South Africa's competition authorities were striking a healthier balance in dealing with cases of exclusionary abuses by dominant companies than was currently the case in either the US or the European Union (EU), a leading international competition economist has argued.

Speaking at the fourth annual Conference on Competition Law, Economic and Policy in Johannesburg, Professor Massimo Motta said that South Africa's authorities were possibly pointing the way to the much spoken of "mid-Atlantic convergence" on the matter.

Motto, who is dean of the Barcelona Graduate School of Economics and the author of the internationally respected ‘Competition Policy: Theory and Practice', said that the US was erring too heavily on side of their dominant firms, while the EU authorities had moved to the other extreme.

Economic theory had evolved to the point of accepting that dominant firms could profit from engaging in price wars, extending rebates, or exclusive dealing.

In essence the theory showed that, where economies of scale were important, and new entrants required a certain critical mass to compete, incumbents could move to protect their interests by limiting access to the market. They could do this through the extension of rebates, or through pursuing a price war with earlier buyers, while charging monopoly prices to later buyers once their behaviour has illuminated the threat posed by the new entrant.

However, in the US, the burden of evidence fell on the plaintiff, which made success unlikely. In the EU, by contrast, that burden fell primarily on the dominant firm, where it had reached the point where a dominant firm "may not do anything", even when such actions could be shown to be procompetitive.

Motto said that the divergence had its genesis in the fact that the EU had a legacy of entrenched monopolies, owing to the fact that many of these had been legal monopolies owned by the State. By contrast, the US had a longer tradition of competitive markets, which had led the authorities and the courts to be less interventionist.

Given prevailing business concentration in South Africa, practitioners could probably draw lessons from the EU experience, but Motto welcomed the country's attempt seeking to strike a balance in dealing with its dominant firms and their practices.

Nevertheless, Motto advised that authorities should only really prosecute cases when the following variables were in place:
• Where the dominant firm had a ‘super dominant' market share of well above 50%.
• When price/costs tests have been undertaken.
• Where a coherent strategy of exclusion can be shown, not merely "aggressive language".
• When the facts arising are able to meet the tests of the economic theory.
• When there is evidence that the behaviour had an effect on rivals and consumers.
• And, where a dominant firm is given the opportunity to pose an efficiency defence to show that its behaviour was not exclusionary, but the result of precompetitive actions.

"I believe this is consistent with the way the South African authorities are approaching such cases," he concluded.