What happens when a group of businesses that all sell the same thing, e.g. bread, get together and decide that they will all charge the same price for bread?

Well, the consumer is forced to pay this price because there are no other choices available at different prices. For other businesses, outside of the cartel, they struggle to enter the market. This has severe consequences for all economies but especially the South African economy which needs to be facilitating new business growth.

Competition between businesses in the economic market place is regulated by the Competition Act of 1998. The overall purpose of this Act is to maintain and promote high levels of competition in order to achieve various economic goals. Specifically, the Act promotes economic efficiency, competitive prices and product choices for consumers.

Competition between businesses is regulated by the Competition Act

Failing to comply with the requirements of the Act can have serious consequences for your business. For example, the bread businesses that partook in price fixing were heavily fined by the Competition Commission in 2010.

An example of a restricted practice under the Act is when two or more competitors enter into an agreement to do business together and the effect of the agreement is that competition is prevented or decreased in the market. The exception to this restriction is if the parties can prove that by entering into the agreement there are pro-competitive gains (e.g. technological) that outweigh the impact on competition in the market.

The Act defines ‘agreement’ very broadly. So it is important to be aware and get advice on the applicability of the Act if you are thinking of entering into a joint venture agreement or partnership.

If you enter into a joint venture agreement for example, the Act expressly prohibits:

  • Direct or indirect price fixing,
  • allocation of markets between competitors,
  • collusive tendering and,
  • setting or maintaining minimum resale prices.

It is therefore critical that if you plan to enter into a joint venture agreement you must be extremely clear on the purpose of the joint venture agreement and that it does not conflict with the Competition Act.

These same prohibitions apply to partnership agreements. Although for the purposes of working together in a joint venture we do not recommend you use a partnership agreement.