The issue of free competition in business is fundamental to the free market system.
Let us remind ourselves what this means. Let us say there are four hamburger restaurants in a town. A person wanting to buy a burger will decide which one to go to. Let us say that, at this point, each burger place charges R40 for a burger. Price will not be part of a customer’s decision – he or she will go to the burger place with the best view, or the best music, or the friendliest waiters, and so on.
Then people discover that one of the burger places offers the biggest portion of chips, plus two slices of tomato and a selection of sauces. So, more people start going there and that guy starts getting more than 25% of the available business. We will call him Burger One.
The other three realise what is happening and start to think. Then, at our imaginary restaurants, the one owner realises that his place has a fantastic romantic view over the river and, what’s more, has a beautiful veranda which looks fantastic by candlelight. So, he decides to aim for the evening market, where people want not only to buy food but also have a longer meal under romantic circumstances. So, the owner puts his burger price up to R50 and advertises that he offers the best wine list in town. He starts to get more business. We will call him Burger Two.
Another owner, whose restaurant is situated on a busy street corner, starts to worry that he is losing business and decides to go for fast turnaround – largely takeaway. So, he offers his burgers in a polystyrene container in a plastic carry bag with takeaway salt and pepper, and tomato sauce. His lunchtime business picks up. We will call him Burger Three.
In the meantime, the last restaurant – you guessed it, he is Burger Four – puts up a larger, brighter ‘Burgers Sold Here’ sign and carries on playing golf twice a week. He inherited the business from his hardworking grandfather, who always made good money out of it.
This story can go on for many pages, so let us cut it short. What we are seeing is healthy market competition. Burger Four cannot understand why he is not making as much money as when his grandfather ran the business and soon accepts an offer to sell the business to Burger One. Burger One closes down Burger Four and sells the property to a dry cleaner. Burger Three talks to Burger Two and they agree that Burger Two will not offer burgers at lunchtime but only gourmet burgers at night. Burger Three continues to offer takeaway at night and cuts his price to R35.
Six months later, Burger Two and Burger Three decide to amalgamate into one business but to maintain the separate identities of the fast food outlet, as well as the evening dining experience. By amalgamating, they cut overhead costs and both joint owners take home more money.
Now our story has two possible paths, for my purpose. The two joint owners, plus the owner of Burger One, get together and decide to improve their income by cutting down on the size and quality of the burgers. They will reduce the portions of chips. They will also increase all prices by 10% and blame ‘inflation’. This is wrong – it is collusion. They also agree to buy their potatoes from a single supplier to gain leverage. Same for the meat. This is wrong – it is a cartel. There should be laws to stop this unfair business practice. And there are.
The other possible path is that, a year later, the Burger Two and Three partnership buys out Burger One to become the only burger supplier in town. They cut overheads further and improve their food and service. That is good. It is not collusion. There is no monopoly situation and no ‘abuse of dominance’, as quoted by senior politicians.
The competition watchdogs, using the Competition Act, must not act to stop the Burger Two, Three, One conglomerate. There is nothing wrong with market dominance, as long as it is not an abusive dominance.
The competition watchdogs must be careful not to interfere in business growth to satisfy a socialistic desire to ‘put more people into businesses’ just because they like the idea. They have to be very careful.