WILLEM BOSHOFF: Support competition, support the consumer

A competitive market economy holds substantial benefits for consumers. In the short run, competition keeps price rises under control and increases the availability and variety of products and services. In the long run, the rivalry between firms gives rise to innovation, leading to new consumer products or services and lower production costs for existing goods.   

It is appropriate on World Consumer Rights Day to consider how government policies on competition matters affect SA consumers. Competition policy doesn’t necessarily benefit consumers. Competition law in this country and elsewhere includes several objectives beyond the promotion of competition. Nor can competition policy necessarily address competition problems that harm consumers. In SA in particular, competition in important sectors is often constrained by sectoral policies or regulations, which limit the extent to which competition authorities can assist consumers. 

The energy crisis is a case in point. A competitive sector featuring alternative electricity suppliers would have been far better equipped to provide consumers with reliable, affordable and clean electricity than the state-mandated monopolist. The same is true for various other key input sectors, including transport. 

In regulated sectors where competition authorities have intervened on behalf of the consumer, policy-based limits on competition (such as licencing) curtail the consumer benefits derived from these interventions. The efforts of the Competition Commission to reduce data prices offer an excellent past example. Nudging large telecom operators to commit to lower prices does not amount to encouraging greater competition between the operators.

Dynamically competitive markets generate pricing attractive to consumers, together with greater service quality and offerings. These consumer benefits far outweigh the static gains from policy-engineered price decreases. Yet such price engineering is often the second-best option available to our competition watchdog in regulated sectors of the economy.  

Nevertheless, there are other sectors where competition enforcement is likely to have greater consumer impact. In keeping with developments in the UK and EU, SA competition authorities are increasingly active in addressing so-called “excessive pricing” in various consumer-focused markets where competition may be limited, including some pharmaceutical markets. Our Competition Commission was particularly active during the pandemic in seeking to restrict price increases for selected food and personal protective equipment, including face masks. 

Of course, proceedings against excessive pricing do not necessarily translate into consumer benefit. For example, it is not clear whether it is always appropriate to disallow price increases when there is a surge in the demand for a product: price increases, even if unpopular, can help ration limited supply. More generally, in all excessive pricing cases, the challenge is to determine a “competitive” price against which to assess actual prices: the policy aim is to force the prices set in a market with limited competition to be more reflective of prices that would be set in a more competitive market.

Yet determining a competitive price is remarkably complex and continues to be the subject of debate among economists internationally. Developments in case law, and in approaches to determining competitive prices, will be important to SA consumers in the years ahead. 

Consumers, pay attention

Besides these particular developments in competition policy, SA consumers ought to pay attention to the overall direction competition policy is taking. Over many years, competition policy in the leading jurisdictions have focused on promoting competition to benefit consumers. In all of its dimensions — including merger control and the prosecution of anticompetitive practices — competition policy is concerned with harm to the consumer. In fact, in many countries a single government agency deals with both consumer and competition issues, including in the UK.  

Yet recent years have seen policymakers locally and abroad implement, or at least consider, changing the consumer-centric approach of competition policy. SA competition policy has always featured several non-competition objectives. For example, merger review in SA requires a proposed merger not only to pass an evaluation on competition grounds, but also to not harm various other stakeholders or policy aims. Even so, this plurality was carefully managed, with competition — and by implication the consumer — remaining the over-riding focus.  

Unfortunately for the consumer, developments in recent years suggest a marked change. Amendments to SA’s competition laws five years ago, and the accompanying increased (and often unpredictable) focus on concerns related to empowerment or industrial policy issues, have relegated the consumer to one of many stakeholders. This is already evident in merger cases, with the famous Burger King transaction a salient example.  

While one might argue that the noncompetition objectives in SA competition policy ultimately benefit competition, the link is far from clear. For example, the concessions extracted from eager merging parties under the guise of “public interest” often bear little relation to the particular market or to the consumers buying in that market. 

On World Consumer Rights Day, it is important to reflect on whether competition policy in SA has not veered too far from its consumer focus. Given the complex challenges of our society, plural objectives are arguably unavoidable. Even so, plurality must be carefully managed, lest it renders the policy ineffective as a tool for supporting consumers.

Furthermore, it is more critical than ever to unleash competition by addressing regulatory constraints. Competition authorities cannot engineer competition and assist consumers in the face of stifling regulation. SA’s already cash-strapped consumers deserve better.  

• Boshoff is professor and co-director of the Centre for Competition Law & Economics in the Stellenbosch University economics department.