The Invisible Hand - Why Ethiopia Needs Anti-Unfair Competition

The Wednesday news report on Reporter News Paper Amharic about insurance companies restricting the commission paid to insurance agents is a dreadful, despicable thing. It shows what happens once a government fails to effectively and successfully to restrain firms.

I deliberately make this short essay provocative. I want the concerned parties to sit down and devise a long term plan to regulate unfair competition. Silence from all governmental bodies has a dire consequence in the future; everybody must be wary of its outcome: paralyzing the economy, huge amount of public and private corruption, suffocating entrepreneurs and new entrants, and creates unaccountable, strange and ill-transparent but powerful corporations.

Everything will be made behind the curtain and under the table. Invisible hands, to use the terms of Adam Smith, will pop out from every angle. Then, what is left for you and me? Nothing! We will be an escape goat to greedy people. The ambition to create a multi-cultural, consumer, middle income society will be like chasing a flying bird or following a wind.    

My readers should not be carried away by my sentiments. They must give me a chance to explain. However, I am always open for rebuttal. Firstly, competition law aims to eradicate abuse of dominant position, get rid of collusion/cartels, eliminates concentration of undertaking/mergers (modern competition laws intend to remove state aid and administrative monopolies.)

Fundamentally, competition law proposes fair society. Competition laws watches over economic efficiency and consumer welfare. For example, Article 1 of Chinese Anti-Monopoly law states:

“The law is enacted for the purpose of preventing and restraining monopolistic conducts, protecting fair competition in the market, enhancing economic efficiency, safeguarding the interest of consumers and social public interests, promoting the healthy development of the…economy.”

Firms must not shun the law to create sloping playing field. After all, every body is equal before the law- so as businesses. I think anti-unfair competition law is the missing link between the economy and the consumer. Nonetheless, a competition laws is not end, but a means to protect consumers from abuse.

Unfair agreement can take place both horizontally and vertically- horizontally between equally competing firms, like insurance companies; and vertically between firms operating at different levels of the production-distribution chain. The most common types of vertical restraints are single branding, exclusive customer allocation, franchising.

Perceiving the legal lacunae, undertakings agree to prevent, restrict or distort fair competition. The aim of prohibiting certain decisions by undertakings, as elaborated by European Court of Justice, is “to prevent undertakings from being able to evade the rules on competition on account simply of the form in which they co-ordinate their conduct on the market.” Woters v. NOvA.

For example, in EU Competition Law the following have been classified as restrictions of competition by object: market sharing, price fixing, imposing quotas, and bid ridding in public procurement proceedings. These are hard-core restrictions, because by default they create market imbalance, disregard fair competition. 

Competition law (also known as Anti-Trust Law- in the past large firms in the US used to use trust to divide the market) prevents abuse of dominant position. Such an abuse of dominant position may be characterized by imposing unfair purchase or selling prices; limiting production, markets or technical development to the prejudice of consumer; applying dissimilar conditions to equivalent transactions with other trading parties, there by placing them at a competitive disadvantage.

Who forgets the case of Microsoft? The company was fined € 1billion for abuse of its dominant position in the EU. The case is this: Microsoft started selling Internet Explorer and Window Media Player with its world famous operating system, Microsoft Windows.

Competing firms filed a complaint and after thorough investigation by European Commission it was concluded that Internet Explorer and Media Player were superfluous for the operating system, despite Microsoft’s persistent argument that they are integral part of the Microsoft Windows.

Such an abuse eliminates existing competitors, prevents new entrants to the market, and puts unfair prices or trading conditions. Many solutions have been suggested, ideas conceived, press conferences given, articles written about Ethiopia’s soaring cost of living.

If the government is genuine enough, it will take a glimpse at the value of anti-unfair competition law. It should not allow traders to charge any price with whim. It makes the economy volatile and vulnerable to greedy people. In any case, why do we still despise barbarian society?

I say it is because the absence of proper law led the strong to abuse, oppress and steal from the weak. If the government keeps hesitating to take serious action, then traders will have an incentive to cheat their customers. I believe that extensive application of tort law, especially consumer protection, and competition law can stabilize our tattering economy.  

The recent news about insurance companies begs many questions: Why did the government allow the companies to set a ceiling price for commissions paid? What will happen if one of them defects? If new entrant decides to pay more than the agreed price, what they are going to do? Well, these questions remain unanswered, and will be unless the entrusted government acts.