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Price control and its effects on competition: a critical review of price control legislations and how they affect the competitiveness of the market

By Michael Kariuki Kigomo

Abstract

Pricing in the market is the most sensitive part of trade. It is through pricing where the buyers are able to acquire goods and it is through it also that the sellers get their profit. Pricing of commodities can be said to be the lifeline of trade and also the lifeline of competition. Competition law, in addition to other factors such as quality of goods and their availability, also deal with the issue of pricing of goods. It is touted that competition law has a strong inclination to supervise pricing of commodities and how the conduct of market players influence pricing of goods. Competition law does this by making the market as competitive as possible in order to prevent any firm from dictating prices. It short, it strives to make the firms in the market to be price takers and not price setters as a way of reigning in on high prices in the market. However, in certain circumstances the competition laws become unable to supervise the market. In times such as those, the governments have been forced to intervene through other laws and policies in order to protect the market from possible abuse. This study looked at government intervention in the market through price control legislation. Price control legislation is a legislation that gives the government powers to artificially set prices of commodities. This is done in those dire circumstances where the market out of unforeseeable circumstances, is unable to be competitive. Examples of such instances include national crises, innovations and legal huddles. Price control legislations unlike the traditional competition laws are not created to promote competition per se. They are created on the back of competitive conduct to provide a safety net to consumers from exploitative activities of producers in instances where the influence of competition laws is ineffective. Price control legislations are there to make sure that when all competition laws and interventions are unable to protect consumers from the condition of the market and the exploitative actions of the producers, then there are certain laws created as a safety net to the consumers. Price control is used to mitigate the circumstances that make it impossible for the market through competition to control pricing of commodities. Currently, price control is becoming a prevalent way oftarning prices in many jurisdictions. A policy used in the medieval times in simple markets, with little or no inclination towards the market, has now become more imposing even in the most sophisticated markets. Price controls in areas like Canada and the European Union are being used together with competition laws to cater for areas where the governments feel that the market is not competitive enough and competition laws are not effective. In other areas such as Zimbabwe, it is being abused for political purposes to influence prices against a competitive market and the competition laws. What is clear and true is that price control having both an immediate impact and being effective, is one mechanism that has far reaching and substantial effects on the competitiveness in the market. With its target being the most sensitive area of trade, this makes it a very important policy issue that competition lawyers should not ignore. Price control ability of superseding the market mechanism of supply and demand, to impose prices and the way it is implemented gives it the power to reduce and even kill competition in a particular market. That is why it is imperative to understand this safety net as competition lawyers in order to know whether it is needed and if so how we can limit its negative effects in the market

Topics: Commercial Law, Competition Law, Price control
Publisher: Department of Commercial Law
Year: 2015
OAI identifier: oai:open.uct.ac.za:11427/15179

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