Significance of market inquiries: A short lesson for antitrust agencies in Africa

Competition is necessary for proper functioning markets. The question of the essentiality of market studies/inquiries in aiding African markets to become more competitive is a valid one. If market studies are deemed essential, how can countries in Africa go about them given the peculiarity of African markets and limited available resources? The motivation to conduct a market inquiry is unfortunately insufficient to guarantee its success. Thus, before a market inquiry is done, an understanding of the key components of market inquiries is essential. Whether a formal or informal approach is chosen, or a narrow or wide scope is applied, a strong competition or market authority, capable human resource, well established information and records management and pre-market assessments, can ensure the success of market inquiries.

To regulate a market, a good grasp of the market structure, the interplay and conduct of market participants and the impact of implemented policies is indispensable. Such an understanding can be obtained from a market study or inquiry, a vital instrument of a country's competition authority. This tool is often neglected by developing countries, especially in Africa where the consequences of an imbalanced market on economic development are evident.

In 2016, the World Bank and African Competition Forum published a report on competition policy in Africa. The report highlights how increased competition in African markets would increase growth and lift a million Africans out of poverty. The pro-competitive gains for Africa would be most beneficial in the cement, telecommunications and fertilizer markets, which are prone to cartel behaviour.

By reducing the prices of basic food staples by just 10%, as a result of tackling cartels and improving regulations that limit competition in food markets, this could lift nearly half a million people in Kenya, South Africa and Zambia alone out of poverty and save households in these countries over US$700 million a year. [1]

What is a market study? A market study is a formal inquiry into the general state of competition in a market without necessarily referring to the conduct of one (or more) particular firms [2]. Market studies are a supplement to the investigative work of competition or market authorities, and are initiated by market or competition authorities following a series of continuous and repeated complaints on market concentration and anti-competitive conduct. They are designed to unravel, through research and engagement with market participants, the effects of past policies in altering a market’s competition landscape. The fruit of an inquiry is the identification of factors restricting or limiting the proper functioning of competition in a market, ideal before introducing new market policies.

Because of the significance of market studies, a market studies’ guide was developed by the OECD Competition Committee in 2018 for countries' competition authorities [3]. Developing countries have access to this guide. However, addressing the lack of motivation of developing countries to invest resources in carrying out an inquiry is imperative. Africa countries ought to seek valid internal motivations peculiar to their economy, which are over and above the general need to have periodic market studies. This will be the driving force for the inquiry and will garner public attention. The public is ultimately the principal beneficiary of a successful market inquiry, capturing their attention at the onset of an inquiry is advantageous.

A good country example is South Africa, where high inequality [4] is a motivating factor for South Africa's competition authority (the Competition Commission of South Africa ‘CCSA’) to embark on market studies. In the past decade, South Africa has unleashed a flurry of market inquiries with the CCSA at the helm of affairs. Inquiries have been initiated in the Data, Liquified Petroleum Gas, Public Passenger Transport, Retail, Banking, and Private Healthcare markets. The CCSA has one goal: Increased market transparency. The private healthcare market inquiry in South Africa was motivated by unequal access to healthcare services in the country. Terms of Reference released in 2013 revealed that only 17% of the 51.2 million South Africans who accessed health services could afford private healthcare services [5]. The CCSA sought to uncover why above-inflation increases in the cost of private health services were occurring, sources of market failure, regulatory failure and the abuse of market power by market participants that was preventing cheaper health services, better choices and access for consumers.

Similarly, Algeria’s Competition Council initiated a market inquiry in pharmaceuticals markets following monopoly concerns [6]. Two market inquiry examples from off the shore of Africa were initiated in 2021 as an outflow of COVID-19. The United States Federal Trade Commission in November 2021, launched an inquiry into retail, wholesale and consumer goods supply to understand the causes of supply chain disruptions, which led to empty shelves in grocery stores and high consumer prices. Similarly, the Canadian Competition Bureau, in April 2021, initiated a Digital Health market study to examine how to support the digital healthcare market in Canada through pro‑competitive market policies.

Before carrying out a market inquiry, fundamental good practices will ensure that resources are not misspent. Four components of a market inquiry, which are pivotal to its success, are highlighted below:

• Competition authority (commission or agency): An established competition authority, antitrust or market authority empowered to conduct market inquiries is vital for a meaningful inquiry. An ad hoc committee will be inquorate, given the enormous resource requirements market inquiries require. A competition authority ideally should be an independent law enforcement agency empowered with legal and institutional capability necessary to conduct a successful inquiry. On occasion, competition authorities may be required to subpoena data and information from unwilling and uncooperative business or market participants to enable a close examination of particular market or industry practices, whether from government or non-government sources. Without sufficient independence and legality, a competition authority’s conduct of a market inquiry is severely limited.

• Human resource: A successful inquiry is dependent on resources; people, money, time. People are important and can guarantee the success of a market inquiry. Not just any type of human resource, but skilled legal practitioners who understand competition law, data managers and analysts, knowledge management specialists, and economists. To estimate theories of harm and potential foreclosure effects of market conduct, both tacit and explicit and coordinated or unilateral anti-competitive effects of market conduct. In applying competition law and policy, skilled staff are the backbone of market inquiries.

• Information and records management: Another important, often neglected, component of a market inquiry is a strong information management system, irrespective of how small the market to be examined is. Market participants such as business establishments, market regulators, advocacy groups, academia, government, and consumers are invited to contribute to market studies. The volume of information received from submissions and public consultations can be enormous [either from malicious intent to ensure competition practitioners are buried in tons of submissions preventing them from uncovering anti-competitive practices or from super enthusiastic market participants]. There is often no set way to effectively estimate and predict the volume, structure and format of information to be submitted. Decisions on how information received will be managed, whether in-house or out-sourced [with no conflict of interest] should be made early. Pre-planning of information and records management processes, specifically for a market inquiry, is crucial.

• Pre-market inquiry assessment: The presupposition that a market exists is the basis upon which a market inquiry is initiated. A scoping study of the ‘market’ is ideal to ensure that the market exists. This may sound like an oxymoron, but can be the downfall of a planned market study. A market inquiry should not assume a market’s existence, rather initial assessments can identify the existence and extent of a market. This background knowledge would be valuable in defining the scope of the inquiry. Additionally, the outcome of this pre-assessment will aid the establishment of an information management system and will guide resource allocation.

Bearing in mind that after a market study is completed and competition abuse is uncovered by either businesses or government agencies, for change to occur, recommendations from the inquiry need to be implemented. After highlighting the benefits of market inquiries, the question is whether competition authorities in Africa should ramp up their use of market studies and inquiries? Also, since every Tom, Dick and Harry (or Kofi, Ade and Nkosi) know of the prevalence of corruption in Africa and obvious lack of institutional mechanisms for implementing post-market study or inquiry recommendations, is it advisable for African countries to still invest in market inquiries?

For competition practitioners, the premise is that lack of market competition today would yield high prices, limited consumer choice and foster continued anticompetitive conduct tomorrow. Thus, identifying competition abuse lurking in the structural elements of a market is the most potent effect of a market study. This should be the key motivation for developing countries in Africa to hop on the market inquiry train. Even if the only outcome of a market study for Africa is an increased focus on strengthening competition policy advocacy, facilitating market understanding and enhancing public consultation and participation in policy processes, then performing a market inquiry is a justifiable course of action.

The reality is that businesses operating in African markets have high barriers to entry and expansion and this is especially the case for SMEs. Africa's fast-moving economies in a race to industrialize and achieve developed nation status should understand why SMEs lucky enough to enter the market are often unable to expand. Asides significant infrastructure and resource limitations, competition concerns are a key reason for failed businesses and increased market exit. Markets in Africa require good foundations laid to ensure a free, equitable and diverse African market. The global economy is changing rapidly, Africa should understand and shape her markets to become a force to reckon with in the economic evolution.

References

1. https://documents.worldbank.org/en/publication/documents-reports/documentdetail/243171467232051787/breaking-down-barriers-unlocking-africas-potential-through-vigorous-competition-policy

2. https://www.lawinsider.com/dictionary/m-market-inquiry

3. https://www.oecd.org/daf/competition/market-studies-guide-for-competition-authorities.htm

4. http://www.statssa.gov.za/?p=12930

5. https://www.compcom.co.za/wp-content/uploads/2020/04/Health-ToR.pdf

6. https://www.bakermckenzie.com/-/media/files/insight/publications/2021/05/competitioninafricareport16apr21_003_12211.pdf

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Author's bio

Oluwatobi Ogundele's economics experience and interests have been in the areas of competition law and policy, health and migration. She has masters degrees in Economics and in International Public Policy with specialization in International Economic Relations and Global Governance.