P&DM Certificate in Economic and Development Policy

Competition policy, industrial policy and
corporate conduct
Simon Roberts
3 July 2012
Paper written in personal capacity, does not reflect the views of the
Competition Commission
• Expansion of competition laws, vigorously promoted by IFIs, USA
o ‘one size fits all’ form aimed at minimal intervention to correct market failures
• Industrial policy and competition policy conflict or complement?
o Competition means removing constraints, industrial policy is about imposing
distortions and constraints to meet government’s objectives
o Competition requires effective rivalry, this means need a number of firms which
might require industrial policy to support entrants and smaller firms
• In practice there is great diversity in competition regimes
• Are competition institutions only appropriate at a stage of development
where they will not be undermined by powerful business interests?
o North, Acemoglu & Robinson – competitive markets as part of ‘open access’
(note: antitrust in US promoted by farmers)
• I argue that competition policy needs to be viewed in context of policies to
address orientation and conduct of big business
o Competitive rivalry is important source of discipline
o The approach and conditions vary by country
Competitive rivalry and industrial
• Orientation of big business is central to countries’ industrial
– Investments to adopt and adapt new technologies, realise
economies of scale and scope, build production capabilities, skills
– Nature of relations with smaller firms is important for their
development also
• Rapid industrialisation to ‘catch-up’?
– ‘Unbalanced’ growth through interventionist industrial & trade
policy; this context is explicit in mandate of Korea FTC
– Discipline needed to ensure firms build new capabilities rather
than entrench positions to extract rents – the evolution of
‘business enterprise systems’
– Different sources of discipline – using export performance;
contests for state support etc, as part of wider framework.
– Dynamic rivalry and ‘optimal’ competition – competition relates to
behaviour not structure
Practice of competition law in
developing countries
• Competition law, under wider competition policy framework, embodies
particular choices
• Competition law and tests should depend on country conditions –
especially tests for abuse of dominance
– Entrenched incumbents? May be created by state, now may be TNC owned.
• Competition policy and law in practice reflects local factors, in terms of
influences and needs
– SA law reflects fear of ‘business confidence’, need for ‘certainty’; and fear of the
state – independence and checks
– KFTC – took USA law, and adapted it to ‘free and fair competition’, promote
‘balanced development’, meaning a very active set of instruments addressed at
large firms, chaebols
– New law in 1981, 1987 – addressing ‘unreasonable’ practices and ‘unjustifiable’
restrictions on competition, including subcontracting arrangements
– KFTC promoted ‘shared growth’ of large firms and SMEs, synchronised with
industrial policy
– Other countries with laws not implemented but notionally independent
South Africa case study
• Two different motivations:
– addressing apartheid legacy of concentration of control
– as part of making liberalisation work
 Reflected in tension between broad objectives of law, and specific,
narrow provisions relating to particular conduct
• Act following international best practice (Australia, Canada, EU)
• Independent institutions, with strong legal checks on their action
separate Commission, Tribunal, Appeal Court
Mergers – substantial lessening of competition test; public interest test
Abuse of dominance – separately specified contraventions; procompetitive defences
• Very concentrated economy: 1994 – Anglo-controlled companies
accounting for 43% of JSE; top six conglomerates 84%
• Mergers
– Pre-merger notification above thresholds meant around 400 merger to
evaluate per year
 main area of work for first 7 years
• Cartel prohibition: agreement or concerted practice which is:
– direct or indirect price fixing, market division, bid rigging; or
– has SLC effect (no penalty for first offence)
– Dependent on pro-active enforcement to identify, together with
Corporate Leniency Policy
 125 leniency applications over three years
– cartels coupled with exclusionary strategies
• Abuse of dominance:
– Exploitative (excessive pricing)
– Exclusionary abuses
– Over 12 years, only 18 cases referred to the Tribunal, plus 2 settled
prior to referral = 20
– long and drawn out cases, extensive legal proceedings, often 3-5 years
from referral to hearing.
Of the 20 abuse cases:
• To date 9 decided and 5 settled
• Tribunal found abuse in 6 of 9 cases on which it ruled
• 2 over-turned on appeal (Sasol-Nationwide Poles, HarmonyMittal)
 4 cases where finding stands: South African Airways (2);
Patensie (agric co-op); Senwes (former agric co-op)
• 3 of 5 settlements with substantive undertakings (Sasol Nitro,
GSK&BI for ARVs, Foskor)
• Former state-owned, regulated and/or supported in most
cases, protecting existing monopoly margins:
– SAA(2); Telkom (2); Sasol (3), Foskor; Mittal Steel (formerly Iscor)
– Cigarettes and beer (SAB, BATSA)
– Forestry and agriculture (Safcol, Patensie, Senwes, Rooibos, Astral)
Example of fuels, chemicals, fertilizer
• Initial development related to:
– requirements of mines and agriculture
– Apartheid state concern to reduce dependence on imported oil
• Sasol, as infant industry (now grown up), and Anglo subsidiary
• State providing capital; infrastructure
• Source of discipline? Interests of constituencies – agriculture, mining.
– regulation (of fertilizer, fuel)
• Firm strategies - adapting to liberalisation?
– control inputs – access to alternative feedstock (natural gas)
– raise entry barriers – downstream firms with outside options, include them in
coordinated arrangements
– consolidation – attempted two mergers
• Fertilizer and polymers – by-products from coal to liquid operations
• Liberalisation ≠ competition
• Other levers?
– Infrastructure; fuel regulation; mining rights?
– Or: competition law??
Competition law and corporate
conduct in Southern and East Africa
• Arrangements by and between large companies operate across region,
– Beer
‘This agreement enabled us to develop opportunities’, justified, Najil Fairbass, SABMiller
Communications Director. Before adding: ‘There may be antitrust laws at the national level,
but none covering the continent. I don’t see what the problem is.’
(Philippe Perdrix Le marché de la bière africaine monte en pression Jeune Afrique 10/09/2008, cited in Jenny, 2009)
– Cement: cartel across SACU
– Construction: bid-rigging across continent
– Fertilizer: overland market, including ‘Export Club’
• Entry also easier from adjacent markets (in the region), for example,
poultry (from Zimbabwe/Botswana); steel rolling (from Kenya).
– potential entrants can also be undermined such as ArcelorMittal acquisition in
• Rivalry more likely across the region rather than in individual countries, if
are substantial scale economies
• Regional Comesa authority
• Competition law is part of framework for regulating conduct of
large corporations; as is industrial policy
• Competition does not result from liberalisation, nor simply in the
absence of explicit cartels – is about effective rivalry
• Choice of model for competition regime matters
– diversity of options: free competition, prosecutorial model; or fair
competition standard in administrative model (Germany, Korea)
• Depends on institutional capabilities
• Will regimes simply be undermined by elite interests?
– depend on mediation of interests,
– provides information/insight into business practices even in absence
of effective sanctions
• Examples from e.g. Kenya, Tanzania, Zambia point to building of
popular support, pressure for greater powers, autonomy leading to
laws strengthening authorities (e.g. Tanzania ruling on Breweries)