Business Consumer Affairs

Effective ways to regulate abuse of dominant position

Abuse of dominant position on the market refers to the act of unreasonable injury of the interest of trading or business partners by exploiting of an influential position on the market.

It prohibits or bars trading partners from performing the competitive functions and violates the principal of free competitiveness.

It exists in case of a single firm controlling a single product or service or may occur among the top two or more firms in a market acting together.

Definition of “Dominant position of market power” refers to a situation where an enterprise, either by itself or acting together with few other enterprises, is in a position to control the relevant market for a particular good or service or group of goods or services.

Relevant market refers to the general conditions under which sellers and buyers exchange goods, and implies the definition of the boundaries that identify groups of sellers and of buyers of goods within which and competition is likely to be restrained.

It requires the delineation of the product and the geographical boundaries/lines within which specific groups of goods, buyers and sellers interact to establish price and output.

It should include all reasonably substitutable products and all competitors, to which consumers could turn in the short term if the abuse increased prices by not insignificant amount.

There are various means to control or eliminate restrictive trade agreements among enterprises, or abuse of dominant positions of market power which unduly restrain competition. These adversely affect the domestic trade or international trade or economic development.

The prohibition of monopolies or mergers and acquisitions that create dominant positions are to be addressed. Monopoly position or near monopoly to resort to the conduct of anti-competitive practices. These require prohibition of private monopolies.

Prohibition of unfair trade practices such as

* Discriminatory pricing (removal of rival - predatory, Dumping, promote new customer, Discriminate by customer or by group and Discriminate the product or service)

* Excessive pricing

* Discriminatory treatment dealing on exclusive terms

* Resale price maintenance

* Tie in purchases /sales /clauses

* Refusal to supply or purchase

* Abuse of intellectual property rights

* Customer and market allocations and collusive tendering

* Reciprocal dealing

Measures

These are of two kinds. Preventive and elimination measures

* Consultation with trade associations

* Issue of guidelines

* Publicity and advocacy

* Monitoring and market surveys including parallel price increases.

* Promoting imports

* Suspension orders

* Disposal of stocks

* Cease and desist

* Criminal sanctions

* Injunction orders

* Enter into agreements

* Issue of directions

1. Possible Anti - Competitive Practices

Bearing in mind that the individual circumstances of each case will have to be examined, practices which might, in certain instances, be anti - competitive include those within the areas of Pricing, distribution and any other policies of a business.

2. Pricing policy

Falling into this category would be:-

2.1 Price discrimination

The practice of selling goods or supplying services to distinct and separate customers or groups of customers at different prices when the price difference does not reflect the differences in the costs of supplying those customers.

Price discrimination often takes the form of differential discounting or rebates from list prices and can artificially enhance the ability of a powerful buyer to compete on price in the market in which he is selling.

Discriminatory prices may also be charged to a particular customer or group of customers or in a particular area in order to prevent or threaten competition in a segment of a supplier’s market.

2.2 Predatory pricing

This is usually defined as the practice of temporarily selling below cost, with the intention of eliminating competition, so that in the future prices may be raised and enhanced profits achieved.

2.3 Vertical price squeezing

This can arise when a vertically integrated firm controls the total supply of an input which is essential to the production requirements of its subsidiary and its competitors.

The input price can be raised and the final output price reduced so that the profit of competitors is squeezed, possibly with a view to driving them away from the market.

2.4 Horizontal price collaboration

Manufactures/Suppliers of similar products resort to this practice when they agree to fix the prices of their products at uniform levels which have no bearing on their individual costs and which are not based on individual pricing and costing.

All such agreements have to be carefully examined because they could have harmful effects such as the lessening of competition, slowing down of production and the maintenance of price at a higher level. They could also lead to collusive tendering.

This type of collaboration could even be extended with harmful effects to the purchase of raw materials by manufacturers who band them selves together to force down the domestic market price of the raw materials to artificially low levels.

3. Distribution policy

There are a number of practices which might serve to restrict, distort or prevent competition, either at manufacturing or distribution level. These include:-

3.1 Condition sales/Tie - in sales

This is frequently found in trading activities. Under this practice if a consumer wishes to purchase one item and if he is requested to purchase another item or items as well. Often this is tied-up with article in great demand.

3.2 dealing on exclusive terms - exclusive supply

Here, a seller supplies only to one buyer in a certain geographical location and which limits competition between that buyer and his competitors in the supply of a particular product or brand.

3.3 Dealing on exclusive terms - Exclusive purchase

This is the practice of contracting to purchase or stock only the products of one manufacturers, possibly in return for an exclusive supply arrangement.

3.4 Selective distribution

This is the practice of choosing only sales outlets which satisfy specific criteria or selecting outlets on a discriminatory basis.

To be continued next week

Directive by Consumer Affairs Authority

The Consumer Affairs Authority, acting under the powers vested in it by Section 10 (1) (b) (ii) of the Consumer Affairs Authority Act No. 09 of 2003, has directed that no manufacturer, trader or distributor shall sell, expose or offer for sale, store, transport, distribute or buy or purchase any locally produced rice or paddy which is fit for human consumption directly for the manufacture of animal feed or otherwise as an ingredient for the manufacture of animal feed.

Rumy Marzook, the Chairman of the CAA has stated that this direction (19) has come into effect from January 25, 2008.

Questions and answers

Q: Are the offences which are specified in the Consumer Affairs Authority Act cognizable?

A: Every offence under the CAA Act is deemed to be a cognizable offence under the Criminal Procedure Act.

Q: Who are the officers who have authority to arrest offenders?

A: According to the provision 71 of the Act, the Director- General, Directors, Deputy Directors and Assistant Directors of the CAA shall be deemed to be peace officers within the meaning of the Code of Criminal Procedure Act No. 15 of 1979 for the purpose of exercising any of the powers conferred upon peace officers by the Code.

Q: What is the function of the Consumer Affairs Council?

A: The function of the Council is to hear and determine all applications and references made to it under the Act.

Q: What are the orders to be made by the Consumer Affairs Council?

A: Where an application is made to the Council and if it is satisfied that -

(a) an anti-competitive practice exists but such anti-competitive practice does not operate or is not likely to operate against public interest, by order made in that behalf, authorise such anti-competitive practice; or

(b) An anti-competitive practice exists and that it operates against public interest, by order made in that behalf provide for -

(i) The termination of such anti-competitive practice in such manner as may be specified in the order; and

(ii) Such other action as the Council may consider necessary for the purpose of remedying or preventing the adverse effects of any anti-competitive practice.

In determining for the purposes of this section, whether any anti-competitive practice operates, or is likely to operate, against public interest, the Council shall take into account all matters which appear to the Council to be relevant to the matter under investigation and shall have special regard to the desirability of - (a) Maintaining and promoting effective competition between persons supplying goods and providing services;

(b) Promoting the interests of consumers, purchasers and other users of goods and services in respect of the price and quality of such goods and services and the variety of goods supplied and services provided in Sri Lanka; and

(c) Promoting through competition the reduction of costs, the development and use of new techniques and products and facilitating the entry of new competitors into existing markets.

Q: How can witnesses be called for an inquiry conducted by the Consumer Affairs Council?

A: By notice issued by delivering it to the person named therein or by leading if at the last known place of abode of that person.

Every person to whom a notice is issued shall attend before the Council at the time and place mentioned therein, and shall give evidence or produce such documents, records or other things as are required of him and are in his possession or power, according to the tenor of the notice.

Price marking

The Consumer Affairs Authority in terms of Section 10 of the Consumer Affairs Authority Act No. 9 of 2003, published Gazette Notification No. 1505/15 of 11.07.2007, whereby the importers of pre packed products listed below have been directed that ‘Maximum Retail Price’ (MRP), the name and the registered address of the manufacturer, supplier, importer or distributor be clearly denoted on the container/pack of each product in the English Language at the point of entry to the island.

The products are:

Confectionary (including chewing gum) - Hs code No. 1704

Chocolates - Hs code No. 1806

Biscuits - Hs code No. 1905

Cakes - Hs code No. 1905

Toilet Soap - Hs code No. 3401

The above direction became effective from 1st October, 2007.

The CAA having considered the various problems encountered by the importers and on the representations made by them, granted permission to the importers to declare the Maximum Retail Prices (MRP) at the point of entry and to do the price marking subsequently, until December 31, 2007.

The Authority has now decided to extend this facility until March 31, 2008 and that it will not be extended further after March 31, 2008 and that importers are hereby informed to abide by Gazette Notification No. 1505/15 of 11.07.2007.