What is a Restrictive Business Practice?

These are practices such as agreements, arrangements or understanding between independent enterprises that has the object or effect of substantially lessening competition or limiting access to the markets. Sometimes they take the form of decisions for enterprises that are dominant and have market power. Such practices prevent other enterprises from competing fairly in a market and often resulting in the exploitation of consumers as they are denied choice and quality. Basically, any category of agreement, decision or concerted practice which substantially reduces competition to an appreciable extent is a Restrictive Business Practice.

Notification of Restrictive Agreements

When a person or an enterprise intends to enter into an agreement which may have the potential to prevent, distort or restrict competition to an appreciable extent, they need to apply for notification or exemption of such agreements in the prescribed manner and form. Section 14 and Section 18 of the Act recognizes that in some instances, the benefits from such agreements may outweigh the perceived anti-competitive effects. Such agreements are assessed under Section 8 and Section 19 of the Act.

Furthermore, the Act under Section 22 provides that Trade or Professional Associations may come up with professional rules that may have the potential to restrict, prevent or distort competition in an industry but could a positive impact on either consumer welfare or improve effectiveness and efficiency in the industry. These provisions allow for the smooth flow for business where potential benefits for such agreements would appear to outweigh the perceived anti-competitive effects.

Notification of Restrictive Agreements

Application for Notification and Exemption for Anti- Competitive Contracts or Agreements

• a. Does your Business have at least 15% of market share in your relevant market?
• b. Are you considered dominant by your competitors in the market?
• c. Do you have any clauses in your contracts or business agreements that appear to be anti-competitive?
• d. Are you unsure of the restrictive nature of clauses in your contracts or agreements?
• e. Do you have an exclusive agreement or running contract?

Notifying an agreement allows the Commission to guide and approve your contract/agreement clauses for you to enjoy a competitive business environment and avoid costly litigation. However, if a person or enterprise does not notify an agreement and the Commission finds it anti-competitive, the person or enterprise is liable to imprisonment and administrative fines respectively.

Cartels

A cartel is a decision, agreement or concerted practice between two or more people or enterprises to fix prices and/or trading conditions, divide markets and/or engage in collusive tendering. By artificially limiting competition that would normally prevail between them, companies avoid exactly the kind of pressures that lead them to innovate, both in terms of product development and production methods. This ultimately results in high prices, lower quality products and less choices for consumers.

In Zambia, cartel conduct is prohibited per se – in all circumstances and it is not necessary for the commission to demonstrate that it has anti-competitive effects. Agreements between two or more competitors to engage in fixing prices and/or trading conditions, market sharing, output restrictions and/or bid rigging among others are restricted by the Act. The penalty for participation in a cartel is a fine of up to 10% of the enterprise’s annual turnover. Furthermore, individuals who participate in cartel activities risk being prosecuted and convicted by the courts to a fine and/or to imprisonment for a period of five years or both. The enterprise also dents its reputation for engaging in cartel behavior which might affect its business operations.

Types of Cartels

1. Price fixing – Agreeing to set a particular price, price cap, price range, pricing philosophy with your competitors
2. Bid rigging – Colluding through submission of non-responsive bids, rotational bidding, absent bids, incompliant bids, insider dealing, etc..
3. Market allocation – Agreeing to operate in certain markets where competitors shall not be present
4. Restrict production or supply of products and services to create artificial shortages

How to avoid your enterprise from being drawn into a Cartel

It is possible that other persons or enterprises may want to draw your enterprise into joining a cartel. Take the following steps to avoid this:

• Make decisions about prices independently;
• Do not discuss tenders with competitors before they are submitted;
• Make decisions about your market and product independent of other companies;
• Do not agree to stay out of certain areas or stay away from another enterprise’s customers;
• Do not discuss any economically sensitive information with competitors.

Penalties of Cartel Conduct

The penalty for participation in a cartel is a fine of up to 10% of the enterprise’s annual turnover for a period the cartel took place up to maximum period of five years. Furthermore, individuals who participate in cartel activities risk being prosecuted and convicted by the courts to a fine not exceeding five hundred thousand penalty units or to imprisonment for a period of five years or both. Additionally, the Commission may give directions as deemed appropriate to enterprises in writing for the enterprise to cease to be a party of the cartel.

Leniency Program

The Department in conjunction with the Department of Legal and Corporate Affairs and the Director of Public Prosecutions runs a leniency program as provided by Section 79 of the Act. The aim is to encourage enterprises to come forward to the Commission with information that may help to uncover prohibited agreements. Enterprises or persons who are party to restricted agreements such as cartels and resale price maintenance may offer the information to the Commission in exchange for partial or total immunity to fines and prosecution.

Incase you are involved in a Cartel but wish to get out of that arrangement, you must urgently contact the Commission and provide the necessary information about the cartel to the Commission under the Leniency Program. It is also possible for a lawyer to apply for leniency on behalf of a person or an enterprise.