Competition (antitrust) policy 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 policy is defined as a set of policies and laws designed to defend or promote competition. Therefore, competition policy does not defend competitors [enterprises] but competition.
Competition is vital in encouraging static and dynamic efficiencies among enterprises. Static efficiency refers to allocative and productive efficiency, that is the extent to which enterprises are producing products in the most efficient manner. Dynamic efficiency refers to the extent to which enterprises innovate viz-as-vis introducing a new and better product or process. Overall, competition aims to improve the welfare of the consumers through better products at fair prices.
Static and dynamic efficiency can be lost as a consequence of anti-competitive behaviors by enterprises. Enterprises can agree to form a cartel and charge consumers higher prices without 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 enterprises 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 exemptions 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 development, advancement in technology or innovations. The following are the specific industrial policy examples under which competition policy exemptions are granted to enterprises.
National Champions. Enterprise actions that substantially lessen competition or restrict competition are generally prohibited under antitrust laws. However, such actions may be encouraged on [industrial policy] grounds of creating or protecting 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 enterprises 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 industry 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 Consumer Protection Act, 2010 provide for exemptions to an enterprise (s) for purposes maintaining or promoting exports under section 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 advancement. The Competition and Consumer Protection Act under section 19, sub-section 2(c) provide exemptions for activities that promote technical or economic progress in the production, distribution or provision of goods and services.
Small and Medium Size Enterprises (SMEs). The small individual 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 activities 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 improve their competitiveness. The special treatment of SMEs partly springs from their strategic importance to job creation and business growth. To exemplify, a 2020 study by the International Trade Centre finds that SMEs in Zambia account for 97% of the businesses and 88% of total employment.
Others. Agreements or activities aimed at promoting or maintaining the efficient production, distribution or provision of products and maintaining lower prices, higher quality or greater choice of products for consumers also qualify for exemptions. For example, a resale price maintenance agreement aimed at preventing retailers from charging consumers exploitative prices in the retail market may qualify for exemptions.
In conclusion, competition is vital for fostering static and dynamic efficiency in the market and therefore competition policy seeks to defend competition and not competitors. However, there are situations where antitrust laws provide exemptions for activities or agreements that lessen competition in the market. The exemptions are usually given on industrial policy grounds if the generated benefits outweigh the repercussions of the loss in competition. In Zambia, the exemptions are provided in section 19 of the Competition and Consumer Protection Act of 2020. Enterprises in Zambia wishing to take advantage of the exemption for industrial development purposes are encouraged to familiarise themselves with the Act.
The author is Coordinator – Proudly Zambian Campaign at the Zambia Association of Manufacturers
