BUA Group vs. Dangote Group debacle: Competiton law and limits of price fixing
By Wiseman Ubochioma27 April 2021 | 3:00 am
Chairman of BUA Group, Alhaji Abdulsamad Rabiu<br />
In recent times, the media has been awash with the allegation by the BUA Group that the reason for the internecine trade war between the company and the Dangote Group is because it refused Dangote Group’s request to increase the price of sugar during the Ramadan period in 2020.
The essence of this article is not to establish the veracity or otherwise of the allegation. Instead, the article seeks to discuss the implication of such allegation and conduct under competition law.
Before discussing the implication of the allegation and conduct, it is important to provide a brief narrative of the allegation. It was reported that the price per bag of sugar before the Ramadan period in 2020 was N18, 000.
However, immediately the Ramadan commenced, the price rose astronomically to N30, 000. According to the report, consumers were compelled to purchase the product at that rate because it was an essential commodity during the period.
Also, it was reported that the Dangote Group requested BUA Group to increase the price of the product on the ground that it was the best period to get sufficient revenue from sale of sugar in Nigeria. BUA Group’s Chief Executive Officer, Samad Rabiu, refused to accede to the request. Consequently, Dangote Group petitioned the Minister of Trade and Investment that the BUA Group flouted the national sugar policy by selling the product locally as opposed to exporting it.
Under competition law, the alleged request from Dangote Group amounts to price fixing. From an explanatory perspective, price fixing occurs whenever two or more undertakings conspire or agree to fix the price of a product or service.
The rationale for prohibition of the practice in competition law is that market forces should determine the price of a product or service. Further, competition law frowns on the practice because it will harm consumers.
Indeed, if firms, (especially dominant firms) fix the price of a product or service at a supra-competitive level, consumers would be forced to buy it at the price.
Price fixing could take other forms. It could arise if firms agree to pool their income because such conduct would obliterate price competition among the firms. Christopher Sagers, Antitrust: Examples and Explanations, 2014, 102).
Further, combined sales of product amount to price fixing because they may provide ample opportunity for firms to coordinate their pricing rule (Richard Whish and David Bailey, Competition Law, 9th ed. 539, Christopher Sagers, 103).
At this point, it is important to note that price fixing could be horizontal or vertical. With respect to the horizontal price fixing (also called “naked horizontal price fixing), it occurs where firms, which are head-to-head competitors in an industry, conspire or agree to fix the price of a product or service.
For example, if the allegation of BUA Group was to be true, it would amount to horizontal price fixing because both companies compete in the same market. With respect to vertical price fixing (also known as “resale price maintenance”), it arises where firms enter into an agreement to dictate the price at which dealers sell a product to end-users.
Because of the harmful impact of price fixing to competition, courts in developed jurisdictions apply the per se judicial standard of review. Under this standard of review, courts hold that such act is unreasonable and cannot be justified under any circumstance. In other words, price fixing is a strict liability offence and the intention of the undertakings that engage in the practice is immaterial. Thus, in United States v. Socony Vacuum Oil Co. 310 U.S. 150 (1940), a posse of small-scale producers of oil fixed the price of the product to prevent price fluctuations and stay afloat during the great depression period in the United States. Justice Douglas held that “whatever economic justification particular price fixing agreements may be thought to have, the law does not permit an inquiry into their reasonableness. “They are all banned because of their actual or potential threat to the central nervous system.”
Similarly, in the case of U.S. v. Trenton Potteries Co, 273 U.S. 392 (1927), twenty three producers of potteries for bathrooms that had 82 per cent of the market share wanted to fix the price of their goods.
Justice Stone held that “the aim and result of every price fixing agreement, if effective, is in the elimination of one form of competition.”
Interestingly, the Federal Competition and Consumer Protection Act (FCCPA) of 2019 prohibits price fixing. Thus, section 59(1) (2) (a) of the Act prohibits any direct or indirect fixing of the purchase price of goods or services. In the same vein, section 107(1) of the Act provides that “an undertaking shall not directly or indirectly by agreement, threat, promise or any other means, attempt to influence or conspire to influence upward or discourage the reduction of the price at which any undertaking supplies or offers to supply or advertises any goods or services.”
By virtue of the former provision, the BUA Group and Dangote Group would have been liable for price fixing if BUA Group had complied with the alleged request. Further, under the latter provision, any attempt to fix the price of goods or service is prohibited. This raises the possibility that if BUA’s allegation against Dangote Group is proved, Dangote Group will be liable under the Act.
The worrisome aspect of the alleged price fixing by Dangote Group is that the firm is not connected in any manner with the BUA Group under law.
Indeed, with respect to shareholding and directorship, both firms are completely different entities. Essentially, under the Act, a firm that attempts to influence another to fix the price of a product or service will not be liable if it establishes that the firm it seeks to influence is connected with it i.e. that they have a relationship of a principal and an agent.
It is hoped that the Federal Competition and Consumer Protection Commission (FCCPC) would deploy its investigative powers under the Act to investigate the allegation of BUA Group. The FCCPC should investigate communications between the two firms.
If the Commission establishes that Dangote Group made such request, it should prosecute the firm because price fixing, if successful, does not only eliminate competition in the market, it also puts consumers at risk of purchasing products at exorbitant prices. By contrast, if the BUA Group’s allegation is false, the Commission should invoke its power under section 112 of the FCCPA and fine the company for supplying false information that would affect price competition in the market or eliminate a competitor who is dominant in the market because of its efficiency. In essence, the rationale for the suggestion that the Commission should invoke its power against the BUA Group is that BUA Group should compete in the market on merit. As Piet and Farley opined, “competition law does not strive to achieve moral goals, nor does it carry any moral baggage other than promotion of competition. Whenever, for example, a particular undertaking builds up a large market share through a very efficient process and very effective commercial policy, that position is not in itself prohibited” (Piet Jan Slot & Martin Farley, An Introduction to Competition Law” 2nd ed. 3). More so, in the case of Brown Shoe Co. v. United States, 294 U.S. 320 (1962), the Supreme Court of the United States gave a legendary verdict when it held that the pith of competition law is to protect competition and not competitors.
• Dr. Ubochioma, a lecturer at Baze University, specialises in Competition Law and Policy, Abuja.
Source: Guardian Newspaper
