Archives July 2023

TIED OR CONDITIONAL SELLING

What is Tied or Conditional Selling?

Tied or conditional selling occurs when a supplier makes the sale of one product or service (the tying product) conditional on the purchase of another product or service (the tied product), and thus the tying product is not sold separately. An example is a situation where a supplier of medical devices to hospitals and clinics stipulates in its sales contracts that the consumable medical products used with the devices must be purchased exclusively from it. Such requirements significantly limit the customer base available to competing manufacturers of consumables. If the medical devices supplier has a substantial market power in the relevant medical devices market, the arrangement may amount to a restrictive practice.

Prohibition of Tied or Conditional Selling

Section 2 of the Competition Act [Chapter 14:28] (the Act) defines tied or conditional selling as “any situation where the sale of one commodity or service is conditional on the purchase of another commodity or service.”

The Act prohibits tied or conditional selling as a restrictive practice. A restrictive practice is defined in relation to tied and conditional selling as any agreement, arrangement or understanding, whether enforceable or not, between two or more persons, any business practice or method of trading, any deliberate act or omission on the part of any person, whether acting independently or in concert with any other person or any situation arising out of the activities of any person or class of persons, which restricts competition directly or indirectly to a material degree, in that it has or is likely to have the effect of limiting the commodity or service available due to tied or conditional selling.

Anticompetitive effects of tied or conditional selling

Tied or conditional business practices are exploitative and exclusionary in nature and may act as a barrier to entry by new market players. Even in scenarios where there are no exclusionary effects, tying may have direct exploitative effects, for instance when used by suppliers with substantial market power to price discriminate, which is another anti-competitive practice. Anti-competitive effects of tied or conditional selling are as follows: –

To The Customer

• it has exploitative effects on consumers through forcing them to buy an undesired product (the tied product) in order to purchase the product, they want (the tying product)

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Zimbabwe Competition Law: Restrictive Practices

The Competition and Tariff Commission (“Commission”) is a statutory body established in terms of the Competition Act [Chapter 14:28] (“the Act”) to implement and enforce Zimbabwe’s Competition Policy and Law. The Act provides for, as one of the Commission’s functions, the investigation, prevention and discouraging of restrictive practices which are contrary to public interest.

What are Restrictive Practices?

These are practices, agreements, understandings, or arrangements between independent companies that significantly lessen competition or limit market access. These practices reduce the degree of contestability of a market, such as cartels or other forms of horizontal or vertical market restraints, abuse of dominant market position, monopolization, price discrimination, and the like. They are employed mainly by dominant firms which have market power, preventing other firms from competing fairly in the marketplace, and often result in the exploitation of consumers by denying them choice and quality. 

According to section 2 of the Act, restrictive practice” means—

(a) any agreement, arrangement or understanding, whether enforceable or not,

between two or more persons; or

(b) any business practice or method of trading; or

(c) any deliberate act or omission on the part of any person, whether acting

independently or in concert with any other person; or

(d) any situation arising out of the activities of any person or class of persons;

which restricts competition, directly or indirectly, to a material degree.

Consequences of restrictive practices

Restrictive practices can: –

• undermine the efficiency and fairness of markets resulting in higher prices, poorer service delivery and stifling of innovation
• prevent or restrict entry into any market of new players producing or distributing any commodity or service
• result in the creation of monopolies situations which are contrary to public interest

Powers of the Commission to Investigate Restrictive Practices

Section 28 of the Act empowers the Commission to make such investigation as it considers necessary into any restrictive practice which it believe exists or may come into existence. 

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THE ADMINISTRATIVE PENALTY FOR NON-NOTIFICATION OF MERGERS  

All mergers which meet notification thresholds must be notified to the Competition and Tariff Commission (‘the Commission’) – a statutory body established in terms of the Competition Act [Chapter 14:28] (“the Act”), mandated to promote and maintain fair competition in all sectors of the economy of Zimbabwe through regulation of mergers, amongst other areas. This article provides a general overview of the administrative penalty for non-notification of mergers as provided for in the Act.

What are the Timelines for Merger Notification?

Section 34A (1) of the Act, provides that a party to a notifiable merger is required to notify the Commission in writing of a proposed merger within thirty days of the i) conclusion of the merger agreement between the merging parties; and/or ii acquisition by one of the parties to that merger of a controlling interest in another.

What Happens if Parties Fail To Notify Within Stipulated Timelines?

If the merging parties fail to fulfil the above requirement and proceed to consummate a merger without the Commission’s approval, the Commission is empowered to impose a penalty as provided for in terms of section 34A (3) of the Act. The Commission may impose a penalty if the parties to a merger i) fail to give notice of the merger as required; and ii)proceed to implement the merger without the approval of the Commission.

What is the Level of Penalty Imposed by the Commission?

Section 34(4) of the Act provides a penalty imposed in terms of subsection (3) may not exceed ten per centum of either or both merging parties’ annual turnover in Zimbabwe, as reflected in the accounts of any party concerned for the preceding financial year. The penalty imposed by the Commission serves as a deterrent against non-notification of mergers and promotes compliance by merging parties. The applicable penalty is calculated as a proportion of merging parties’ turnover on a scale from zero percent (0%) to 10 percent (10%).

What are the Factors Considered by the Commission in Calculating the Penalty?

The penalty level is based on an analysis of factors listed in section 34A (5) of the Act. In determining whether the proportion of the penalty will be at the higher or lower end of the scale (i.e. 0% to 10%), the Commission will be guided by the extent of violation of the following factors:-

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Old Mutual takes over Marsh Insurance

THE Competition and Tariff Commission (CTC) has approved without conditions Old Mutual Zimbabwe (OMZ)’s acquisition of Marsh Zimbabwe (Marsh), an insurance and reinsurance broker business.

marsh has an insurance and reinsurance broker business in Zimbabwe, and also offers pension administration services.

Old Mutual is a Zimbabwean-registered company with various subsidiaries operating in the financial services sector and related markets.

Its operations involve short-term and life insurance, asset management, stock broking, funeral, and banking services.

In its latest newsletter, CTC indicated that it was notified of the acquisition in October last year.

In 2017, CTC launched its competition policy whose goal is to address challenges related to the control of mergers and acquisitions, anti-competitive agreements, cartels, and misuse of market power in key sectors.

“The commission classified the transaction as a vertical merger because there is a customer-supplier relationship between Old Mutual and marsh,” said CTC.

“The commission defined the relevant markets as the provision of short-term and life insurance and insurance broking services to the whole of Zimbabwe.

“Though both merging parties offer pension administration service, their contribution to the total fund administration services offered in the market is less than six percent and its contribution towards the business revenue and activities is insignificant.”

In considering the acquisition, the commission noted that it looked at the theories of harm that affect vertical mergers namely input and customer foreclosure.

Foreclosure, in this case, was analysed in line with the insurance broking and short-term insurance services only, said CTC.

Input foreclosure arises when the merges entity restricts access to the products or services that it would have supplied if the merger had not taken place.

CTC said the risk for competition relates to the effects from increases in input costs for rivals on the downstream market, especially if the merging firm has market power in the upstream market.