Competition Cases Handling
After receiving complaints from the general public, business firms, Regulators and other Government Departments, the Commission would investigate to ascertain whether there would be contravention of the Competition Act.
The Competition Act [Chapter 14:28] prohibits two main types of restrictive business practices: (i) restrictive practices that are considered using the rule-of-reason approach; and (ii) unfair business practices that are per se prohibited.
(i) Restrictive Practices
Restrictive practices as defined in terms of section 2(1) of the Competition Act [Chapter 14:28] include anti-competitive agreements, and other concerted action, and unilateral conduct of an abusive nature. Abuse of dominance, or monopolisation, is therefore covered in the definition. Section 32(2) of the Act provides that "… the Commission shall regard a restrictive practice as contrary to the public interest if it is engaged in by a person with substantial market control over the commodity or service to which the practice relates …". Prohibited restrictive practices are of both exclusionary and exploitative nature, and include:
- restricting the production or distribution of any commodity or service;
- limiting the facilities available for the production or distribution of any commodity or service;
- enhancing or maintaining the price of any commodity or service;
- preventing the production or distribution of any commodity or service by the most efficient or economical means;
- preventing or retarding the development or introduction of technical improvements in regard to any commodity or service;
- preventing or restricting the entry into any market of persons producing or distributing any commodity or service;
- preventing or retarding the expansion of the existing market for any commodity or service or the development of new markets therefor; and
- limiting the commodity or service available due to tied or conditional selling.
The des minimusrule underlies the definition of the term 'restrictive practice' in the Act in that the practice must materially restrict competition to be prohibited. The rule-of-reason approach used by the Commission in investigating restrictive practices is crucial in that an attempt is made to evaluate any efficiency or pro-competitive features of the restrictive practice against its anti-competitive effects to decide whether or not the practice should be prohibited.
The Commission's investigation of restrictive practices is done in three basic steps, as follows:
- Step 1: Commencement of a preliminary investigation by the Directorate's Competition Division upon receipt of a competition complaint, referrals from other authorities, or at the Commission's own initiative.
- Step 2: Information and evidence gathering.
- Step 3: Assessment of the competitive effects of the alleged or suspected restrictive practices to determine their materiality.
Commencement of Preliminary Investigation
A preliminary investigation in terms of section 28(1a) of the Competition Act [Chapter 14:28] into an alleged or suspected restrictive practice is commenced by the Competition Division upon receipt of the complaint from any interested party (business undertakings or persons), or referrals from other authorities (government departments and sector regulators).
The Commission can also initiate an investigation on its own from findings of its competition studies, or from newspaper reports. Tips from whistle-blowers and anonymous complainants can also be considered if they are found not to be frivolous.
The Commission informs the respondents of the commencement of the preliminary investigation, and requests them to make any representations on the matter.
Information and Evidence Gathering
The Competition Division undertakes stakeholder consultations to gather information and evidence on the alleged, or suspected, restrictive practices.
Besides the complainants, stakeholders consulted include competitors, customers, suppliers, trade/consumer associations, industry representative bodies, sector regulators, and other interested third parties.
Desk research on similar cases in also undertaken.
Assessment of Competitive Effects
The competitive effects of the alleged or suspected restrictive practices are assessed by the Competition Division to determine their materiality. The assessment report is submitted to the Commission's Mergers & Restrictive Practices Committee with appropriate recommendations:
· If no competition concerns are found, or if the Commission lacks jurisdiction over the matter, the case is closed;
· If there are some competition concerns, but not of a serious nature, negotiations in terms of section 30 of the Competition Act [ Chapter 14:28] may be held with the offending parties on the discontinuance of the restrictive practice(s).
(ii) Unfair Business Practices
Under the Competition Act [Chapter 14:28], unfair business practices are a form of restrictive practices that are per se prohibited in terms of section 32(3) of the Act, and criminal offences in terms of section 42. Section 42(3) of the Act provides that "any person who enters into, engages in or otherwise gives effect to n unfair business practice shall be guilty of an offence and liable: (a) I the case of an individual, to a fine not exceeding level twelve or to imprisonment for a period not exceeding two years or to both such fine and such imprisonment; (b) in any other case, to a fine not exceeding level fourteen". Section 32(3) of the Act provides that "unlawful unfair business practices shall be deemed … to be absolutely contrary to the public interest".
Section 42(1) of the Act provides that "the acts or omissions specified in the First Schedule shall be unfair business practices for the purposes of this Act". The First Schedule to the Act lists the following acts or conduct as unfair business practices: (i) misleading advertising; (ii) false bargains; (iii) distribution of commodities or services above advertised price; (iv) undue refusal to distribute commodities or services; (v) bid-rigging; (vi) collusive arrangements between competitors; (vii) predatory pricing; (viii) resale price maintenance; and (ix) exclusive dealing.
Like restrictive practices, the Commission's investigation of unfair business practices is done in three basic steps, as follows:
- Step 1: Commencement of a preliminary investigation by the Directorate's Competition Division upon receipt of a complaint, or unearthing of the unfair business practice.
- Step 2: Evidence gathering.
- Step 3: Evaluation of the evidence gathered to prove whether or not the alleged unfair business practice was engaged in.
Commencement of Preliminary Investigation
Commencement by the Competition Division of a preliminary investigation into the alleged or suspected unfair business practice in terms of section 28(1a) of the Competition Act [Chapter 14:28].
With the exception of investigations into hard-core cartel activity (price-fixing, market-sharing and bid-rigging agreements and arrangements), the respondents are informed of the commencement of the investigation and requested to make any representations on the matter. Investigations into hard-core cartel activity are conducted in secrecy for fear of evidence destruction by the respondents.
Evidence and information gathering on the alleged or suspected unfair business practice through stakeholder consultations and desk research.
Dawn raids can be held in terms of section 47 of the Competition Act [Chapter 14:28] to collect evidence from premises. Particularly in cases of hard-core cartels.
The Commission presently does not have a leniency programme in place to get first hand evidence from cartel members. Heavy reliance therefore has to be made on whistle-blowers and dawn raids.
Evaluation of Evidence Gathered
Unfair business practices are per se prohibited under the Competition Act [Chapter 14:28]. As such, one only has to prove that the practice was engaged in for the practice to be declared illegal.
The per se prohibition of the unfair business practice of 'collusive arrangements between competitors' however has some rule-of-reason elements since it exempts arrangements that are "bona fide intended solely to improve standards of quality or service in regard to the production or distribution of the commodity or service concerned".
The findings of the investigation are submitted to the Board of Commissioners, through the Commission's Mergers & Restrictive Practices Committee, for decision on the engagement or otherwise of the alleged or suspected unfair business practice.
Once proved, the unfair business practice is referred for prosecution in terms of section 42(3) of the Competition Act [ Chapter 14:28].
Mergers and Acquisitions
Mergers and acquisitions are considered under the Competition Act [Chapter 14:28] using the rule-of-reason approach, the substantive examination test in terms of section 32(4) of the Act being substantial lessening of competition, or creation of a monopoly situation, in any part of Zimbabwe.
Most mergers pose little or no serious threat to competition, and may actually be pro-competitive. Such benevolent mergers have a number of economic advantages, such as resultant economies of scales, reduction in the cost of production and sale, and gains of horizontal integration. There could also be more convenient and reliable supply of input materials and reduction of overheads. The advantages could lead to lower prices to the consumer. Other mergers however seriously harm competition by increasing the probability of exercise of market power. In this regard, concerns about vertical restraints and abuse of dominance come to the fore. Mergers can also sometimes produce market structures that are anti-competitive in the sense of making it easier for a group of firms to cartelise a market, or enabling the merged entity to act more like a monopolist
It is therefore no wonder that most mergers are approved by competition authorities, or are approved with conditions aimed at eliminating their harmful effects or enhancing their efficiency and public interest benefits..
The term 'merger' as defined in terms of section 2(1) of the Competition Act [Chapter 14:28] includes horizontal mergers (i.e., those that take place between two or more firms that are actual of potential competitors in that they sell the same products or close substitutes), vertical mergers (i.e., those that take place between firms at different levels in the chain of production and distribution in that firms that have actual or potential buyer-seller relationships) and conglomerate mergers (i.e. those that are neither vertical nor horizontal).
Merger control by the Commission is done in three basic steps, as follows:
- Step 1: Notification of mergers and acquisitions in terms of section 34A of the Competition Act [Chapter 14:28].
- Step 2: Examination and assessment of mergers and acquisitions in line with the provisions of Part IVA and section 32(4) and (4a) of the Competition Act.
- Step 3: Determination of mergers and acquisitions.
Notification of Mergers and Acquisitions
Notifiable mergers are notified to the Commission in terms of section 34A of the Competition Act [Chapter 14:28]. 'Notifiable mergers' are mergers or proposed mergers with a value at or above the prescribed threshold. At present, the merger notification threshold as prescribed in [ ] is [ ].
Completed and signed merger notification forms are submitted to the Commission in hard or soft copy.
The merging parties are informed whether the information in the merger notification form is sufficient to commence the effective examination of the transaction.
Examination and Assessment of Mergers and Acquisitions
The investigation of the competitive effects of mergers is done by the Competition Division. The substantive test used is "the substantial lessening of competition or the creation of a monopoly situation that is contrary to the public interest".
The investigation includes stakeholder consultations and economic analyses.
Economic analyses undertaken includes the calculation of market shares and concentration levels in the relevant markets.
Besides the competitive effects of the transactions, public interest considerations are also taken into account in the merger examination.
Determination of Mergers and Acquisitions
Merger examination reports of the Competition Division are submitted to the Commission's Mergers & Restrictive Practices Committee for consideration. The Committee makes recommendations on the merger to the full Board of Commissioners.
Mergers are approved with or without conditions, or are prohibited. In the case of conditional approvals or prohibitions, the merging parties are given opportunities to make representations to the Commission on the intended decision.