PROTECTION OF MARKET COMPETITORS; AN APPRAISAL OF THE FEDERAL COMPETITION AND CONSUMER PROTECTION ACT, 2018

Author: O. M. Atoyebi S.A.N FCIArb. (U.K.)., Contributor: PRINCE IGHO

June 8, 2023
1:17 pm

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The Federal Competition and Consumer Protection Act, 2018, is an Act of the National Assembly, its focus is to promote and maintain competitive markets in the Nigerian economy; promote economic efficiency; protect and promote the interests and welfare of consumers by providing consumers with a wider variety of quality products at competitive prices; prohibit restrictive or unfair business practices which prevent, restrict or distort competition or constitute an abuse of a dominant position of market power in Nigeria; and contribute to the sustainable development of the Nigerian economy^[1]. The Act governs all commercial activities in Nigeria or having effect within Nigeria^[2]. This article focuses on the measures the Act puts in place to help market competitors survive the tide of the economic climate.

ESTABLISHMENT AND FUNCTIONS OF THE FEDERAL COMPETITION AND CONSUMER PROTECTION COMMISSION

The Federal Competition and Consumer Protection Act, of 2018, established the Federal Competition and Consumer Protection Commission which is an independent body carrying out the functions, powers, duties and responsibilities conferred on it by the Act and otherwise referred to as “the Commission” throughout the Act^[3].

The Commission protects and promotes the interest and welfare of consumers by providing them with a wider variety of quality products at competitive prices and ensuring the adoption of measures to guarantee that goods and services are safe for the intended use.

They also initiate broad-based policies and review economic activities in Nigeria to identify and prohibit anticompetitive and restrictive practices that may distort competition or constitute an abuse of a dominant position of market power. This would be properly discussed under the following subheadings^[4].

PROHIBITION OF AGREEMENTS IN RESTRAINT OF COMPETITION

Part VIII of the Act prevents agreements or undertakings that have the purpose of actual or likely having the effect of preventing, restricting or distorting competition in any market making such agreements unlawful, void and of no legal effect^[5].

The Act also prohibits directly or indirectly fixing a purchase or selling price of goods or services; limiting or controlling production or distribution of any goods or services; dividing markets by allocating customers, suppliers, territories or specific types of goods or services; limiting or controlling production or distribution of any goods or services, markets, technical development or investment; engaging in conclusive tendering; or making the conclusion of an agreement subject to acceptance by the other parties of supplementary obligations which by, their nature or according to commercial usage, have no connection with the subject of such agreement^[6].

The implication is that, for businesses who are rivals in the market, if for any reason agreement is entered into by some of the competitors in the market, it would be used as a tool to paralyze the business for the rival business competitor.

For example, take for instance, a market where a basket of tomatoes is normally sold for N5,000, and a new competitor comes into the market, the Act criminalises the other competitors coming together to crash the price of tomatoes to N4,000 or less to make it impossible for the new competitor to thrive in the market.

This is otherwise known as predatory pricing expressly prohibited under section 72 (2) (d) (iv)^[7]detailing the prohibition of abuse of dominant positions by selling goods or services below their marginal or average cost.

The preceding provision of the Act only prohibits agreements and arrangements unless otherwise authorised by the Commission^[8].

INVESTIGATION OF A MONOPOLY

A monopoly means an exclusive possession of a market by a supplier of a product or a service to the exclusion of other market competitors. In this situation, the supplier is able to determine the price of a product with a view to maximising profit without fear of competition^[9].

The act says that where it appears to the Commission that there are grounds for believing that a monopoly situation may exist in relation to the production or distribution of goods or services of any description, or in relation to exports of goods or services of any description from Nigeria, the Commission shall cause an investigation to be held into a particular sector of the economy or into a particular type of agreements across various sectors to determine the extent of the situation in relation to the market^[10].

Furthermore, where the Commission finds that a monopoly situation exists and that the facts found by the Commission in pursuance of its investigation operate or may be expected to operate against the public interest, its report shall specify those facts and the particular effects which in the Commission’s opinion, those facts have or may be expected to have^[11].

The Commission after confirming that a monopoly exists in the market may do or cause the following to be done:

Declare an agreement unlawful.
Require any party to such agreement supplying goods or services to publish a list of prices.
Prohibit or restrict the acquisition of another business operator in the market.

PRICE REGULATION

To protect competitors in the market, the Act also provides for price regulation where the President of Nigeria may make an order as to pricing in Nigeria. The provision in Section 88 of the Act said thus;

“For the purpose of regulating and facilitating competition only, the President may, from time to time, by order published in the Federal Gazette, declare that the prices for goods or services specified in the order shall be controlled in accordance with the provisions of the Act.”^[12]

In the above provision, the President will only make an order regulating pricing in the following cases; if he is satisfied that competition is likely to be lessened; if it is necessary or desirable for prices of the goods and services to be controlled; and if it would remedy abuse of privileged positions in the relevant market.

MERGERS

A merger is a process in which two or more companies combine to form a single entity. In a merger, the companies involved typically agree to combine their operations, assets, and liabilities into a single entity, which can be a new company or one of the existing companies. Mergers can be motivated by a variety of factors, including a desire to achieve economies of scale, diversify operations, or gain access to new markets or technologies. Mergers can take different forms: horizontal mergers, vertical mergers, and conglomerate mergers. Mergers can also be subject to regulatory review by antitrust authorities or other regulatory agencies.

The prohibition of business mergers is a complex issue that involves balancing the interests of companies, consumers, and the government. While mergers can create efficiencies and economies of scale, they can also lead to monopolies and reduced competition. That’s why the government sometimes intervenes in mergers to ensure that they don’t lead to anti-competitive behaviour.

FORMS OF MERGER

Vertical Merger: A vertical merger is a type of merger in which two companies that operate at different stages of the supply chain or production process merge. For example, a company that produces raw materials might merge with a company that processes those materials into finished products. Vertical mergers can create efficiencies and cost savings by streamlining the supply chain and reducing transaction costs. However, they can also raise antitrust concerns if they lead to reduced competition or foreclosure of competitors.

Horizontal Merger: A horizontal merger is a type of merger in which two companies that operate in the same or similar markets merge. For example, two companies that produce similar products or provide similar services might merge. Horizontal mergers can create efficiencies and economies of scale, but they can also lead to reduced competition and increased market power. That’s why horizontal mergers are often subject to antitrust review by regulatory agencies or antitrust authorities.

Conglomerate Merger: A conglomerate merger is a type of merger in which two companies that operate in unrelated industries or sectors merge. For example, a company that produces consumer goods might merge with a company that provides financial services. Conglomerate mergers are often motivated by a desire to diversify the company’s operations and spread risk across different businesses. They can also create economies of scale and synergies by sharing resources and expertise across different industries. Conglomerate mergers are generally subject to less scrutiny from regulatory agencies or antitrust authorities than other types of mergers, since they are unlikely to have a significant impact on competition in any specific market.

The Act in Part XII captures Mergers and Section 92 (1) of the Act^[13] defines Mergers to occur when one or more Companies directly or indirectly acquire or establish direct or indirect control over the whole or part of the business of another Company either through purchase or lease of the shares, interest or assets of the Company in question; the amalgamation or other combination with the other Company in question or a joint venture.

TYPES OF MERGERS

Under the Act there are two types of Mergers^[14]:

1. Small Merger.

2. Large Merger.

Small Merger: A small merger is a type of merger that involves companies with relatively low market shares and that is unlikely to have a significant impact on competition in the market. Small mergers are generally considered less problematic than large mergers, and may not require the same level of scrutiny from regulatory agencies or antitrust authorities. However, the definition of a small merger according to the Act means a merger with a value at or below the threshold stipulated by the Commission by regulations.

Large Merger: A large merger is a type of merger that involves companies with relatively high market shares and that is likely to have a significant impact on competition in the market. Large mergers are generally considered more problematic than small mergers and may require a higher level of scrutiny from regulatory agencies or antitrust authorities. The specific criteria for what constitutes a large merger can vary depending on the industry and the value above the threshold stipulated by the Commission regulations.

Large Mergers are required to be reported to the Commission^[15] in order to enable the Commission to investigate the merger and approve such Merger as long as it is satisfied that the Merger is not anti-competitive^[16].

Small Mergers are to be reported to the Commission when the Commission requires it but ordinarily, small mergers are exempted from notifying the Commission because of the less likely nature of small mergers to cause adverse effects on Market competition^[17].

CONCLUSION

The FCCPA is a Nigerian law enacted in 2019 to promote competition and protect consumers in the Nigerian marketplace. It established a new regulatory agency called the Federal Competition and Consumer Protection Commission (FCCPC) which provides for the regulation of competition and consumer protection in Nigeria. The law also establishes rules and guidelines for businesses operating in the country and provides for the investigation and prosecution of anti-competitive practices and consumer rights violations. We have under this Article been able to shed light on the measures put in place by the Act in order to create a safe economic environment for market operators under each sub-topic contained in this Article but not limited to; Prohibition of agreements in restraint of competition, Investigation of a monopoly, Price regulation & Mergers.

^[1] Section 1, FCCPA, 2018.

^[2] Section 2(1), FCCPA, 2018.

^[3] Section 3, FCCPA, 2018.

^[4] FCCPC homepage, our mandate> https://fccpc.gov.ng/about-us/our-mandate/

^[5] Section 59 (1), FCCPA, 2018.

^[6] Section 59 (2), FCCPA, 2018.

^[7] FCCPA, 2018.

^[8] Section 60, FCCPA, 2018.

^[9] Britannica> https://www.britannica.com/topic/monopoly-economics#ref34155

^[10] Section 76, FCCPA, 2018.

^[11] Section 85 (3), FCCPA, 2018.

^[12] Section 88, FCCPA, 2018.

^[13] Section 92, FCCPA, 2018.

^[14] Section 92(4), FCCPA, 2018.

^[15] Section 96, FCCPA, 2018.

^[16] Section 93, FCCPA, 2018.

^[17] Section 95, FCCPA, 2018.

PROTECTION OF MARKET COMPETITORS; AN APPRAISAL OF THE FEDERAL COMPETITION AND CONSUMER PROTECTION ACT, 2018

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