TIED OR CONDITIONAL SELLING
What is Tied or Conditional Selling?
Tied or conditional selling occurs when a supplier makes the sale of one product or service (the tying product) conditional on the purchase of another product or service (the tied product), and thus the tying product is not sold separately. An example is a situation where a supplier of medical devices to hospitals and clinics stipulates in its sales contracts that the consumable medical products used with the devices must be purchased exclusively from it. Such requirements significantly limit the customer base available to competing manufacturers of consumables. If the medical devices supplier has a substantial market power in the relevant medical devices market, the arrangement may amount to a restrictive practice.
Prohibition of Tied or Conditional Selling
Section 2 of the Competition Act [Chapter 14:28] (the Act) defines tied or conditional selling as “any situation where the sale of one commodity or service is conditional on the purchase of another commodity or service.”
The Act prohibits tied or conditional selling as a restrictive practice. A restrictive practice is defined in relation to tied and conditional selling as any agreement, arrangement or understanding, whether enforceable or not, between two or more persons, any business practice or method of trading, any deliberate act or omission on the part of any person, whether acting independently or in concert with any other person or any situation arising out of the activities of any person or class of persons, which restricts competition directly or indirectly to a material degree, in that it has or is likely to have the effect of limiting the commodity or service available due to tied or conditional selling.
Anticompetitive effects of tied or conditional selling
Tied or conditional business practices are exploitative and exclusionary in nature and may act as a barrier to entry by new market players. Even in scenarios where there are no exclusionary effects, tying may have direct exploitative effects, for instance when used by suppliers with substantial market power to price discriminate, which is another anti-competitive practice. Anti-competitive effects of tied or conditional selling are as follows: –
To The Customer
- it has exploitative effects on consumers through forcing them to buy an undesired product (the tied product) in order to purchase the product, they want (the tying product) thereby taking away the consumer’s right to choose suppliers of products;
- it may lead to enhancement of prices of the tied product as consumers are denied access to alternative suppliers;
- tied or conditional selling can result in the selling or provision of low-quality products and services at the expense of customers; and
- it may result in direct exploitative effects where the supplier’s motivation for tying is price discrimination.
To Competitors Or Other Market Players
- tied or conditional selling limit competition by foreclosing effective market access by actual or potential competitors, especially in the tied market. Such foreclosure can also strengthen market control in the tying market.
Powers of Commission to Investigate Restrictive Practices
Section 28 of the Act empowers the Commission to make such investigation as it considers necessary into any restrictive practice which it believe exists or may come into existence. A person who is affected by tied or conditional selling can therefore lodge a complaint with the Commission. The Commission is also empowered in terms of Section 30 of the Act, to ensure discontinuance of any restrictive practice which exists or may come into existence by way of negotiations. The Commission has in the recent past negotiated with day-old chicks distributors who were selling chicks to poultry farmers on condition that they also buy stock feed to raise the birds. This practice was exploitative in nature as it compelled farmers to access chicks on condition that they buy the feed. For any further inquiries, kindly contact the following:-
Competition and Tariff Commission
23 Broadlands Street
Telephone: 263 4 853127-31
Zimbabwe Competition Law: Restrictive Practices
The Competition and Tariff Commission (“Commission”) is a statutory body established in terms of the Competition Act [Chapter 14:28] (“the Act”) to implement and enforce Zimbabwe’s Competition Policy and Law. The Act provides for, as one of the Commission’s functions, the investigation, prevention and discouraging of restrictive practices which are contrary to public interest.
What are Restrictive Practices?
These are practices, agreements, understandings, or arrangements between independent companies that significantly lessen competition or limit market access. These practices reduce the degree of contestability of a market, such as cartels or other forms of horizontal or vertical market restraints, abuse of dominant market position, monopolization, price discrimination, and the like. They are employed mainly by dominant firms which have market power, preventing other firms from competing fairly in the marketplace, and often result in the exploitation of consumers by denying them choice and quality.
According to section 2 of the Act, restrictive practice” means—
(a) any agreement, arrangement or understanding, whether enforceable or not,
between two or more persons; or
(b) any business practice or method of trading; or
(c) any deliberate act or omission on the part of any person, whether acting
independently or in concert with any other person; or
(d) any situation arising out of the activities of any person or class of persons;
which restricts competition, directly or indirectly, to a material degree.
Consequences of restrictive practices
Restrictive practices can: –
- undermine the efficiency and fairness of markets resulting in higher prices, poorer service delivery and stifling of innovation
- prevent or restrict entry into any market of new players producing or distributing any commodity or service
- result in the creation of monopolies situations which are contrary to public interest
Powers of the Commission to Investigate Restrictive Practices
Section 28 of the Act empowers the Commission to make such investigation as it considers necessary into any restrictive practice which it believe exists or may come into existence. The Commission, may initiate investigations into any restrictive practice mero motu; or after receiving a complaint; or after market enquiries. In conducting its investigations, the Commission has a duty to adhere to rules of natural justice which ensure that decisions are reached on an objective evaluation of the evidence and not on any grounds of personal interest or hostility or favouritism to particular parties.
Negotiations by the Commission
The negotiation platform is another tool used by the Commission to safeguard the competition process. In terms of section 30 of the Act, the Commission may, at any time, negotiate with any person with a view to reach a consensus which ensures the discontinuance or termination of any restrictive practice which exists or may come into existence. The Commission may negotiate with any person whether or not it has embarked on an investigation into the restrictive practice in question and it is empowered to embody arrangements made after negotiations into its order.
Orders by the Commission
If satisfied that a restrictive practice exists, the Commission is empowered in terms of section 31(1), to make the following orders, amongst others, in respect of that restrictive practice: –
- prohibition from engaging in the restrictive practice or from pursuing any other specified course of conduct;
- requiring a party to terminate the restrictive practice; and
- prohibition from stipulating prices by purchasers.
For enforcement purposes, Commission orders may be lodged either with the clerk of any Magistrate’s Court or Registrar of the High Court for recording as a judgement of the magistrate court or High Court. An order so recorded shall have the effect of a civil judgement of the High Court or magistrate court concerned for enforcement purposes. For any further clarification please contact the undersigned.
Competition and Tariff Commission
23 Broadlands Street
Telephone: 263 4 853127-31
THE ADMINISTRATIVE PENALTY FOR NON-NOTIFICATION OF MERGERS
All mergers which meet notification thresholds must be notified to the Competition and Tariff Commission (‘the Commission’) – a statutory body established in terms of the Competition Act [Chapter 14:28] (“the Act”), mandated to promote and maintain fair competition in all sectors of the economy of Zimbabwe through regulation of mergers, amongst other areas. This article provides a general overview of the administrative penalty for non-notification of mergers as provided for in the Act.
What are the Timelines for Merger Notification?
Section 34A (1) of the Act, provides that a party to a notifiable merger is required to notify the Commission in writing of a proposed merger within thirty days of the i) conclusion of the merger agreement between the merging parties; and/or ii acquisition by one of the parties to that merger of a controlling interest in another.
What Happens if Parties Fail To Notify Within Stipulated Timelines?
If the merging parties fail to fulfil the above requirement and proceed to consummate a merger without the Commission’s approval, the Commission is empowered to impose a penalty as provided for in terms of section 34A (3) of the Act. The Commission may impose a penalty if the parties to a merger i) fail to give notice of the merger as required; and ii)proceed to implement the merger without the approval of the Commission.
What is the Level of Penalty Imposed by the Commission?
Section 34(4) of the Act provides a penalty imposed in terms of subsection (3) may not exceed ten per centum of either or both merging parties’ annual turnover in Zimbabwe, as reflected in the accounts of any party concerned for the preceding financial year. The penalty imposed by the Commission serves as a deterrent against non-notification of mergers and promotes compliance by merging parties. The applicable penalty is calculated as a proportion of merging parties’ turnover on a scale from zero percent (0%) to 10 percent (10%).
What are the Factors Considered by the Commission in Calculating the Penalty?
The penalty level is based on an analysis of factors listed in section 34A (5) of the Act. In determining whether the proportion of the penalty will be at the higher or lower end of the scale (i.e. 0% to 10%), the Commission will be guided by the extent of violation of the following factors:-
(i) The nature, duration, gravity and extent of the contravention
The Commission looks at the nature of the conduct which gave rise to the failure to notify and/or prior implementation contravention. Failure to notify or prior implementation contravention can take different forms, and the Commission will consider how the failure to notify and/or prior implementation occurred. Further, the Commission considers the amount of time merging parties have violated the provisions of the Act. .E.g., the date on which the Agreement of Sale or Purchase/Subscription of shares was signed is one of the indicators used to determine the period in which parties have contravened the Act. The longer the time before notification, the higher the penalty percentage assigned.
(ii) Any loss or damage suffered as a result of the contravention
The negative effects of the contravention on consumers, producers, suppliers, during the period of contravention are considered. Effects vary but may include loss of revenue, assets, contracts and customers, which may cause other market participants to suffer.
(iii) The behaviour of the parties concerned
This speaks to the behaviour of parties in the market during the period of contravention in relation to customers, suppliers and competitors. E.g., whether the merged entity created artificial shortages to drive prices up or charge predatory prices to drive out competitors in the market. Such anti-competitive practices have a negative impact in the market.
(iv) The level of profit derived from the contravention
This relates to profits derived from the contravention, including quantifiable monetary and non-quantifiable monetary benefits, i.e., actual profit derived and benefits of anti-competitive practices emanating from the merger.
(v) The market circumstances in which the contravention took place
This refers to the market structure in which the contravention took place. In a market where there are many buyers and sellers, the impact of anti-competitive practices is less likely compared to a market dominated by few large players. The presence of buyer/supplier power reduces the likely harm caused by the contravention.
(vi) The degree to which the parties have co-operated with the Commission
This includes the extent to which the firm, inter alia, delayed, obstructed, and/or assisted in expediting the examination process. This includes payment of notification fees, submission of notification form, provision of additional information and many other engagements that may be necessary during the merger examination period.
(vii) Whether the parties have previously been found in contravention of the Act
This factor relates to whether parties have previously been found in contravention of the Act. First-time offenders are treated differently from repeat offenders. Applicable weightage percentage is higher for repeat offenders compared to first-time offenders. The weightage sum total of these factors determines the penalty which parties to the merger should pay.
For further information please contact the following:-
WhatsApp +263 715783923
Telephone +263 4 853127-31
Role of Competition Policy and Law in Mitigating Climate Change
The international community commemorates the World Competition Day on the 5th of December, the day when the United Nations Conference on Restrictive Business Practices approved the United Nations Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices in 1980. The aim of the World Competition Day commemorations is to ensure that stakeholders globally, realise the potential benefits from an effectively implemented competition regime, and also play their role in making competition regimes work worldwide. This year’s celebrations are running under the theme “Competition Policy for Mitigating Climate Change”. Climate change is threatening our existence on mother earth and developing countries are bearing the brunt of its impact. This article discusses how competition policy can be used to mitigate climate change.
Legal and Policy Framework
Over the years, Zimbabwe has made significant strides to incorporate climate change issues in its national development agenda as witnessed by the signing of the United Nations Framework Convention on Climate Change (UNFCCC) in 1992 at the Rio Earth Summit. Zimbabwe is a signatory to the Kyoto Protocol entered into force on 16 February 2005 and operationalized the UNFCCC by committing industrialized countries and economies in transition, to limit and reduce greenhouse gases emissions in accordance with agreed individual targets. The Kyoto Protocol also established a rigorous monitoring, review and verification system, as well as a compliance system to ensure transparency and hold Parties to account with regards to emission targets. The expiration of the Kyoto Protocol in 2020 necessitated the need for a new binding agreement to guide future efforts to address climate change, which saw the adoption of the Paris Climate Agreement which is a legally binding international treaty on climate change. It was adopted by 196 Parties at Conference of the Parties (COP) 21 in Paris, on 12 December 2015 and entered into force on 4 November 2016, with the goal to limit global warming.
At the local level, Section 73 of the Constitution on environmental rights highlights that every person has the right (a) to an environment not harmful to their health or well-being; and (b) to have the environment protected for the benefit of present and future generations, through reasonable legislative and other measures that (i) prevent pollution and ecological degradation; (ii) promote conservation; and (iii) secure ecologically sustainable development and use of natural resources while promoting economic and social development; (c) the State must take reasonable legislative and other measures, within the limits of the resources available to it, to achieve progressive realisation of the rights set out in this section. Zimbabwe’s constitutional provisions require sustainability and environmental protection and this has to be taken into account when implementing all of Zimbabwean policies.
The overarching goal of the National Development Strategy 1(NDS1) is to ensure high, accelerated, inclusive and sustainable economic growth as Zimbabwe moves towards an upper middle-income society by 2030. One of its objectives is to ensure sustainable environmental protection and resilience. The thrust of environmental protection, climate resilience and natural resource management under the NDS1 stands on sustainable management of wetlands, rehabilitation of mined areas, climate change mitigation and sustainable natural resources management. Further to that, the country has drafted the Zimbabwe Long-term Low Greenhouse Gas Emission Development Strategy (2020-2050) for supporting its sustainable development agenda of a climate resilient economic growth. Zimbabwe’s legal and policy framework with regards to mitigating climate change and ensuring environmental protection is quite clear as the supreme law of the land supports sustainable development, and has environmental protection requirements which must be integrated into various policies and activities, particularly with a view to promoting sustainable development, including competition policy and law.
Mitigating Climate Change through Competition Policy and Law(CPL)
Competition can be very crucial in the fight against climate change. This emanates from the fact that as companies compete for customers they are forced to innovate and come up with new products that are environment friendly. Without competition the incentive to innovate and come up with new products is eroded as companies are guaranteed their share of the market. CPL is one of the key drivers of environmental protection as it aims at improving quality which includes the sustainable production of quality products, increasing choice of more environmentally friendly products and use of green innovation. Where consumers prefer environmentally friendly products, companies are most likely to adapt their supply of environmentally friendly products and gear their investments to reap that demand. When there is willingness to pay on the part of consumers for more sustainable products, competition leads to the most efficient outcomes and stimulates companies to invest in product differentiation in a green direction.
a. Merger Regulation
Merger regulation is a key aspect of competition regulation which allows the competition authority to assess and remedy anti-competitive mergers and allow for realisation of efficiencies arising from mergers and acquisitions. Analysis of efficiencies in merger regulation originates with the assumption that while mergers can impede competition, they may also have economic advantages and other public interest benefit. Merger regulation aids in mitigating climate change through considering efficiencies in support of environmental protection as well as protecting green innovation. CPL is part of the solution as mergers analysis, especially in areas which have great implications on greenhouse gas emissions and environmental degradation, are factoring in efficiencies which lead to sustainable development. Dominant firms usually protect their brands which may not be environmentally friendly by using their financial chest to buy small companies and thereafter get rid of their innovations and brands. Globally, competition authorities are deterring big business from destroying new environmentally friendly ideas of small businesses that are green innovators through mergers and acquisitions.
b. Antitrust/competition law enforcement
CPL enforcement also aids in mitigating climate change through supporting green transition, by protecting competition that drives companies to innovate more and to operate more sustainably. Businesses can limit competition through various forms of agreements some of which may also have negative implications on the environment. In the European Union for example, car makers were fined for agreeing not to compete to produce cleaner cars. Thus, agreeing not to compete in this instance when firms had capacity to produce cleaner vehicles was anticompetitive and denied consumers increased alternatives/choice and innovation. However, these rules are not to discourage companies from working together for purposes of making their products more environmentally friendly.
Abuse of dominant market position can also result in negative outcomes that may affect the environment. A case in example involves exploitative abuses by dominant buyers especially in the agricultural sector.In competition analysis, customer-supplier relationships between farmers and buyers of agricultural produce are a cause for concern. In such instances, farm produce buyers abuse their market power through arrangements that dictate low prices for farm produce to ensure they make huge margins through buying low and selling high. In a desperation to break even due to low prices, farmers may adopt practices which may not be good for the environment but less costly for farming operations. A typical example of bad environmental practice is the destruction of forests for firewood as a source of energy in tobacco curing. In the tobacco sector, the Commission has advocated for the review of the Tobacco Pricing Matrix so that farmers get better prices for their tobacco critical in them adopting sustainable ways of tobacco curing with a view to reduce deforestation and agriculture emissions. Other energy alternatives for tobacco curing which have been tried include biogas though research is still ongoing, while ethanol and solar energy have been viewed to be expensive for small holder farmers in the interim in terms of cost effectiveness.
Globally, CPL has provisions for exemptions and exclusions where firms can work together to achieve a particular objective of interest to the public. In Zimbabwe’s case, Section 35 of the Competition Act [Chapter 14:28] (“the Act”) allows parties to apply for authorisation to enter into or give effect to any agreement or arrangement which may be considered as prohibited in the Act. Thus, cooperation amongst firms is possible under current legal provisions to achieve climate change mitigation objectives in an effective manner. An example can be cooperation by firms to pool together resources for Research & Development in new green technologies.
Cooperation by the private sector to mitigate climate change is something which Competition Authorities globally are considering in the fight against climate. Companies cooperating to introduce green technologies may incur reduced costs for innovation and research while a single company may incur increased costs which maybe difficult to recoup if sales are minimal. CPL need not stand in the way of urgent action and cooperation by the private sector to fight climate change. A good example in Zimbabwe is the Business Council for Sustainable Development which is part of the World Business Council for Sustainable Development which has been a leading voice in climate change mitigation in Zimbabwe and promoting low carbon technology partnership initiatives, industrial energy efficiency and use of renewable energy sources. Such organisations and partnerships provide latest developments on climate change and raise awareness of this emergency to industrialists.
c. Barriers to Entry removal in Green Transition
CPL plays an important role in increasing the pace at which countries attain green transition. This can be done through removal of barriers to entry in the production and trading of green goods and technologies. An example can be a shift towards renewable sources of electricity such as solar and wind energy. CPL advocates for the elimination of unjustified barriers to entry, especially administrative and regulatory barriers discouraging green transition critical in mitigating climate change.
d. Standard Essential Patents in Green Transition
Last, CPL has also shaped the development of standard essential patents (SEPs) for essential technologies. These are patents which are crucial for the standardised development of industry and must be licensed on fair, reasonable and non-discriminatory (FRAND) terms. Patents confer legal monopolies and for purposes of ensuring that even competitors access intellectual property for essential green technologies reducing the environmental burden on the earth SEPs, ensures that even competitors can access such patents on FRAND terms. This drives more parties including small to medium enterprises, to participate in improvements and the manufacturing of green technologies critical for climate change.
Climate change will continue to be high on the political agenda of the Republic of Zimbabwe and globally. Competition law and policy, as highlighted above, plays a crucial role in the process of mitigating climate change as the economy transitions to a low carbon economy. It has a role to play in mitigating climate change by protecting the competition that drives companies to innovate more and to operate more sustainably. The Commission, as a competition enforcer, will increasingly attach more weight to environmental objectives when balancing the anti-competitive effects and the environmental benefits of mergers, cooperation agreements, and any market conduct as it enforces Competition Act [Chapter 14:28].
RESALE PRICE MAINTENANCE
What is Resale Price Maintenance?
Resale price maintenance (RPM) occurs when a supplier enforces a minimum price at which a retailer or distributor must on-sell those goods, thereby preventing the reseller from setting own prices for goods/services. Under RPM arrangements, retailers are not allowed to sell products below the specified minimum price, even if they want to offer discounts or promotions. Most common forms of RPM arrangements are where a supplier i) sets a specific price – a minimum retail price or a minimum margin, at which a product must be resold, and ii)imposes restrictions on how much a reseller can discount the product price.
Prohibition of RPM
Section 2 of the Competition Act [Chapter 14:28] (theAct) defines an unfair business practice as a restrictive practice or conduct specified in the First Schedule. In terms of Section 42, acts or omissions specified in the First Schedule are unfair business practices for purposes of the Act. Paragraph (9) of the First Schedule provides for RPM as an unfair business practice and defines it as specifying the minimum price at which a product must be resold to customers. The practice restricts businesses from competing effectively and is a breach of the Act.
Recommended Resale Price
Suppliers can recommend prices at which resellers may resell products, an arrangement known as recommended resale price, and which is not RPM as a reseller may resell products at a price they determine themselves. However, if a supplier tries to force a reseller to sell at the recommended resale price, it becomes RPM.
Anticompetitive Effects of RPM
Whilst price ceilings can be a mechanism to protect consumers from exploitation by unscrupulous retailers, the same cannot be said for RPM, given the likely anticompetitive effects arising from such arrangements. Setting of floor prices reduces incentive for innovation and operational efficiency while restricting competition and deteriorating consumer welfare. The following anti-competitive effects are associated with RPM: –
- Higher prices for consumers – by imposing minimum resale prices on products, prices are kept artificially high restricting retailers’ ability to offer discounts or compete on price.
- Limited consumer choice – when businesses engage in RPM, consumers lose out as they cannot shop around for better value. RPM prevents retailers from engaging in non-price competition such as customer service, product quality and product selection. This reduces consumer choice and results in a less competitive marketplace.
- Creation of barriers to entry for new players – when manufacturers/suppliers enforce minimum resale prices, it is difficult for new entrants to compete on price to gain market share.
- Limited access to goods and services – if retailers cannot set their own prices or engage in price competition, they may choose not to stock certain products or serve certain markets where profitability is uncertain (e.g., remote areas). This results in limited access to goods and services for consumers in these areas.
- Formation and maintenance of cartels – RPM can be used to fix prices at all stages of distribution and facilitates cartels. Retailers can conspire to set retail prices at monopoly levels and, because it is the manufacturer who appears to be setting retail prices, collusion diverts attention from the collective price setting by the retailers.
Criminal Liability for Engaging in RPM
The Act provides for criminal liability of any person who engages in RPM. In terms of Section 42 (3) of the Act: –
“Any person who enters into or engages in or otherwise gives effect to an unfair business practice shall be guilty of an offence and liable – a) in the case of an individual to a fine not exceeding level twelve or to imprisonment for a period not exceeding two years or to both such fine and imprisonment; and b) in any other case to a fine not exceeding level fourteen.
The Commission, after establishing a case of RPM, refers the matter for prosecution and the appropriate level of fine is determined by the presiding officer.