The role of competition law and consumer protection law in consumer welfare protection

In the war of owning the biggest slice of the pie or even owning the entire pie, firms vie arduously to be the winner. Many will try to win at all cost by decimating their rivals or even by forming alliances with rivals in their bids to be conquerors. Like any form of war, there will be collateral damages: When firms go to war, innocent bystanders such as consumers may be harmed. It is primarily for this reason that countries develop legislation–competition law and consumer protection law – to shelter consumers becoming casualties of war.

Under competition law, competition between rivals is lauded because it can bring about lower prices, better choices, and faster rates of product innovation. However, in competing, firms have incentives to engage in tactics that can also encroach on consumers’ welfare. Accordingly, competition law sets rules for fair play among rivals to the benefit of consumers, as much as consumer protection law sets rules for fair play on the part of businesses in their interaction with their customers and with consumers.

Necessarily, competition increases consumer welfare, which essentially is the benefits derived by consumers from the consumption of goods and services, and is defined by an individual’s own assessment of his/her satisfaction, given prices of goods and services and income level.

How do competition law and consumer protection law benefit consumers?

Competition law typically contains provisions that prohibit firms from engaging in conduct that will likely harm their rivals and consequently harm consumers. It also prohibits two or more firms coordinating their strategies and eliminating competition between them to the detriment of consumers. Such conduct include exclusive dealings, tied selling, minimum resale price maintenance and collusive arrangements. Firms are held liable when their conduct is found to be in breach. Sanctions applied to these breaches could be civil (fines) or criminal in nature and therefore discourage firms from breaching the relevant legislations. Through these measures, the benefits of competition law ultimately accrue to consumers. Competition law which focuses mainly on firms’ strategies in gaining market share may not be enough to discourage all the ways in which firms can harm consumers. Therefore, consumer protection law provides that additional layer of protection to consumers.

From an economic perspective, consumer protection law seeks to safeguard consumers against unfair practices in the marketplace, and has provisions that protect consumers against deceptive, unfair, and unconscionable sales acts and principles that firms will engage in to increase their profits. For example, firms may engage in bait and switch, failure to honour warranties, and misleading and/or false advertising. These actions trick consumers into purchasing items they do not value or paying more than they would be willing to pay for an item. To dissuade firms from engaging in such conduct, consumer protection law provides consumers with adequate rights and means of redress.

Another mean by which consumers’ welfare is protected is through competition and consumer protection agencies’ engagement in public advocacy. Public advocacy typically involves the provision of information and education to facilitate sound choices and the proper exercise of rights by the consumer, and the involvement of consumer representative in the formulation of social and economic policies.

While firms rage war on each other, consumers’ welfare is at the forefront for competition and consumer protection agencies. These agencies have and will continue to utilize strong enforcement and advocacy programmes to protect consumer welfare.

The role of competition law and consumer protection law in consumer welfare protection