There is a paradox at the heart of competition regulation that is predicated on a belief that markets work, firstly, and that they work to maximise the welfare of the economic citizens. At the same time, we believe competition regulation is required because markets do not work to maximise welfare if left alone.

Whether through asymmetric information, collusion, abuse of dominance or structural features, markets are not "pure". We believe in markets, even as they fail us every day.

This paradox is repeated in the preamble and purposes of our Competition Act. These recognise that our markets suffer from concentration, exclusion, barriers to entry and participation, and entrench our historic racial, and racist, distributions of welfare.

At the same time, they commit our regulatory framework to enhancing efficiency, promoting investment and inclusive development.

Any amendment to the act to tackle these challenges requires rejecting blunt interventions in favour of new and enhanced processes that should deliver evidence-and impact-based remedies — if implemented properly.

First, we must protect and enhance the capacity and independence of the institutions mandated to perform this restorative work. This means balancing powers with accountability and oversight and ensuring processes are established that require evidence-based demonstrations of the need for interventions, and enabling the evaluation of those interventions in a reflective, constructive way.

The effectiveness and track record of the Competition Commission means it will be asked to do even more and must be resourced to ensure it is capable of delivery and independence.

Second, business must grapple with the competition regime’s role in making markets work for all in SA. Our economy has never functioned perfectly. It has never worked for 55-million people.

It created conglomerates and stifled entrants, apartheid’s marketing boards were perpetuated in collusive arrangements, our isolation due to sanctions enabled abuse by dominant firms, and it left ownership overwhelmingly in the hands of white South Africans. Interventions such as black economic empowerment (BEE) have had mixed results in changing these structural features of our economy.

There are number of reasons why we remain concerned about concentration, including the need for transformation of SA’s market structures because of the history of racial exclusion, and stubbornly challenging entry issues. It does not seem that concentration is always explained by improvements in efficiency or driven by innovation in many markets.

The commission has reviewed more than 2,150 mergers from 2009 to March 2016, identifying 294 dominant firms in defined product markets falling within 31 sectors.

The effect of merger conditions, market inquiries or behavioural remedies should be studied so that we can all do more — and better — in the future

At least 70.45% of SA’s sectors have defined product markets with dominant firms. At least 42% of all product markets have dominant firms active within the manufacturing sector, a sector traditionally associated with jobs-rich development opportunities.

Another phenomenon evident when analysing SA’s merger control record is that of creeping concentration — whether through cross-shareholdings and cross-directorships, or through a series of incremental acquisitions in a relatively short period of time that, if considered a single transaction, would raise competition concerns.

Concentration should be understood and tackled as a competition problem, a recognised structural feature of markets that are not operating competitively. Our panel has understood the act’s goal of expanding the spread of ownership to include historically disadvantaged South Africans and small and medium-sized enterprise entrants as a public interest issue.

These two may occasionally overlap and intersect, but they are distinct issues, housed and labelled separately in the architecture of the act. Our panel’s approach has been to ensure explicit and separate consideration of the issues of concentration and ownership whenever these could possibly be encountered by the authorities – whether in mergers or abuse of dominance cases most commonly, or more proactively in the market inquiry process.

That process has been described by the economic development minister as a "process without a purpose", given its limited possible outcomes. The panel has looked carefully for ways to enhance market inquiries so that they become focused, targeted tools for the authorities to make evidence-based, timely, practical and monitored remedial interventions in a market that suffers from suboptimal competition, evident from features such as concentration levels, barriers to entry, regulation and advantages arising from state support and privilege. Suboptimal competition results in observable adverse outcomes in respect of prices, choice, quality, innovation, employment, entry or exit.

The panel has also looked at empowering the commission so that it can evaluate and assess the work of the authorities in an informed, empirical way. The effect of merger conditions, market inquiries or behavioural remedies should be studied so that we can all do more — and better — in the future.

There is one reassurance – for those horrified at the prospect of SA’s act leading the way once more in asking competition regulation to do more for our people: we are not alone.

The Chicago School itself is questioning its foundational orthodoxy of price-and-output antitrust. US concerns abound regarding concentration and the structural accrual of market power by dominant firms, particularly in innovation and manufacturing markets, and the moribund state of contestable markets.

The EU Competition Commissioner sounds a constant refrain of "creating and ensuring fairness" in markets to explain her extensive enforcement and remedial actions. This global shift mirrors what the panel has seen as our country’s challenge.

In a recent editorial in the Journal of European Competition Law & Practice, professors Ariel Ezrachi and Maurice Stucke described what is under way as "the battle for antitrust’s soul".

They write that the "reality is that ‘competition law’ has never been, nor will it ever be, pure from normative political, social and economic values. Ultimately, it comes down to the values we want to promote and our belief in how competition works. Granted, antitrust cannot cure every ailment. A consensus exists that competition law cannot be all things to all people … antitrust law does not exist as a Platonic ideal out there for us to find. Rather it is for us to design.

"As we design, we must return to antitrust’s core values: what do we, as a society, want to promote? What SA, the EU, the US, and other jurisdictions seek to promote may differ…. While differences may exist at the margin, ultimately, competition law worldwide can advance several common political, social and economic goals."

Or, as Harvard professor Dani Rodrik puts it, "policies [need] to be attuned to the failure to which markets are prone, and to be tailored to the specific circumstances of each country. No single blueprint fits all."

The expected amendments must be a Proudly South African design.

• Le Roux is a member of the Johannesburg and New York Bars, an adjunct professor at the University of Cape Town and chairs the ministerial advisory panel on amendments to the Competition Act. This is an edited extract of a recent speech given to the competition law committee of the Law Society of the Northern Provinces.

Please sign in or register to comment.