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. |