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Why Safaricom is being accused of abuse of dominance

UREPORT
By moses kamau | July 8th 2015

A firm’s ability to raise its prices is usually constrained by competitors and the possibility that its customers can switch to alternative sources of supply. When these constraints are weak, a firm is said to have market power and if the market power is great enough, to be in a position of dominance or monopoly (the precise terminology differs according to the jurisdiction).

While mere possession of monopoly power does not in itself constitute violation of competition laws, the abuse of such power particularly if it is used to weaken competition further by excluding rivals, calls for intervention from competing authorities.

Determing when a firm’s behaviour is an abuse of market power, as opposed to a competitive action, is one of the most complex and controversial areas in competition policy.  Competition laws typically contain provisions prohibiting abuse of market power by dominant firms or attempts of not yet dominant firms to monopolise markets.

However, there is considerable divergence among jurisdictions about the precise definition of dominance, the range of practices and conducts that should be condemned as anti-competitive, and finally the choice of remedies that should be imposed.

Examples of abusive practices typically include:

  • predatory pricing
  • loyalty rebates (Bonga Points)
  • tying and bundling (M-Pesa)
  • refusals to deal
  • margin squeeze
  • excessive pricing

A proper understanding of when a firm’s actions could be considered abusive is important for competition authorities because consumers’and the economy would be harmed by an incorrect intervention. A firm with a large market share, which might be considered dominant, also needs to understand the law and economics in this area, which is not always easy.

To promote effective enforcement of competition laws in the area of abuse of dominance and monopolisation, a Competition Committee should hold roundtable discussions, typically with the participation of businesses, academics and other interested participants.

 As a result, Best Practice Roundtables proceedings should be published to provide some guidance to best practices in this area, at the cutting edge of applied competition law and policy.

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