Exemptions to competition policy
COMPETITION (antitrust) poli cy is a concept that has been in existence even prior to the 19th century. Canada enacted what is generally regarded as the first competition statute of modern times in 1889. Competition pol icy is defined as a set of policies and laws designed to defend or promote competition. There fore, competition policy does not defend competitors [enter prises] but competition.
Competition is vital in en couraging static and dynamic efficiencies among enterprises. Static efficiency refers to alloc ative and productive efficiency, that is the extent to which en terprises are producing products in the most efficient manner. Dynamic efficiency refers to the extent to which enterprises in novate viz-as-vis introducing a new and better product or pro cess. Overall, competition aims to improve the welfare of the consumers through better prod ucts at fair prices.
Static and dynamic efficien cy can be lost as a consequence of anti-competitive behaviors by enterprises. Enterprises can agree to form a cartel and charge consumers higher prices with out any improvements to the product. Large enterprises with market power can also engage in ‘abuse of dominance’ activities to frustrate existing competitors and entry of new enterprises in the market.
Vertically integrated enter prises or vertical agreements can frustrate competitors at one stage of production by practicing foreclosure or margin squeeze tactics with their enterprise at another stage of production. For example, an enterprise that produces product B using input A can choose to source input A only from its sister company and not rival suppliers of A. All those anti-competitive behaviors are outlawed under antitrust laws.
However, there are exemp tions to antitrust laws. These exemptions are usually given on industrial policy considerations. On a cost-benefit analysis, the loss in market competition is sometimes offset by the gains emanating from industrial de velopment, advancement in technology or innovations. The following are the specific in dustrial policy examples under which competition policy ex emptions are granted to enterprises.
National Champions. Enter prise actions that substantially lessen competition or restrict competition are generally pro hibited under antitrust laws. However, such actions may be encouraged on [industrial pol icy] grounds of creating or pro tecting national champions. The main rationale for the national champions argument is that private initiative alone may be insufficient to justify entry into certain sectors of the economy considered highly profitable to the economy and as such enter prises need government intervention.
For example, it may not be economical for an enterprise to begin producing a certain good or providing a service in an in dustry that requires economies of scale.
Therefore, government may decide to restrict competition in that industry by allowing only one enterprise to operate. Exporting activities are also grounds for justifying a national champion argument. In Zambia, the Competition and Consum er Protection Act, 2010 provide for exemptions to an enterprise (s) for purposes maintaining or promoting exports under sec tion 19, sub-section 2 (a).
Technological or economic advancements. Enterprises can have a horizontal agreement, that is an agreement between enterprises operating at the same level of the market, even if it lessens competition if the agreement fosters cooperation in achieving a certain level of technological or economic ad vancement. The Competition and Consumer Protection Act under section 19, sub-section 2(c) provide exemptions for ac tivities that promote technical or economic progress in the pro duction, distribution or provi sion of goods and services.
Small and Medium Size En terprises (SMEs). The small in dividual size of SMEs means that these enterprises may struggle in achieving economies of scale or competitive advantage. To support the growth of SMEs, Competition Commissions in different jurisdictions provide them with special exemptions.
In Zambia, the Competition and Consumer Protection Act under section 19, sub-section 2 (e) provide exemptions for ac tivities aimed at promoting the competitiveness of SMEs. This means that SMEs can form a vertical or horizontal agreement that lessens competition if the joint muscle created will im prove their competitiveness. The special treatment of SMEs part ly springs from their strategic importance to job creation and business growth.