Consumer welfare as a goal of competition law

King. The Customer is King card with colorful background with defocused lights


The consumer is the king in the free market economy and vendors are supposed to be guided by his or her very thought process. So important is he that Article 46 of the Kenyan Constitution is on consumer rights. Part VI of the Competition Act of Kenya is also dedicated to consumer welfare.

Anyone interested in the task of consumer protection has to be well versed in various laws and not merely with the Consumer Protection Act. They should have knowledge of laws relating to contract, sale of goods, insurance.  In addition to the aforementioned laws, one should also be well versed with the laws relating to unfair trade practice and restrictive trade practices. As far as the Consumer Protection Act is concerned, it provides rights and relief to the individual consumer whereas Competition Act role is more of public interest based. The essence of the Competition Authority is that of a regulatory body.

The Consumer Protection Act only deals with consumption and the consumer’s interest and not with markets as a whole. In this regard, competition law deals with the market as a whole. We can therefore rightly conclude that consumer protection law can be said to be that basic document whereas competition law may be considered as the refined protection-oriented document thereby speaking to the provisions associated with consumer interests.
The Competition Act seeks to promote and safeguard competition in the national economy; it seeks to protect the process of free market competition so as to ensure efficient allocation of economic resources. Its main objective is therefore to operationalize the economic system in such a manner as to provide maximum satisfaction to the maximum number of consumers as such. Its role also includes to prohibit anti-competitive practices, abuse of dominant positions and not to give effect to such mergers or acquisitions, which adversely affect the healthy competition practices.

Recently the Authority raided two fertilizer firms, Mea Limited and Yara East Africa on suspicion of engaging in price fixing. The firms control about 60% of the fertilizer market. In 2015 the competition watchdog launched an inquiry into the conduct of powerful trades with cartel-like behaviours to weed out practices that had denied consumers full benefits of the market. Undertakings found in breach of competition laws, and that have not disclosed to the Authority are liable to penalties including imprisonment of their directors for five years or payment of a Sh10 million fine. This proviso is stipulated in section 70 under Part VI on consumer welfare of the Competition Act.

Also in 2015, the Authority had fined the Association of Kenya Reinsurer Sh721, 715 for price fixing. The association had contravened section 22(1) (b) of the Competition Act by directing that its members charge a fixed rate for the renewal of a National Intelligence Service health insurance.

False representation and unconscionable conduct

Section 55 of the Competition Authority stipulates that a person who commits an offence when in trade, in connection with the supply or possible supply of goods or services or in connection with the promotion by any means of the supply or use of goods or services, falsely represents that, interalia, goods are of particular standard, quality, value, grade composition, style or model or have had a particular history or particular previous use.

The weakness with this provision is applicability of either the subjective or objective test to determine what amounts to standard or quality. Take for example a washing detergent that states in its advertisement commercial that, it “cleans the best than all the others and leaves your whites looking the brightest”. In most cases a subjective test as opposed to an objective approach is adopted as to what is meant by the term “bright”, what is bright to one may not be as bright to another. What of an iron sheets company that claims her “iron sheets last longer than all the rest”, how long is the said period?

Section 56 provides that it is an offence for a person, in trade with, or in connection with the supply or possible supply of goods or services to another person, to engage in conduct that is in all circumstances unconscionable. Unconscionable conduct has been defined as a doctrine in contract law that describes terms that are so extremely unjust, or overwhelmingly one-sided in favor of the party who has the superior bargaining power, that they are contrary to good conscience.

For instance when Uber increases her prices, they notify you of the price surge whose terms you as a customer have to agree to. Safaricom is obligated to publish their M-pesa rates and charges, while they have honored this proviso for transactional rates, they have not published their Lipa- na -M-pesa charges hence denying the consumer full information on the nature of charges in Lipa na M-pesa transactions.

In the EU, FA Premier League v QC Leisure and others and Karen Murphy v Media Protection Services, pub landlady, Karen Murphy, had paid nearly 8,000 Euros in fines and costs for using a cheaper decoder in her pub in Portsmouth. Instead of using Sky to show football which cost 700 Euros a month to watch premier league matches, she used Greek TV station Nova which has rights to screen games in Greece and which cost 800 Euros per year. In making their case the Premier League argued that it had the right to prevent the unauthorized use of their copyrights. The case was speculated to trigger a major shakeup in the way football rights are sold, and potentially pave way to cheaper viewing of foreign broadcasts for fans of top-flight English League.

Murphy took her case to the ECJ which found partly in her favour, the High Court in London also found in her favour, holding that the premier league was not allowed to charge discriminatory charges from one jurisdiction to another

Monopoly menace

Competition law does not prohibit dominance but the abuse of dominant position. The use of dominant position by a dominating firm directly affects the consumer due to malpractices like predatory pricing and creations of barriers to new lawful entrants. This gives rise to a monopoly where the consumer gets exploited by the vendors. The Act defines a dominant undertaking as an undertaking, which produces, supplies, distributes or otherwise controls not less than one-half of total goods of any description, which are produced supplied or distributed in Kenya or which provides or otherwise controls not less than one-half of the services which are rendered in Kenya.

The Act further classifies abuse of dominant position interalia, as; directly or indirectly imposing unfair practices or selling prices, applying dissimilar conditions to equivalent transactions with other trading parties, limiting or restricting production, market outlets or market access, investment, distribution or technical development through or other predator practices.

In the Airtel-Safaricom (M-pesa) case, Airtel had filed a petition with the competition watchdog accusing its rival Safaricom of setting the cost of M-Pesa mobile cash transfers to Airtel Money Customers at double the price charged on Safaricom-to-Safaricom customers. The Telco had argued that by categorizing non-Safaricom customers as unregistered users and imposing on them double the M-pesa charges applicable to its customers; Safaricom was abusing its position as Kenya’s dominant provider of mobile phone-based money transfer services. Safaricom also had an exclusivity clause, which barred M-pesa agents from engaging in business with other mobile operators. The authority issued a statement that all restrictive clauses in agreements between Safaricom and its M-pesa agents be immediately expunged.

In 2014 the Authority fined retail chains Tuskys and Ukwala Sh5.3 million for engaging in unfair trade practices. The two firms had colluded in setting retail price of items in supermarkets. The arrangement, which saw Tuskys managing three Ukwala supermarkets in the Central Business District (CBD) Nairobi, was held to be a horizontal restrictive practice.

The role of Competition law in consumer protection cannot be understated. Through assessing mergers, and infringements of the provisions in the Act on cartels and monopolies, it aims to protect competition in the market, and in the long run enhance and ensure consumer welfare efficient allocation of resources. Competition Law, among other factors can be described as the unseen hand that helps keep the economy stable and that helps realize socio-economic justice.