Market dominance hurts consumers

The history of dominance and monopoly in Kenya is tied to the country’s early independence phase when the government sought to rapidly industrialise and indigenise the economy by setting up import- substitution industries.

A controlled economy through monopolies would become the norm, when the government enacted the Trade Licensing Act, Cap 497, legalising the takeover of non-citizens’ firms by Kenyans through the denial of licences for certain businesses.

The government also controlled imports and exports through the Imports, Exports and Essential Supplies Act, Cap. 502.

MARKET FORCES

Then, monopolistic state enterprises reigned. The decision to protect them was to allow them to build up economies of scale for full-grown competition.

A myriad of market forces, first the collapse of the East African Community in 1977, opening up of Kenya to Asian imports and the oil crisis would catalyse a decline of Kenya’s industries, forcing a much needed volte-face to a market economy.  

The severities of a market economy would spark conversations on a competition policy and law in 1982 by the Working Party on Government Expenditures (WPGE).

The WPGE called for a progressive approach to competition through regulation and institutionalisation – leading to the establishment of a Monopolies and Prices Commission in 1985, and the enactment of the Restrictive Trade Practices, Monopolies and Price Control Act in 1989.  

The Act provided for the control of restrictive trade practices (RTPs), collusive tendering, monopolies and concentrations of economic power for distribution and manufacturing enterprises and the control of mergers and takeovers.

ABUSE OF POWER

However, it offered little guidance on regulation of market dominance, including setting out remedies to address significant market power as well as abuse of dominance.

Sheer concentration of market power (monopoly) does not in itself constitute violation of competition laws.

However, the need for regulatory intervention in order to maintain a competitive business landscape and deter abuse of power to weaken competition further by excluding rivals, was identified.

There was no dispute that competition policy and law - and intervention from competition authorities, would be necessary to ensure consumer welfare and economic efficiency. The effects of dominance are most detrimental to consumers, other operators and the general economy.

The trademark of dominant behaviour to the consumer is on price. Dominant players charge unreasonably high prices.

On the flipside, selling products at artificially low prices or forcing customers to buy products, deprives both consumer and smaller competitors of certain rights.

Artificially low prices are only sustained until competition has been thwarted.
QUALITY
Well-governed markets encourage businesses to improve the quality of goods and services, whilst diversifying to attract more customers and expand market share.

This enables consumers to select products that offer the right balance between price and quality.

Other deterrents, include refusal to deal with certain customers and offering special discounts to those who buy all or most of their supplies from the dominant firm, or making the sale of one product conditional on another from the dominant firm.

Dominance leads to competitor discrimination and an unfavourable business environment, an indictment for growth – a loss to the economy. Inadequate regulation of market power leaves a trail of sapping aftershocks on an economy, denying it the economy much-needed capital.

An environment with dominant practices is fraught with all manner of business risks, with the potential to eradicate private sector investment in one fell swoop.

The net effect of this is plummeting employment.
For the sake of consumers, enterprises and the economy, the regulatory bodies, consumers and enterprises have a major role to play in realising a competitive environment to ensure businesses deliver more choice, quality, innovation and lower prices.

While regulators are expected to employ powers at their disposal to offer appropriate remedies; consumers and enterprises should acquaint themselves with policy information, make informed choices on which product to buy and report companies not acting fairly and competitively.

Mr Williams is a communications consultant based in Kisumu. [email protected]