Lozindaba Mbvundula (LLB (Hons) Mw.), Associate
Competition law is pertinent to the conduct of every business, regardless of its registration status. It seeks to prevent distortion in the market caused by anti-competitive practices whilst ensuring that the market is fair for both producers and consumers, and is favourable to economic growth by encouraging competition. The Competition law regime in Malawi is governed by the Competition and Fair-Trading Act No. 43 of 1998 (CFTA) as well as theCOMESA Competition Rules This guide, however, focuses on the CFTA which prohibits all conduct, agreements, decisions and concerted practices which are likely to result in prevention, restriction or significant distortion of competition. Below is a discussion of these prohibitions.
Abuse of Market Power/Dominant Position
Abuse of market power/dominant position is prohibited and engaging in such conduct amounts to an offence. It may take any one of the following forms:
- Use of market power for the purposes of eliminating or damaging a competitor on the market;
- Preventing the entry of a person into the market; or
- Preventing a person from engaging in competitive conduct in the market.
The Competition and Fair Trading Commission (the Commission) has power under the CFTA to take whatever steps it deems necessary to redress the abuse of a dominant position.
- Trade Practices likely to be Anti-CompetitiveThe following trade practices have the potential of being anti-competitive.
- Predatory pricing (undercutting): deliberately reducing the price of a product to loss-making levels (below the cost of production) in order to drive out rivals by making them unable to compete without making losses
- Discriminatory pricing: Charging customers different prices for the same products/services, depending on the assessment of their ability to pay (anti-competitive because it has exploitative, distortionary or exclusionary effects)
- Discrimination, in terms and conditions, in the supply or purchase of goods or services, including by means of pricing policies in transactions between affiliated enterprises which overcharge or undercharge for goods or services purchased or supplied as compared with prices for similar or comparable transactions outside the affiliated enterprises;
- Placing restrictions on the distribution or manufacture of competing goods or other goods, or provision of competing services or other services, as a condition for supplying goods or services to a certain customer.
- Requiring that a customer purchase certain goods or services from the supplier in order to access certain goods or services sought after by the customer.
- Placing restrictions on resale of products, including resale price maintenance, imposing restrictions on where or to whom or in what form or quantities goods supplied or other goods may be sold or exported; Trade agreements which fixing prices between competitors and hinder the sale or purchase of goods or services between persons, or limit or restrict the terms and conditions of sale or purchase between persons engaged in the sale of purchased goods or services.
These trade practices are not, however, strictly prohibited. They are prohibited only in circumstances where they have the effect of limiting access to markets, unduly restraining competition, or have or are likely to negatively affect trade or the economy in general. They, therefore, must be embarked on with caution. Before engaging in them, an assessment must be made whether they are likely to have an anti-competitive effect.
Prohibited Trade Agreements and Anti-Competitive Actions by Trade Associations
- Agreements between separate rival business entities that have the effect of distorting competition are prohibited and members of enterprises who engage in them commit an offence. Such agreements include:
- Price fixing: Collusion by two or more enterprises to set uniform prices for their products in order to drive out competitors
- Bid-rigging/Collusive Tendering: Cooperation by two or more competitors by illegally sharing information amongst themselves or fixing prices at which bids must be made when offering to supply goods or services, in order to control the price and gain an unfair advantage
- Market or customer allocation agreements: Agreements among competitors to divide sales territories or assign customers for a product or service amongst themselves
- Allocation by quota as to sales and production: Agreements among competitors dividing amongst themselves the quantity of products each may produce or sell in order to eliminate competition.
- Concerted refusals to deal: Agreements by competitors not to sell products or services to certain potential purchasers or to deal with competitors in products/services that may be crucial to their business
- Collective action to enforce such prohibited arrangements
These types of trade agreements are prohibited outright, without the need to assess whether competition has been negatively affected.
Associations comprising of individuals or entities engaged in economic activities, known as Trade Associations, are also prohibited from anti-competitive behavior. Thus, an association may not unjustifiably exclude any person from the association if that person carries on or intends to carry on, in good faith, business in relation to which the association is formed. Further, a trade association is prohibited from making recommendations to its members regarding prices, price margins or pricing formulae for the products of its members, or terms of sale of such products that directly affect the prices or profit margins. Engaging in such conduct is an offence.
Since mergers and takeovers involve the coming together of two or more business entities and may potentially affect competition on the market, they are subject to the Competition regime. Mergers and takeovers that result in substantial lessening of competition on the market are illegal and unenforceable. Persons who effect such mergers and takeovers commit an offence. As a pre-requisite, anyone seeking to effect a merger or takeover must first apply to the Competition and Fair-Trading Commission (CFTC). The CFTC will then conduct investigations to ascertain whether the merger or takeover is advantageous in terms of market competition. Within 45 days of receipt of the application, the CFTC is required to make an order, approving the application, rejecting it or approving it on certain conditions. The CTFC is then required to publish the order in the gazette within 14 days. The Commission or any person in whose favour the order has been made may then lodge a certified copy of the order with the High Court for purposes of recording. Once the order has been recorded, it shall have the effect of a civil judgment of the High Court and may be enforced as such.
Competition law raises cross-cutting issues in all business sectors. Contravention of competition principles is potentially detrimental to business ventures. It is therefore crucial that businesses conduct inquiries into any of their current or planned activities to ensure that they comply with principles of competition law.