Chapter 2 of the Competition Act 98 of 1998 (Competition Act) deals with certain conduct which is prohibited because it is harmful to competition in the relevant market. The harm arising out of such conduct generally relates to the anti-competitive effects of collusion between competitors or strategic behaviour which seeks to exclude competitors or prevent competition on the merits (such as quality of products).
The commercial activities which are prohibited under the Competition Act are concerned with conduct relating to a firm's:
Conduct in each of these three categories is either prohibited outright or is potentially prohibited. Outright prohibited conduct is presumed to be anti-competitive and cannot be justified on the basis of any pro-competitive benefits resulting from the conduct. Potentially prohibited conduct is only prohibited if it has the effect of substantially preventing or lessening competition in a market and cannot be justified on the basis of pro-competitive benefits resulting from the conduct.
Horizontal prohibited practices
Section 4 of the Competition Act prohibits conduct arising out of an agreement between, or concerted practice by, firms who compete against each other.
Outright prohibited practices as between firms in an horizontal relationship consist of an agreement, practice or decision between competitors that involves:
Potentially prohibited practices as between firms in an horizontal relationship consist of an agreement, practice or decision that has the effect of substantially preventing or lessening competition in the relevant market unless pro-competitive benefits are attributable to and outweigh the anti-competitive effect. An example of this type of conduct is information sharing between competitors that leads to co-ordinated conduct in the relevant market.
Vertical prohibited practices
Section 5 of the Competition Act prohibits conduct arising out of the interaction between a firm and its customers or suppliers.
It is prohibited outright for a firm to engage in the practice of minimum resale price maintenance. This means that a firm may not prohibit a customer to re-sell its product at a price below the minimum level set by that firm. However, the Competition Act provides that a minimum resale price may be recommended.
Potentially prohibited practices as between firms in a vertical relationship consist of an agreement that has the effect of substantially preventing or lessening competition unless pro-competitive benefits are attributable to and outweigh the anti-competitive effect. An example of such conduct is an exclusive arrangement between a supplier and customer in respect of supply or purchase.
Abuse of dominance
Unilateral conduct by a dominant firm, which is regulated by sections 7, 8 and 9 of the Competition Act, relates to actions that constitute an abuse of a firm's dominant position in a relevant market. Dominance is construed as market power which allows a firm to control prices, exclude competition or to behave to an appreciable extent independently of its competitors, customers and suppliers.
A firm is presumed to be dominant where its market share, and the presence of market power, is as follows:
|Market share||Requirements of market power|
|45%||Presence of market power is presumed|
|More than 35% but less than 45%||Unless the firm can show that it does not have market power|
|Less than 35%||If it is established that the firm has market power|
A dominant firm is prohibited outright from:
It is potentially prohibited for a dominant firm, unless there are attributable and outweighing pro-competitive benefits, to:
Penalties and other orders
A contravention of the prohibited practices provisions of the Competition Act can result in the Competition Tribunal making various orders, including:
On application by a firm, the Competition Commission may exempt certain prohibited conduct that:
A more comprehensive discussion of cartels and leniency in South Africa can be found in a chapter contained in the Global Legal Group's International Comparative Legal Guide to: Cartels and Leniency 2012 authored by Martin Versfeld and Robert Wilson, both partners at Webber Wentzel's Competition Law Practice Group. Please click here to download the chapter.
Further information is available in a chapter published in Getting the Deal Through titled Dominance 2012 authored by Daryl Dingley and Nkonzo Hlatshwayo, both partners at Webber Wentzel's Competition Practice. Please click here to download the chapter.