Monopoly Situations

The Competition Act 2007 (the ‘Act’) empowers the Competition Commission to review a monopoly situation, where the conduct of an enterprise or group of enterprises is likely to prevent, restrict or distort competition or in any other way constitute an exploitation of the monopoly situation.  The Competition Commission can impose structural and behavioural remedies against the abuse of a monopoly situation.

Being in a monopoly position is not a breach in itself. It is the abuse of the monopoly situation that constitutes to be a breach of the Act. The Competition Commission can intervene if:

  1. market share thresholds are met,
  2. the enterprise(s) has (have) a position of dominance,
  3. the conduct of the enterprise restricts, prevents or distorts competition or otherwise exploits the monopoly situation,
  4. the conduct has or is likely to have “an adverse effect on the efficiency, adaptability and competitiveness of the economy of Mauritius, or are likely to be detrimental to the interests of consumers.

For more information on the Act and guidelines pertaining to abuse of dominance and other restrictive agreements:

 

Guidance on abuse of monopoly situations and other restrictive agreements

Under section 46 of the Competition Act, a monopoly situation exists when the supply of goods or services of any description are supplied or acquired on the market by

  • one enterprise supply 30% or more of those goods and services or
  • 3 or fewer enterprises supply 70% or more of those goods and services.

For more information on the definition of monopoly situation and market threshold, please see the Competition Act and the Competition Commission Guidelines on Monopoly situations and non-collusive agreements .

A monopoly situation may be subject to review when the Executive Director has reasonable grounds to believe that an enterprise in a monopoly situation is engaging in a conduct that:

  • has the object or effect of preventing, restricting or distorting competition
  • in any other way constitutes exploitation of the monopoly situation.

For more information on the definition of monopoly situation and market threshold, please see the Competition Act and the Competition Commission Guidelines on Monopoly situations and non-collusive agreements.

In addition to the threshold condition, the Commission also considers the following factors:

  • The ability of the enterprise or group of enterprises to adjust prices or output without effective competition constraints (the position of dominance);
  • The availability or non-availability of substitutable goods or services to consumers in the short term;
  • the availability or non-availability of nearby competitors to whom consumers could turn in the short term; and
  • evidence of actions or behaviour by the monopoly where such conducts have or are likely to have an adverse effect on the efficiency, adaptability and competitiveness of the economy of Mauritius, or are or are likely to be detrimental to the interests of consumers.

For more information on the definition of monopoly situation and market threshold, please see the Competition Act and the Competition Commission Guidelines on Monopoly situations and non-collusive agreements.

Markets are defined as the set of products that really do, or could, compete with one another. However, in competition policy, a market, also referred to as ‘relevant market’ is a defined set of products, and a defined geographic area, within which competition occurs.

The Competition Commission’s approach in defining the relevant market is to consider (and, where feasible, to measure) what happens when relative prices change. Very similar goods sold in the same place are very likely to be in the same ‘relevant market’ defined this way because they are very likely to be good substitutes.  Completely dissimilar goods are certain to be in different markets.

For more information see Guidelines on Market definition and the calculation of market share.

To calculate the market shares, the relevant market(s) which will be/are affected by the transaction has to be defined. The identification of the relevant market is a technical exercise conducted using the hypothetical monopolist test, and the market which meets the latter test is taken to be the relevant market. Generally, there are two dimensions to the relevant market, the relevant product market and the relevant geographic market.

When the relevant market has been identified, the market shares will be calculated. Market shares is normally calculated based on revenue but other indicators can also be used.

For more information on the analytical framework to define the relevant market, please see Guidelines on Market Definition and the calculation of market shares.

There are two types of conducts which can emanate from an abuse of a monopoly situation:

Exclusionary conduct

An exclusionary conduct occurs when an enterprise in a monopoly situation is engaging in a conduct that has the object or effect of preventing, restricting or distorting competition.

When assessing such a conduct, the Competition Commission will consider the state of competition were the practice not to occur. Examples of exclusionary conduct includes:

  1. Foreclosure whereby the conduct of a monopoly enterprise restricts or eliminates the effective access of actual or potential competitors to customers or to supplies, to the detriment of consumers or the economy in general.
  2. Exclusive dealing which arises when the dominant enterprise binds other businesses into working exclusively with itself
  3. Predatory pricing which occurs when the dominant enterprise sets a price which is below average variable cost, the price strategy has resulted or expected to result in the exit of significant competitors and it can be expected that such losses can be recouped as a result of eliminated or weakened competition in the future.
  4. Tying and bundling when an enterprise has market power in the sale of one product (for example a 100% market share), but sells another in more competitive markets, then it might ‘leverage’ market power to reduce competition in the second market.

Exploitative conducts

Exploitative conducts occur when a monopoly is engaged in a conduct that in any other way constitutes exploitation of the monopoly situation. The two categories of exploitative abuse are:

  • Unilateral market power

Enterprises in a dominant position face an economic incentive to exploit their customers.  This will normally manifest itself in excessive prices, although it may also appear as reduced quality, choice or service – poor product offerings that may reduce costs or managerial effort, in a way that would not be possible for an enterprise facing competition.

  • Co-ordinated effects (tacit collusion)

In some markets, a small number of enterprises might collectively be dominant, in that they could keep prices high if they do not compete against one another.  Any clear understanding not to compete would be a breach of the prohibition on collusive agreements.  However, even in the absence of such an understanding, enterprises might become aware of their mutual dependence and soften competition against one another, to maintain profits or simply in the interest of a quieter life.  This situation is sometimes termed ‘tacit collusion’ (to distinguish it from active collusion).

To sustain a tacit collusion case, the following 3 conditions must be present:

(a) Enterprises engaged in tacit collusion must have reached an implicit agreement about the price level, and to monitor compliance, becoming aware if any among them undercut it;

(b) It must be in each of the participating enterprises’ interests to maintain the tacit collusion, for example through credible threats to launch a price war if one of the enterprises undercuts the collusive price; and

(c) Constraints from rivals outside the co-ordinating group (eg fringe players or new entrants) must be weak.

For more information on the conducts that are anti-competitive, please see the Competition Commission Guidelines on Monopoly situations and non-collusive agreements.

Other Restrictive Agreements

The Competition Act 2007 (the ‘Act’) provides for review of other restrictive agreements which includes the non-collusive horizontal agreement and other vertical agreements.

 

Non-collusive horizontal agreements

Section 44 of the Act provides that a non-collusive horizontal agreement may be reviewed by the Commission where –

  • the parties to the agreement together supply or acquire 30 % or more of goods or services of any description on the market; and
  • there is reasonable grounds to believe that the agreement in question has the object or effect of preventing, restricting or distorting competition.

Such agreements might include, for example, the setting of technical or other standards between enterprises.

 

Other Vertical agreements

Section 45 of the Act provides that a vertical agreement that do not involve resale price maintenance may be reviewed where the Commission has reasonable grounds that one or more parties to the agreement is or are in a monopoly situation, reviewable under Section 46 of the Act.

This section clarifies that investigations of monopoly situations under Section 46 may include the review of vertical agreements concluded with parties that are not in a monopoly situation.  The purpose of such review is to assess whether the agreement has the object or effect of preventing, restricting or distorting competition.

The Competition Commission has wide ranging powers to impose remedies in relation to an abuse of dominance case found to have prevented, restricted or distorted competition or have exploited consumers in a particular market. The remedies which can be imposed can be broadly classified into behavioural remedies and structural remedies.

In relation to abuse of dominance and other restrictive agreements, the Competition Commission may force divestment in cases where no other equally effective remedy exists, require sale of IP rights, impose information and price control remedies. The Competition Commission also has the powers to monitor the enforcement of directions imposed or impose enabling measures to create better access for new entrants or enable expansion of small competitors.

For more information on remedies, please see Section 61 of the Act, and the Guidelines on Remedies and Penalties.