I have spent much of the past six years writing about the Competition Commission’s migration from competition referee to economic social worker. Merger control has become a collection point for employee trusts, supplier development funds and localisation promises. Market inquiries increasingly resemble roving commissions into whether commercial life is sufficiently fair, transformed and inclusive.
The latest two developments suggest that this mission creep is entering a more consequential phase.
The commission’s new inquiry into franchising is an examination of barriers to entry, bargaining power, access to finance and the participation of small businesses and historically disadvantaged South Africans. All are legitimate concerns. But franchising is not an obvious den of anticompetitive iniquity. It is one of the few business models that routinely lowers the cost and risk of entrepreneurship by supplying a brand, operating system, purchasing network and route to market.
Competition lawyer Heather Irvine described the inquiry to me on my radio show as “very wide-ranging”. Its reach extends from fast food and grocery retail to fuel stations, construction, automotive services, health, beauty and potentially education. The commission is not merely asking whether agreements breach competition law. It appears to be asking whether franchise relationships are sufficiently balanced and whether more people should be enabled to enter them.
There may be abusive clauses, predatory funders or franchisors that load too much risk onto franchisees. Investigate them. Prosecute actual contraventions by all means. But the commission should begin with evidence, not a presumption that unequal bargaining power is itself proof of distorted competition.
Irvine made the point that the commission’s own data suggests franchising has been “an enormously efficient” mechanism for allowing small and historically disadvantaged businesses into markets they might never have entered independently. The obvious paradox, probably lost on those in Sunnyside, is that the institution investigating franchising as a possible barrier to participation may be investigating one of the country’s more successful engines of participation.
We’ve been here before. The commission’s inquiries into online platforms and fresh produce delivered ambitious remedies, many of which have been challenged, reviewed or not implemented. What substantive changes have they produced that deepen competition in the economy? Not much, from what I can find.
I agree with Irvine’s call for impact studies asking whether the interventions worked or produced “really weird unintended consequences”. Before another sector is subject to invasion with the intent to redesign by the commission, taxpayers and businesses deserve an audit of the market inquiries so far and what they are actually producing on the ground.
The referral of Audatex South Africa to the Competition Tribunal may prove even more important. It is one of the first serious tests of the 2019 amendments to section 9 of the Competition Act, which strengthened protection for SMEs owned by historically disadvantaged people against price discrimination by dominant suppliers.
Audatex isn’t a household name, but it sits in the plumbing of the motor insurance industry. Part of global automotive software group Solera, it supplies the data and estimating systems used by insurers, assessors and panel beaters to identify vehicle damage, calculate repair costs and manage claims.
On the surface, the complaint is politically irresistible to anyone who has never run anything more than an election campaign. Why should a dominant supplier give a large customer a better discount than a small one? But commerce runs on precisely this distinction. Bigger customers offer volume, predictable demand, lower sales costs and often lower servicing risk. Volume discounts are not a Machiavellian loophole invented by greedy monopolists. Au contraire, they are part of the very business 101 principles of a market economy.
The amendments mean volume alone may no longer be a sufficient defence. A supplier may need to show that the transactions are not equivalent, that the discount reflects cost differences or that it is matching a competitor’s price. The commission’s guidelines add a troubling gloss as a price difference above 10% is treated as unlikely to be defensible.
Where did that 10% figure come from? Irvine’s answer was blunt: “We don’t know.” She said the threshold did not appear linked to “any kind of economic reality”. In some industries discounts of 40% or 50% are ordinary; in others 5% is generous.
Fortunately, the act still requires more than arithmetic. The differential pricing must actually impede smaller buyers’ ability to participate effectively or damage competition in the purchaser’s market. That causal link is everything. If a software fee is a trivial component of a small customer’s costs, a larger rival receiving a deeper discount may be commercially irritating without being competitively exclusionary.
The tribunal must resist turning Audatex into a morality play about big buyers and little buyers. It should demand proof of equivalent transactions, dominance, competitive harm and the absence of objective justification. Otherwise, every negotiated discount offered by a dominant business becomes a potential prosecution, and every procurement department becomes a branch office of the commission.
The franchise inquiry and Audatex referral share a philosophy born in the 2019 amendments that, effectively, competition should not merely be measured by prices and output or rivalry, but by who enters markets and whether they survive. That concern is understandable in an economy as concentrated and unequal as ours. Yet participation cannot be created by making scale suspicious, which seems to be the commission’s default position. Nor can it be achieved by making discounts uniform and contracts subject to retrospective tests of fairness.
I have no objection to a vigilant competition authority. I object to one that confuses such vigilance with the right to redesign ordinary commercial relationships. South Africa needs more entrants, and to make it more attractive for capital investment and rivalry. This won’t happen if the referee keeps rewriting the rules after the capital has been committed.