This is a question that each director of either a small, medium or large firm must take into account when considering competition in the market. Negligence has left a lot of firms in a position that leads to them breaking down, but for a firm to successfully compete in a market one must take the following into account.
A definition of a dominant firm appears in section 7 of the Competition Act. The inquiry into whether an entity is a dominant firm includes an identification of the relevant market in which the firm is involved, it’s market share within that market and whether it possesses the relevant market under section 7 depends upon the market share enjoyed by the firm alleged to be dominant.
WHEN IS A FIRM DOMINANT?
Section 7 of the Competition Act states that a firm is dominant in a market if:
- It has at least 45% of that market
- It has at least 35%but less than 45% of that market
- If it has lee than 35% of that market but it has market power
The statutory test for dominance requires an assessment of market share and market power. A firm with a market share of 45% or more cannot escape being conspired dominant per se, however, for those firms with a market share of less than 45%, market share is only one aspect that needs to be considered.
If the firm has a market share of less than 45% but equal to or more than 35%, the onus is on the firm to show that it does not have market power.
If a firm cannot produce evidence to show that it does not enjoy market power, then the firm is dominant.
Likewise, a firm with less than 35% of a market share may be dominant if it has market power. However, in this case, the onus is the complainant in the case or where relevant, the Competition Commission, to show that the firm has market power.
TEST FOR DOMINANCE
A firm can only be determined once the market in which the firm competes is correctly defined. Accordingly, the definition of the relevant market is an important initial step in establishing whether a firm qualifies as dominant. It is quite possible for a big conglomerate firm that participates in various diverse industries not to be dominant in any relevant market.
So, the main question to ask is when does a firm have market power? The Competition Act defines market power as the ability to:
- Control prices
- Exclude competition
- Behave to an appreciable extent independently of competitors, customers, and suppliers.
Market power provides the firm with the ability to set prices above the competitive price level, and in so doing earn a greater profit than it would have under competitive conditions in the market.
WHAT DOES THE DOMINANCE PROVISION PROHIBIT?
In terms of section 8 of the Act, it is prohibited for a firm to:
1. Charge an excessive price to the detriment of consumers;
2. Refuse to give access to competitors access to an essential facility when it is economically feasible to do so;
3.Engage in an exclusionary act, other than that listed below if the anti-competitive effect outweighs its technological efficiency or whether pro-competitive gain;
4. Engage in any of the following exclusionary acts, unless the firm concerned can show technological efficiency or other pro-competitive gains which outweigh the anticompetitive effect of its act;
- Requiring or inducing a supplier or customer not to deal with a competitor. This transpired in the case of Comair Ltd v SAA 2008 where SAA induced airline agents to not deal with Nationwide Airlines and Comair who were complainants in selling the tickets but only sell SAA tickets to customers in return for an incentive promised by SAA.
- Refusing to supply scarce goods to a competitor when supplying those would be economically feasible.
- Selling goods or services on conditions that the buyer purchases separate goods or services unrelated to the object of a contract or forcing a buyer to accept a condition unrelated to the object of a contract or forcing a buyer to accept a condition unrelated to the object of the contact.
- Selling good and services below their marginal or average variable cost.
- Buying up a scarce supply of intermediate goods or resources required by a competitor.
Before one engages in the market it is advisable to look out for such conduct, apply the Act where applicable.
We can help with this! We have extensive experience with the Competition Commission, having appeared before the commission on behalf of clients and dealt with Competition matters, up to and including, challenging fines, opposing applications brought by the Competition Commission, representing clients before the Competition Tribunal, among others.
Contact: Charmaine Schwenn
WRITTEN BY: PORTIA SAMKELISIWE DLAMINI