Consumer benefits in mergers – what is the missing focus?

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Zakhele Mthembu | Policy Officer | Free Market Foundation | mail me |


Consumer benefits in mergers should be the central consideration when evaluating whether a merger enhances or harms the market for consumers.

The Competition Tribunal recently blocked a merger between Maziv and Vodacom, two major players in South Africa’s telecommunications sector. Maziv, through Vumatel, is one of the largest fibre infrastructure providers, while Vodacom is a leading wireless telecommunications provider. The decision raises an important question: are consumers better or worse off because of this ruling?

Mergers of this magnitude fall under the purview of the Competition Act, specifically Section 12, which outlines approval criteria. Although the tribunal has not yet disclosed its reasoning, it likely relied on Section 12 requirements. The ruling suggests that the parties failed to meet one of these numerous requirements.

Should consumer benefits guide merger decisions?

Our focus here is on whether consumer benefits are prioritised during merger evaluations. The Competition Act aims to promote a free and open market, yet consumer benefits appear to be an afterthought. This is evident in Section 12A(1)(a), where consumer benefits are mentioned only as an offsetting mechanism.

To understand the tribunal’s rationale, we can examine its reasoning in prior merger cases, such as the Burger King merger. In this case, Grand Parade Investments (Burger King) was acquired by ECP, and the merger was approved with conditions. These conditions required ECP to increase ownership by historically disadvantaged persons (HDPs). Despite acknowledging consumer and economic benefits, the decision focused primarily on public interest considerations.

Similarly, the Walmart/Massmart and AB InBev/SABMiller mergers included conditions addressing employment, local suppliers, and local production. Although these mergers offered clear consumer benefits, the tribunal’s decisions hinged on factors like public interest or negative competitive effects.

Prioritising consumer benefits in mergers

Changing legislation to prioritise consumer benefits may be ambitious, but a shift in focus is necessary. Consumer benefits, such as lower prices or improved quality, should become the central criterion for merger approvals. This approach aligns with the consumer welfare principle advocated by thinkers like Robert Bork and Richard Posner.

Under this principle, secondary considerations, such as competitor survival or public interest, would only be assessed after consumer benefits are established. For instance, if a merger reduces prices for millions of consumers but harms a single competitor, consumer welfare should take precedence.

Instead of focusing solely on public interest considerations, regulators should prioritise whether mergers benefit South Africans through lower prices or enhanced products. Although the current framework does address consumer benefits, it does not treat them as the guiding principle.

In conclusion

The recent decision by the tribunal to not approve the Vodacom/Maziv merger shows why we need to centre consumer benefit when mergers are to be approved or turned down.

Vodacom CEO Shameel Joosub claimed the merger would have expanded fibre networks nationwide, with an investment worth R12 billion to R17 billion. This expansion would have significantly benefited South African consumers.

Even within the current framework, the tribunal could have approved the merger with conditions. As we await the tribunal’s reasoning, I urge you as the reader to consider how prioritising consumer benefits could reshape our economy. A regulatory focus on consumer welfare would ensure that the interests of millions of South Africans are better served.


 



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