services at lower prices.
The objective of competition includes promotion of consumer welfare, improving economic efficiency and ensuring that benefits form trade are passed on to the population.
The Scope of Application of Competition Law
Competition law generally applies to all industry sectors and to all economic agents in an economy engage in commercial production and supply of goods and services. This therefore means that both privately owned enterprises and state owned and operated enterprises should be subject to the same treatment when it comes to application of competition law.
Kenya’s Competition Act, for instance, provides that it applies to “All persons including Government, state corporations and local authorities so far as they engage in trade.” The above is important as it ensures equality before the law, leads to predictability, consistency and accountability thereby instilling confidence in the institutions that deal with competition.
Two models for the objectives of competition law are typically proposed. The first regards competition law as being solely concerned with economic efficiency. Economic efficiency is about allocative efficiency that is when the society’s scare resources are utilized and produce goods and services that are most desired by consumers. The second regards the objective of the law to maximize the “public interest”. This can also be referred as a model geared towards economic democracy. The public interest is usually defined as including economic efficiency, consumer welfare, a balanced development of the economy and perhaps maintaining employment, technical progress and exports. In reality the main distinction lies between the law having multiple objectives (broad public interest) or a single objective such as maintaining the efficient operation of markets (or free competitive markets).
Competition policy in International Trade
In 1995 the then WTO director general commented that there was “An urgent need for analysis of links between competition policy and trade policy. The globalization of the world economy means that there is an increasing international impact of differences in competition policy norms and degree of enforcement”
It should be noted from the outset that there has never been a WTO agreement on competition law or even competition policy perhaps due to its complex nature.
GATT and the WTO have increasingly dealt with specific aspects of the relationships. For example, one type of trade covered by the General Agreement on Trade in Services (GATS) is the supply of services by a foreign company setting up operations in a host country that is supply through foreign investment. The Trade-Related Investment Measures Agreement says investors’ right to use imported goods as inputs should not depend on their export performance.
Further, GATT and GATS contain rules on monopolies and exclusive service suppliers. The principles have been elaborated considerably in the rules and commitments on telecommunications. The agreements on intellectual property and services both recognize governments’ rights to act against anti-competitive practices, and their rights to work together to limit these practices.However there are exemptions which include include sector specifics, specific type of agreements and specific undertakings;
Exemptions and Exceptions under Competition Law
Most competition laws have either exempt specific sectors or have provisions for the granting of such exemptions in given situations. Countries with new competition regimes normally have fewer exemptions.The sectors where economic activities are exempted include labour, agriculture and transportation. Similarly there in financial services m energy, telecommunication and media there are exclusions.
It is worth noting that generally, competition law does not take precedence over government enacted legislation. However this must depend on whether the practices in question are or were intended to be specifically permitted. For instances professionals like doctors, lawyers and accountants do have self-regulation in the conduct of their businesses. Accordingly, they need to have the legislation allowing them to set their fees. In the absence of such delegation the competition law applies.
Fundamental Principles of Competition Law
From the above it is easy to gather that competition at first, Promotion of economicdevelopment which comes through the allocative efficiency already discussed above.
Secondly, it often leads to Promotion of consumer welfare.This can be done by ensuring that the business decisions that undertakings engage in are aimed at ultimately benefiting the consumers .These undertakings ought not to have undesirable effects on the consumers such as unreasonable increase in prices.
Thirdly it leads to Promotion of economic development as principle of competition law ensure that ensure that restrictive business practices do not impede or negate the realization of benefits that should arise from the liberalization of tariff and non-tariff barriers affecting world trade, particularly those affecting the trade and development of developing countries
Fourthly, competition law and policy Promotion of equity is also a principle in competition law .This is especially important given the fact that most businesses especially in the developing countries are SMEs.Promotion of political ends. Competition law operates in a political environment be it domestically where political and social environments determine how law responds to competition or at the regional level where counties take positions that favour their interests.
Elements of Competition Law
Practices That Restrict Free Trading and Competition between Businesses
Such practices may occur through cartels. A cartel is essentially a situation where a group of independent producers with the goal of increasing their collective profits, engage in price fixing and limit supply. Competition law therefore comes in and ensure that this is avoided thereby safeguarding the public interest.
Banning Abusive Behaviors
Under this element of competition law, competition authorities normally aim at arresting the tendency by firms who want to dominate the market. The aspects included predatory pricing, better known as undercutting. Undercutting occurs where a product or service is set at a very low price with the intention to achieve new customers, or driving competitors out of the market or to create barriers to entry for potential new competitors. The other issues covered here are price gouging .Price gouging entails an unethical practice whereby a seller sharply increase the price of goods , services or commodities to a level that is higher than what is reasonable. Lastly under this is a simple refusal to deal.
Mergers and Acquisitions
Competition law aims at supervising mergers and acquisitions of large corporation .As such Transactions that are considered to threaten the competitive process can be prohibited altogether, or approved subject to “remedies” such as an obligation to divest part of the merged business or to offer licenses or access to facilities to enable other businesses to continue competing.
Is Competition law Necessary?
According to the European Commission, Competition policy has several benefits. It leads to low prices for all as the simplest way for a company to gain a high market share is to offer a better price. In a competitive market, prices are pushed down. This is obviously good for consumers when more people can afford to buy products, it encourages businesses to produce and boosts the economy in general.
It also encourages businesses to improve the quality of goods and services they sell – to attract more customers and expand market share. Quality can mean various things: products that last longer or work better, better after-sales or technical support or friendlier and better service.
In a competitive market, businesses will try to make their products different from the rest. This results in greater choice – so consumers can select the product that offers the right balance between price and quality.
Competition can lead to Innovation in their product concepts, design, production techniques, and services. In conclusion therefore competition policy may lead to a better competitors in global markets.