Competition policy that kills competition

SA Breweries (SAB), accounting for 90% or more of the beer sold in SA, has intervened in Heineken’s acquisition of Distell and appeared before the Competition Tribunal over the terms of the deal. It argues that the tribunal should force Heineken to dispose of the powerful Hunters or Savanna brands if it acquires Distell, rather than the less valuable Strongbow cider brand.

That is for Heineken to meet the likely competition policy objections to the deal and avoid a cider monopoly in a different way. The intended local buyer is a consortium of the craft brewer Devil’s Peak and a BEE partner. SAB argues that the consortium would lack the “relevant expertise, financial muscle or distribution network” to compete effectively in the cider market with Strongbow alone.

This is just another predictable example of rivals or potential rivals hoping to influence competition policy ostensibly intended to enhance competition to improve their own ability to compete in the market. To expect corporations and their managers to do anything other than attempt to maximise the value of their brands competing, in other words, including through the courts is not only naive but also unwise. Self-interest is the powerful driving force of the market-led system that delivers the beer, cider and everything else consumers choose.

That advocate Jerome Wilson, acting for Heineken, accused SAB of being “opportunistic” and using the guise of competition concerns for its own business interests to paraphrase Business Day’s report is a non sequitur of the kind made by lawyers rather than economists. Competition can be fully relied upon to keep the prices companies charge in close relationship to the costs they incur, costs they have every incentive to contain in the interest of holding down prices, or improving service and quality to help realise the profit maximising, optimum scale of operations.

When economies of scale present themselves as they seem to do in beer and cider production, this may lead to a degree of dominance of market share, as conventionally measured. But it will be in the consumer’s interest.

SAB is fond of arguing that it is competing for a “share of throat” with every other beverage, alcoholic or nonalcoholic, that competes for a share of households’ budgets. And that this gives it every motivation to expand the supply of beer with attractive pricing and related services. For example, refrigerators supplied to taverns and shebeens, and via effective distribution networks led by owner-drivers.

It is right. The important competition is always for the changing choices offered to and made by households. How consumers come to choose from the menu placed before them is impossible to predict. Best therefore to leave the mysterious forces of competition to evolve, and to trust the force of competition, properly understood, and not its regulator, which invariably has interests other than serving consumers.

Just one question needs be asked of any proposed deal: will it be in the consumer’s interest? Will it mean lower prices and better service through enhanced supply and quality, more research & development and innovation? ChatGPT might soon provide the answer.

But that is not the way it is in law. Competition policy in SA pursues a larger “public”, rather than consumer interest. Employment and black empowerment are among its remits, and this “public” interest may sometimes conflict with that of consumers. Maintaining employment (in the interest of the established workforce) is likely to mean higher costs and higher prices and to detract from the case for potentially cost-saving mergers that would be in the interest of consumers.

Forcing the owners of any business to meet empowerment criteria limits the potential upside of an inevitably risky venture. It reduces the ability of an acquirer to raise capital on favourable risk-adjusted terms, making it more difficult to compete with established interests for a share of the SA throat, as SAB is well aware.