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Question:

How the Practise of Competition Commission Concludes Retail could have interpreted using an Anti Competitive Behaviour.
 
 

Answer:

Perfect competition, the utopian situation is the only case where anti-competitive behaviour does not takes place. Under perfect competition welfare is maximized as both consumers and producers are able to extract the optimal amount of consumer and producer surplus. On other hand, under the monopoly market welfare loss takes place as consumers are deprived and producers extract the maximum possible producer surplus.  As per the report given by the Competition Commission two groups of people have been identified namely the supermarket owners and the property owners or property developer. It has been observed that both the groups have been engage into anti-competitive behaviour either willingly or forcefully.

The first group that is the supermarket owners are showing anti-competitiveness practicing oligopolistic nature. Oligopoly is that type of competition where few firms cater to the demand of large number of consumers (Bloch, Eaton and Rothschild 2014). There can be existence of other firms as well but these few firms dominate the entire market and influences in quoting price and making business regulation in the particular segment in which they deal. Under this structure there is existence of market failure where social welfare is lost in the forms of forgone high price. The oligopolistic economy has kinked demand curve. In the given report there is existence of three major supermarkets namely Spar, Pick n Pay and Shoprite dominates the market. They have been strongly engaged in dominating the property owners and thereby showing anti-competitive behaviour.

According to the Commission’s report, these supermarket giants have forcefully tied up the property owners into such an agreement that they cannot deviate from their state and lease the land to some other retailers. Through this tie-up the landlords are facing hindrance in leasing the land to the competitors of these leading supermarkets even if they are ready to provide a better deed. This has been possible because the supermarket has been operating under oligopoly, which is characterized by highly inter-woven system. A single move by any of the competitors results in consequent movement of the other thereby maintaining the cartel that was previously agreed (Ellickson 2013).

 


On other hand, the behaviour shown by the second group namely the landlords and the property developer are also anti-competitive in nature. The landlords are sometimes forced to show this behaviour by the lease agreement and coercion of the supermarkets. But it has been observed that the property developers give the power to only supermarkets to carry on trade in their property. They have been solely guided by the motive of profit. They are able to charge higher rent from the supermarkets than they would have been able to do for small retailers.

Other than the above mentioned lease agreement practices, the buyer power, information exchange and category management also showed anti-competitiveness in the system. The general people are the buyers of the retail and grocery products. With the existence of the supermarkets, the buyers are left with no choice but to purchase their daily requirement from those markets. It has also been seen that to save the time and to get everything at same place, consumers themselves are reluctant to visit these malls and markets. Hereby it can be observed that the competitiveness have been slaughtered by both the buyer’s power and choice and the big markets in the nation. Information exchange can also lead to anti-competitive behaviour of the market. If the information is not timely spread out or has been misinterpreted, then it may lead to lack of scope for other competitors to evaluate and extend their business in market. In this way, lack of information exchange can lead to collapse of competitiveness of the market and give way to anti-competitiveness.

Thus, it can be said that the existing market is far from being perfectly competitive. In reality, each segment of the market shows some degree of imperfection. It has been observed that the greatest level of imperfection lies in the supermarket with oligopolistic market structure.  

 

References:

Bloch, H., Eaton, B.C. and Rothschild, R., 2014. A Dynamic Model of Oligopolistic Market Structure, Featuring Positioning Investments. International Journal of the Economics of Business, 21(3), pp.379-411.

Ellickson, P.B., 2013. Supermarkets as a natural oligopoly. Economic Inquiry, 51(2), pp.1142-1154.

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