Com­pe­ti­tion Com­mis­sion dis­rupted by mar­ket in­quiries

The Mercury - - BACKGROUND & ANALYSIS -

IT’S be­come com­mon for South African politi­cians to blame slow eco­nomic growth in the coun­try on pri­vate sec­tor cor­rup­tion, anti-com­pet­i­tive mar­ket struc­tures and abuse of mar­ket power by dom­i­nant firms.

Although this is some­times sim­ply a cover for the gov­ern­ment’s own poor per­for­mance, the fact is that his­tor­i­cally South Africa’s econ­omy has been deeply anti-com­pet­i­tive. Pri­vate sec­tor play­ers have a strong lean­ing to­wards anti-com­pet­i­tive con­duct. The task of fix­ing the fault lines rests with the Com­pe­ti­tion Com­mis­sion.

The prin­ci­pal way the com­mis­sion meets its man­date is through in­ves­ti­gat­ing and pros­e­cut­ing cases of sus­pected anti-com­pet­i­tive con­duct brought by com­plainants or ini­ti­ated of its own ac­cord. The other way it can fight anti-com­pet­i­tive be­hav­iour is by launch­ing a mar­ket in­quiry. This is a for­mal in­ves­ti­ga­tion into the gen­eral state of com­pe­ti­tion in a par­tic­u­lar sec­tor.

In­dus­tries which have faced mar­ket in­quiries in­clude bank­ing, health care, the re­tail gro­cery sec­tor, trans­port and the mar­ket for data in the tele­coms sec­tor. Mar­ket in­quiries are meant to com­ple­ment the core func­tions of the com­mis­sion, which is to in­ves­ti­gate and pros­e­cute in­stances of anti-com­pet­i­tive con­duct.

While these pro­ce­dures are re­ac­tive in na­ture, mar­ket in­quiries by con­trast are seen to rep­re­sent a more proac­tive ap­proach in com­pe­ti­tion law en­force­ment.

But mar­ket in­quiries may also prove to be a bur­den on the com­mis­sion. And I be­lieve that they’re dis­tract­ing it from its core func­tion of bust­ing clear or promis­ing cases of anti-com­pet­i­tive con­duct.

The ad­van­tage of mar­ket in­quiries is that they are a proac­tive weapon in the com­mis­sion’s ar­se­nal against in­dus­try-wide anti-com­pet­i­tive prac­tices.

Im­por­tantly, they pro­vide the com­mis­sion with information and in­sights into the dy­nam­ics and work­ings of par­tic­u­lar in­dus­tries. And the com­mis­sion can use information gleaned through an in­quiry to de­ter­mine ap­pro­pri­ate en­force­ment ac­tion and pol­icy in­ter­ven­tion. Mar­ket in­quiries can also shake up in­dus­tries and force in­cum­bents to stop anti-com­pet­i­tive be­hav­iour.

But in­quiries also have their weak­nesses.

The com­mis­sion is un­able, dur­ing mar­ket in­quiries, to use its pow­ers to en­ter and search premises and take pos­ses­sion of things and information it can use as ev­i­dence against im­pli­cated firms.

As such mar­ket in­quiries rely on the good­will of re­spon­dents who must an­swer ques­tions fully and hon­estly. In re­al­ity, this doesn’t al­ways hap­pen. And ex­pe­ri­ence shows that the of­fence of per­jury (ly­ing un­der oath) hasn’t been enough of a de­ter­rent to stop peo­ple from ly­ing, or telling half-truths to the com­mis­sion.

On top of this, the fear of per­sonal crim­i­nal li­a­bil­ity as a re­sult of the car­tel of­fence is a dis­in­cen­tive for di­rec­tors of com­pa­nies to tell the truth when they are called upon to pro­vide ev­i­dence in mar­ket in­quiries.

This means in or­der for their out­comes to be cred­i­ble, mar­ket in­quires de­pend largely on the co-op­er­a­tion of af­fected firms and in­dus­tries. This is not al­ways fea­si­ble. An­other is­sue is that mar­ket in­quiries are only gen­eral in­quiries into the state of com­pe­ti­tion in a par­tic­u­lar mar­ket. They are not in­ves­ti­ga­tions into the con­duct of in­di­vid­ual com­pa­nies. Be­cause of this, the find­ings of a mar­ket in­quiry – even when they go against par­tic­u­lar com­pa­nies – don’t au­to­mat­i­cally con­sti­tute a le­gal find­ing of wrong­do­ing against an in­di­vid­ual firm.

This means any firm im­pli­cated by a mar­ket in­quiry doesn’t face any im­me­di­ate con­se­quences. For ac­tion to be taken against any firm im­pli­cated, the com­mis­sion must ini­ti­ate a fresh and spe­cific in­ves­ti­ga­tion or com­plaint against it.

This raises the ques­tion: what then is the role of mar­ket in­quiries? Is it just information gath­er­ing? If so, are there no more ef­fi­cient ways of do­ing so?

There is also lit­tle ev­i­dence that mar­ket in­quiries do im­prove com­pet­i­tive­ness. This is be­cause even when mea­sures more ag­gres­sive than mar­ket in­quiries have been taken, for ex­am­ple record-break­ing fines be­ing im­posed against some firms, anti-com­pet­i­tive be­hav­iour has not stopped in many sec­tors.

In fact, in some in­dus­tries it has in­creased.

For ex­am­ple, the 2006 Com­pe­ti­tion Com­mis­sion in­quiry into the bank­ing sec­tor did not foster a cul­ture of com­pe­ti­tion in that sec­tor. Re­search con­ducted to as­sess the im­pact of the com­mis­sion’s bank­ing in­quiry shows that the in­quiry didn’t re­sult in any ap­pre­cia­ble con­sumer ben­e­fits, par­tic­u­larly lower bank­ing fees as a re­sult of in­creased com­pe­ti­tion. And a num­ber of banks are be­ing pros­e­cuted for price fix­ing.

An­other short­com­ing is the time it takes to com­plete a mar­ket in­quiry.

Be­cause mar­ket in­quiries cover en­tire sec­tors, they are lengthy pro­cesses. This has the po­ten­tial of weak­en­ing sub­se­quent com­pe­ti­tion in­ves­ti­ga­tions or com­plaints against par­tic­u­lar firms. This is be­cause any firm im­pli­cated in a mar­ket in­quiry has time to get rid of ev­i­dence that might prove its in­volve­ment in anti-com­pet­i­tive prac­tices.

And lastly, mar­ket in­quiries are a drain on the re­sources of the com­mis­sion.

They cost a lot of money, re­quire the ap­point­ment of peo­ple with ex­per­tise in a tar­geted in­dus­try and ab­sorb com­mis­sion staff who might oth­er­wise be able to pay more at­ten­tion to its core work.

Of course, mar­ket in­quiries at­tract good public­ity and public sym­pa­thy for the work of the com­mis­sion. But the in­ter­ests of South Africans would be served bet­ter if the com­mis­sion fo­cused on its core man­date – the in­ves­ti­ga­tion and prose­cu­tion of clear cases of sus­pected anti-com­pet­i­tive be­hav­iour, re­gard­less of in­dus­try in which they oc­cur.

The com­mis­sion’s limited re­sources should be chan­nelled to­wards ful­fill­ing this im­por­tant goal.

To en­able this to hap­pen, mar­ket in­quiries should be done by state de­part­ments or reg­u­la­tory au­thor­i­ties in af­fected in­dus­tries.

A prece­dent ex­ists for this: the 2004 bank­ing in­quiry com­mis­sioned by the South African Na­tional Trea­sury and Re­serve Bank. – The Con­ver­sa­tion

Dr Mun­yai is a se­nior lec­turer in com­pe­ti­tion law at the Univer­sity of South Africa.

The 2006 Com­pe­ti­tion Com­mis­sion in­quiry into the bank­ing in­dus­try did not foster a cul­ture of com­pe­ti­tion in that sec­tor, says the writer.

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