BUYER POWER Flashcards
definition of buyer power
S. 24(2D)
a. influence
b. position of a purchaser
c. seeking more favourable terms or impose a long-term opportunity cost
d. including harm or withheld benefits
e. significantly disproportionate to any resulting long term cost
- what is abuse of buyer power? I case
- what amount to abuse of buyer power? (5) CA v 11 from BP guidelines
- Section 24(1) of the Act created the offence of abuse of buyer power and provided that any conduct that amounted to abuse of buyer power in a market in Kenya, or a substantial part of Kenya, was prohibited.
RELATIONSHIP MUST BE S V P: Therefore, the offence created by section 24A(1) was limited to circumstances where the commercial relationship between the complainant and the offender was one of a supplier and a buyer. Any other commercial relationships other than that of a buyer-supplier were not contemplated under section 2 and 24A(1) of the Act (Lavington Insurance Agency Limited and CIC General Insurance Limited)
- S. 24(2)
(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
(b) limiting or restricting production, market outlets or market access,
investment, distribution, technical development or technological
progress through predatory or other practices;
(c) applying dissimilar conditions to equivalent transactions with other
trading parties;
(d) making the conclusion of contracts subject to acceptance by other
parties of supplementary conditions which by their nature or according
to commercial usage have no connection with the subject-matter of
the contracts; and
(e) abuse of an intellectual property right.
VERSUS
S.24 of the Buyer power guidelines
a. bidding up prices of inputs by a buyer undertaking with the aim of excluding competitors from the market;
b. Late payment; where a buyer undertaking delays payment without justifiable reasons in breach of agreed terms of payment to suppliers;
c. demand for preferential terms by buyer undertakings which are unfavourable to the suppliers or demanding limitations on supplies to other buyers;
d. a buyer undertaking depressing prices by a small but significant amount where there is difficulty in substitutability of alternative buyers or a buyer undertaking reducing prices below competitive levels;
e. De-listing; Unilateral termination of a commercial relationship without notice, or subject to an unreasonably short notice period and without an objectively justified reason;
f. Threat of de–listing; Use of delisting threats to obtain undue advantage and suppress suppliers from raising genuine complains against the buyers,
g. Unjust return of goods; Return of goods which the buyer purchased from a supplier;
h. Transfer of costs; where buyers transfer costs or risks to suppliers by imposing a requirement for the suppliers to fund the cost of a promotion,
i. Transfer of risks; Transferring commercial risks meant to be on buyer to the suppliers;
j. Refusal to receive ordered goods; A buyer’s refusal to accept delivery of goods for reasons not attributable to the supplier after having entered into a contract, and if it is unavoidable for the transacting party to accept such refusal from concerns about the possible effects
on future transactions, unjustly impose a disadvantage on the transacting party in light of normal business practices; and
k. Unfavorable treatment like demanding lower buying prices than all other suppliers or demanding limitations on supplies to other buyers.
what CAK must take into considering in determining ABP: section 24(B) established the three factors the Authority was to consider in establishing buyer power
1 additional with case
- S. 24(2B)
(a) the nature and determination of contract terms between the concerned undertakings;
b) the payment requested for access to infrastructure; and
c) the price paid to suppliers.
Additional factor: economic dependency (supplier dependant on the buyer)
Economic dependency of a supplier on a buyer was necessary for a finding of the existence of buyer power. Thus, equal bargaining power does not amount to abuse of buyer power!
what is dominant position need for abuse of buyer power?
1. definition 2//2
2. how to establish BP
3. problem with D
NB: dominance is not bad! ITS THE ABUSE!
s. 23:
A. Mp
- produces, supplies, distributes or otherwise controls not less than
one-half of the total goods of any description which are produced,
supplied or distributed in Kenya or any substantial part thereof
- provides or otherwise controls not less than one-half of the services
which are rendered in Kenya or any substantial part thereof.
B. Ms
- though not dominant, controls at least forty per cent but not more than fifty per cent of the market share unless it can show that it does not have market power; or
- controls less than forty per cent of the market share but has market
power.
How to establish buyer power: Determination of dominance in a relevant market:——–
product and geographic area are the two main ingredients for determining ‘relevant market’ in a competition analysis.
RPM: Means a market comprising all those products or services which are regarded as interchangeable or substitutable by the consumer, by reason of characteristics of the products or services, their prices and intended use.
RGM: ‘The relevant geographic market comprises the area in which the undertakings concerned are involved in the supply and demand of products or services, in which the conditions of competition are sufficiently homogeneous and which can be distinguished from
neighbouring areas because the conditions of competition are appreciably different in those area’.
SNIIP test: The SSNIP test seeks to identify the smallest relevant market within which a hypothetical monopolist or cartel could impose a profitable significant increase in price. The relevant market consists of a “catalogue” of goods and/or services which are considered substitutes by the customer. Such a catalogue is considered “worth monopolizing” if, should only one single supplier provide it, that supplier could profitably increase its price without its customers turning away and choosing other goods and services from other suppliers.
problem with definition:
There are a number of concerns with this definition, we mention one here and return to the others later. As a criterion for defining true economic dominance, this definition can be both over and under-inclusive. It can be over-inclusive (i.e., call firms dominant when they are not) if Kenya is part of a larger, possibly even global, market in which no Kenyan firm has any power over price even if it has a large share of Kenyan sales. It can be under-inclusive when it exempts firms from being labelled dominant if they have less than 50% of the market even if all their rivals are very small and it has considerable power over price. Dominance is not simply determined by a firm’s absolute size or market share; its size relative to its rivals is important as well. This definitional issue is important, as we discuss below, because once a firm is determined to be dominant a special set of rules apply to it that would not otherwise apply.
The under-inclusiveness issues may have been at least partly addressed in the Amendments of September 2014. Somewhat oddly, the original Act, at section 23(1) provided a definition of ‘dominant undertaking’ which is almost exactly the same as the definition of ‘dominant position’ provided in section 4(3). The Amendments, however, have provided for an expansion of this definition by amending section 23 (adding section 23(2), but curiously not amending section 4(3)) to allow two other categories of firms to be subject to the abuse of dominant position provisions: (a) undertakings with between 40 and 50% market share that cannot show that they do not have market power; and (b) any other undertaking if it can be shown that it does have market power. With these changes, virtually all firms can in principle be subject to the abuse provisions, the differences relate to who carries the burden of establishing that there is market power.
DEFENSE:
justified reasons for actions that may seem to fall within A. 24(2)
PENALTY (criminal and administrative)
- conviction to imprisonment for a term not exceeding
five years - to a fine not exceeding ten million shillings or to both.
CASE
carrefour case 2023:
Pwani Oil is a local manufacturer of consumer goods such as edible oils, fats, skincare products and laundry soap, while Woodlands is a producer and supplier of natural bee honey from Kitui County.
According to the CAK, Carrefour had forced the two suppliers to pay non-refundable fees to list their products, deducted rebates from their invoices without justification, and delisted them unilaterally without notice.
The authority ordered Carrefour to amend all its supplier contracts within 60 days to remove the clauses that facilitate the abuse of buyer power, and to refund the two suppliers a total of KSH 16.8 million (USD 109,090) in rebates and KSH 500,000 (USD 3,246) in listing fees.
The authority also warned Carrefour to refrain from any conduct that may amount to abuse of buyer power in the future, and to submit quarterly reports on its compliance with the order for the next year. In the context of this investigation, buyer power refers to the ability of a powerful buyer to obtain supply conditions that are outside the scope of normal business practices or that are disproportionate, unfair and detrimental to a supplier or unrelated to the objective of a supply contract.
This is not the first time that Carrefour has faced sanctions from the CAK for its dealings with suppliers. In April 2021, Kenya’s Competition Tribunal upheld the authority’s order for the retailer to revise all its agreements with some 700 suppliers within a month after finding that it had exploited traders by demanding extra rebates and discounts.
