SMEs underusing Competition Act’s powers
4/02/2011

Small and medium-sized enterprises (SMEs) are underusing the Competition Act’s powers that afford such businesses the opportunity to enter into preferential agreements with larger com- panies, says legal firm Adams & Adams competition law practice group member Jac Marais.

The Act’s aims, in section 2, include the promotion of equal opportunities for SMEs, as well as the spreading of ownership to historically disadvantaged persons.

Section 10.3 of the Act provides that “an agreement or practice that would otherwise be pro- hibited may be exempted from the Act if it can be shown that the agreement would promote the ability of SMEs, controlled by previously disadvantaged persons, to compete”, he says.

There are very few examples of applications in terms of this provision and its impact has been limited. It may well be that SMEs, and bigger businesses dealing with SMEs, have underused this provision and that there are opportunities for SMEs to do so in the future, explains Marais.

“A lack of awareness may be part of the reason that the provision is underused. Applying for exemption is an opportunity for SMEs to level the playing field. Also, the process of application is not complicated,” he notes.

However, the Act’s other aims are primarily linked to the increase of consumer welfare through the promotion of effective allocation of resources and the protection of the process of competition in industries, he says.

“In practice, the different objectives of the Act are often in conflict with each other, as the protection of smaller firms from bigger competitors will not necessarily lead to increased consumer welfare through, for example, a reduction in prices because bigger firms are often more efficient and are, therefore, able to produce products at lower prices,” he explains.

An SME will have recourse against a dominant firm if it sells its products to the SME at higher prices than it does to its bigger customers, unless the dominant firm can justify its price on the basis of, for example, higher production costs in respect of the products sold to the SME, says Marais.

The complaints procedure to the Competition Commission is relatively simple and user friendly and it is, therefore, important for SMEs to appreciate and protect their rights under the Act through the use of the correct complaints procedures, he adds.

Further, the Competition Com-mission has identified certain priority sectors. These sectors typically have high market concentrations and, traditionally, it has been difficult for SMEs to enter into these markets. Although ensuring compliance with the Act will not be a guarantee of the success of SMEs, it could expose abuses of dominance, notes Marais.

One of the key drivers of the Competition Commission’s successes is the corporate leniency policy (CLP). In terms of the CLP, the Competition Commission will grant immunity, subject to certain conditions and requirements, to a company that is first to confess that it is a member of a cartel.

“The offer of immunity has a destabilising effect on cartels and has led to the exposure and conviction of a number of high-profile cartels. Although it is impossible to measure, it would be fair to say that the number of cartels has decreased drastically since the CLP has come into operation,” concludes Marais.