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The purpose of the Competition Act 89 of 1998(“the Act”) is to promote the efficiency, adaptability, and development of the economy, and to ensure that small and medium-sized enterprises have equitable opportunities. Certain practices, including restrictive horizontal practices, restrictive vertical practices, and abuse of dominance, are prohibited in terms of the Competition Act.

The Competition Act 89 of 1998 (“the Act”) was enacted to promote and maintain competition in South Africa, to ensure that small and medium-sized enterprises have an equitable opportunity to participate in the economy and to promote a greater spread of ownership, particularly amongst historically disadvantaged persons. This article will outline some of the prohibited practices/agreements in terms of the Act.

Restrictive Horizontal Practices

Section 4(1) (b) of the Act prohibits any agreement, concerted practice, or decision that involves restrictive horizontal practices. These are agreements that would have the effect of substantially preventing or lessening competition in the market, by:

  • Directly or indirectly fixing a purchase or selling price (or any other trading condition);
  • Dividing the markets by allocating customers, suppliers, territories or specific types of goods and services, or
  • By collusive tenders.

The Act provides that parties who conclude such an agreement must prove that there is a technological efficiency or any other gain that favours competition that results from the agreement.

Restrictive Vertical Practices

Section 5 of the Act prohibits any other agreement if it is between parties in a vertical relationship (between a firm and its suppliers and/or customers), which has the effect of substantially preventing or lessening competition in a market. These agreements are prohibited unless a party to the agreement can prove that the technological efficiency or other pro-competitive gains resulting from it outweighs the negative impact on competition. An example of a vertically restrictive act would be the exclusive supply agreement between a supplier of key inputs and selected customers, as well as the practice of suppliers or producers prescribing minimum resale prices to its customers.

Abuse of Dominance

The Act further prohibits abuse of dominance, which refers to anti-competitive practices perpetrated by dominant firms and may include the following:

  • Excessive pricing of goods or services to the detriment of customers;
  • Denying competitors access to an essential facility;
  • Price discrimination (such as unjustifiably charging customers different prices for the same goods or services; and
  • Exclusionary acts (such as refusing to supply scarce goods to a competitor, inducing suppliers not to deal with a competitor and buying up a scarce input required by competitors).

Exemptions

The prohibition of restrictive practices and the abuse of dominant positions may affect the manner in which business is conducted, negatively affecting economic development. The Act gives the Competition Commission the power to grant exemption from such prohibition on the application of an interested party. An exemption may be granted only if the agreement or practice is required to attain a certain objective, including any of the following:

  • Maintenance of promotion of exports;
  • Assistance of small firms controlled by historically disadvantaged persons to become competitive;
  • The change in productive capacity to stop a decline in an industry or promote economic stability of a designated industry; and
  • Exercise of intellectual property rights.

This Act makes it an offence for any person who is a director of a firm or has management authority to cause a firm to enter into agreements or practices that are competitively restrictive or perpetrate abuse of dominance. Parties found to have contravened provisions of this Act are subject to an administrative penalty.

Reference List:

  • VISSER, An Overview of the Competition Act (Part 2) volume 2.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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