The winner of the 1976 Nobel Memorial Prize in Economics, Professor Milton Friedman, described competition as a system of dispersed power that promotes economic efficiency and innovation. A competition-based economy, therefore, is most likely to secure the greatest economic surplus for society. Competition legislation such as Jamaica’s Fair Competition Act (FCA), promotes competition as the preferred means of organising economic activity. thereby encouraging the delivery of diverse product offerings at the most affordable prices.
For this reason, competition law is essential for the sustainable economic development of Jamaica. While it is common knowledge that consumers benefit from competition law enforcement, it is also true that businesses benefit from competition law enforcement. This article highlights some of the ways in which competition law benefits small businesses.
Competition law prohibits commercial practices which adversely affect competition. One class of such practices scrutinized by competition law is the abuse of a dominant position. An abuse of a dominant position occurs when an entity occupying a dominant position in a market enterprise engages in practices that exploit consumers and harm other businesses. A dominant enterprise has the ability to influence market conditions to its advantage, to the detriment of consumers and competitors. Small businesses are especially vulnerable to predatory behaviours such as predatory pricing and exclusive dealing agreements.
Predatory pricing is a strategy where a dominant enterprise temporarily sets its prices below costs, in an effort to drive smaller competitors out of the market. It works when a dominant enterprise initially lowers prices to levels that make it difficult for competitors to match the low prices to remain competitive. This is especially the case for small businesses with fewer economic resources. Sooner than later, small businesses will struggle to sustain the losses, resulting in them exiting the market. When this happens the dominant enterprise would then raise prices to profitable levels and recoup losses that it incurred while driving out competitors.
In addition to predatory pricing, small businesses are vulnerable to exclusive dealings. Exclusive dealings are agreements where a supplier agrees to engage only with a designated buyer; alternatively, where a buyer engages only with a designated supplier. Exclusive dealings are prohibited under competition law when it unduly limits the ability of suppliers and buyers which are not party to the agreement from participating in the respective markets, thereby creating a competitive advantage for parties to the agreement. Such an arrangement can hinder competitors’ access to essential distribution channels or sources of supply. For small businesses, exclusive dealing can mean limited market access, as they may find it difficult to source products or sell through certain distribution channels. Additionally, smaller businesses might face higher costs or less favourable terms when buying products as a direct consequence of exclusive dealings.
Moreover, in competitive markets, consumers benefit from a wide range of products and services, compared to non-competitive markets. Small businesses, being at times more agile and customer-focused, contribute significantly to product diversity in markets. Competition law promotes competition, ensuring that small businesses can compete effectively and offer unique products and services that meet various consumer needs. This not only benefits consumers but also encourages small businesses to remain innovative and responsive to market demands.
In conclusion, competition law plays a crucial role in fostering a competitive marketplace which, in turn, benefits small businesses. By curbing anti-competitive practices such as abuses of a dominant position, competition law ensures that small businesses have the incentives and opportunity to participate in markets. It protects these businesses from the potentially detrimental effects of predatory pricing and exclusive agreements. Moreover, by maintaining a competitive environment, competition law encourages innovation and diversity, which ultimately benefits consumers with a broader range of products and services. In essence, competition law benefits all aspiring market participants, cultivating economic efficiency and consumer satisfaction and thereby encouraging a dynamic and competitive market economy.