2017 Highlight: New Path-Breaking Research on Competition Law in Kenya

In 2017, Kenya became the first country in Africa to adopt specific legislative provisions on ‘buyer power’ through the competition law framework. According to Competition Authority of Kenya (CAK), abuse of buyer power is an emerging competition issue in the Kenyan economy particularly in the retail sector because of the failure of buyers to honor their contractual obligations with their suppliers. As such, the Competition (Amendment) Bill, 2016 proposed the introduction of new provisions on buyer power under Section 24 of the Act (on Abuse of Dominance). The Bill was signed into law on 23 December 2016 and it took effect from 13 January 2017.

This was the context for a new paper authored by this blogger and published last year titled: ‘Treatment of Buyer Power in Competition Law: Case of Supermarket Retail Sector in Kenya’. This paper begins by examining the various approaches to defining buyer power in competition law literature, followed by an overview of Kenya’s attempts to control buyer power through merger control and restrictive trade practices in the supermarket retail sector. Thereafter the paper focuses on the new provisions on buyer power introduced in the Competition (Amendment) Act, 2016. The paper argues that the proper enforcement of this new law may address some of the anti-competitive effects arising from the exploitative exercise of buyer power. A copy of the full paper is available here.
Soon after the introduction of the Competition (Amendment) Act 2016, CAK notified the public that it intends to carry out a market inquiry into the branded retail sector pursuant to the provisions of section 18 (1) (a) of the Competition Act, 2010. According to CAK, the main objective of the study is to assess the state of competition in the market for branded retail by examining the multilayered structure of the market and the conduct of market players. The CAK market inquiry will explore the dimensions and the intensity of competition between branded retailers and how these impacts on price, quality and range of offerings to the Kenyan consumer.
This study by CAK aims to carry out the following tasks: (a) map the average ‘route to retailer’ from producers or manufacturers to the retail shelves; (b) assess the level of competition and the determinants of the same including market power; (c) evaluate the allocation of shelf space and the relative bargaining power between retailers and their suppliers; (d) identify any regulatory constraints to competition; (e) establish the extent to which market allocation at the localized/sub-county level affects competition; (f) establish the nature of and the extent of exclusive agreements at one stop shop destinations and their effects on competition; (g) examine pricing strategies retailers employ especially in regards to responding to new entrants; (h) determine whether there are any strategic barriers to entry created by incumbent firms to limit entry in the market; (i) assess the competitiveness of local products against imports; (j) gauge the effect of the supermarkets branded products on competition; (k) scrutinize the prevalence of dual price displays (price at the shelve vis-a-vis the till) in retail settings and evaluate the time lag between changes in prices at the till relative to the shelve prices; (l) evaluate the frequency of sale of defective stock and establish the regulatory and internal mechanisms in place to stop the trend; (m) assess the level of information asymmetry with specific regards to own labels, product constitution and the effect to consumers; (n) assess the effectiveness of consumer complaint handling mechanisms within the sector; and (o) establish the proportion of retailers that have fully operational retail return policies and to what extent they are adhered to.
Although the status of the CAK market inquiry has not been made public, this blogger’s new paper on the subject provides a good foundational basis for sector players including policymakers, practitioners and the wider business community. Since the enactment of Kenya’s second-generation legislation in 2010, this treatment of ‘buyer power’ has evolved radically from non-interventionist to interventionist. The prevailing treatment of buyer power in most of the developed and developing world is non-interventionist namely competition authorities will only intervene where a proposed merger or a restrictive trade practice in the demand market gives rise to anticompetitive effects and harms consumer welfare. The interventionist treatment of buyer power that Kenya has opted for bestows statutory powers on the national competition authority, CAK, to control the conduct of any dominant or non-dominant undertaking or group of undertakings that abuses buyer power in the form of monopsony power, bargaining power or countervailing power.
From the paper’s comparative analysis of the experiences from OECD countries including South Africa, UK, European Union and US, it appears that Kenya has taken a bold legislative step to intervene and regulate abusive conduct by buyers aimed at obtaining or maintaining buyer power. Undoubtedly, the impact of the new buyer power provisions on the supermarket retail sector will be significant. As the paper shows, the retail sector is not only an important part of the supply food chain, it is also a vital contributor to Kenya’s economy. Considering the dominant role of supermarkets in the distribution of food and other products, protecting competition in the supermarket retail sector is justified for the eventual benefit of consumers.

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