Creating efficient markets for consumers

November 28th, 2023

The 1912 United States presidential election pitted two frontrunners out of a field of four candidates; the Democrat Governor of New Jersey, Woodrow Wilson and former president Theodore Roosevelt who was running under the banner of the Progressive Party that was popularly known as the ‘Bull Moose Party’. One of the key issues that dominated the election-that was eventually won by Wilson-was ‘what to do about the Trusts.

Almost two decades earlier in 1890, the US Congress had passed the Sherman Antitrust Act to counter the monopolistic business practices of trusts. Trusts were large combinations of companies in related industries that established monopolies in major parts of the US economy. The trusts dominated the steel industry and the transportation of goods using railroads where influential businessmen, shorthand for robber barons, formed trusts that held stock in competing firms. Through these arrangements, the trusts were able to eliminate competition between them and function as monopolies.

The Sherman Antitrust Act made it illegal to enter into such agreements that restrained competition and trade and that attempted to monopolise a market. This was the beginning of the prominence of competition law, or antitrust law. In the 1912 elections, while Wilson had called for the dismantling of monopolies and a strict enforcement of the Sherman Antitrust Act, Roosevelt advocated for the opposite position, arguing that not all trusts should be broken up.

The Sherman Antitrust Act of 1890 thus laid the foundations for competition policy and law globally; there are now more than 140 systems of competition law regimes around the world, including Kenya.

Kenya’s competition law regime can be traced to 2005 while under the Ministry of Finance, the then monopolies and prices commission underwent a voluntary peer review on competition policy assessment by UNCTAD. The review recommended, amongst others, the establishment of an independent statutory authority with a mandate to promote and safeguard competition throughout the economy and to protect consumers from unfair and misleading market conduct. This led to the enactment of Competition Act in 2010 and the subsequent establishment of the Competition Authority of Kenya (CAK) in 2011.

CAK, as most competition authorities around the world, has a dual competition and consumer protection mandate. This stems from the fundamental premise that competition law exists to guarantee the benefit of the free market mechanism. While the goals of different competition law regimes fall within a broad spectrum, there are often founded on the underlying goal of achieving economic efficiency and maximizing consumer welfare: achieving lower consumer prices; increased consumer choice; improved product quality, and so on. Abuse of dominance, for instance, not only forecloses market entry to smaller firms but also leads to harmful effects on consumers such as higher prices and limited choice.

Within CAK, the Consumer Protection Department is tasked with investigating complaints relating to false or misleading misrepresentations, unconscionable conduct, unsafe and defective goods and failure to comply with prescribed consumer safety standards. Consumers can lodge their complaints directly with CAK and based on the specific merits and facts, CAK can apply its administrative remedies to make the consumer whole. The remedies include mandating refunds, replacement or repair of goods, withdrawal of misleading misrepresentations, and so on.

CAK’s annual reports offers rich insights into the nature of some of the consumer complaints: subscriptions for pay television that are disconnected before the due date; excessive deductions for loan repayments; wrongful calculation and application of interest charged on loans; purchase of bread labelled as ‘butter toast bread’ with the expectation that the bread is buttered while it is not; and even following up on refunds for train tickets bought but later canceled by the train service due to COVID-19 related travel restrictions.

The rules of any regulatory authority most proximately determine the interests of the regulator and hence what has priority. This is well illustrated by CAK where while it is unassailable that its statutory authority is economy-wide, its mandate include investigating specific sectors through market inquires, studies and research into matters relating to competition and consumer welfare.

Kenya’s financial sector has witnessed tremendous growth in the last two decades. The maxim ‘competition where possible, regulation where necessary’ seems pertinent for Kenya’s rapidly evolving financial sector. Technology has enabled financial services to be delivered in ways previously unconceivable, enabling access to millions of first-time users of financial services. Alongside growth has been risks and increased harm to consumers. At the same time, Kenya’s sectoral approach to financial sector regulation means that even in an increasingly interconnected sector, regulators’ mandates are limited within their respective markets with some market segments unregulated altogether.

CAK’s economy-wide mandate means that it is uniquely placed to address some of the consumer-facing issues. Over the years, it has taken meaningful steps towards addressing consumer issues in the financial services sector. These include market inquiries in the banking and digital credit markets, a market inquiry in the provision and pricing of USSD services, mandating pricing transparency in the provision of digital financial services, and many more.

As these issues are not unique to Kenya, one of the mandates of CAK’s consumer protection department is to work with other consumer bodies to promote consumer welfare. Towards this, CAK will from 6th to 8th December 2023 host the Consumers International Global Congress that brings together the global consumer movement to tackle global issues related to consumer protection. Held every four years, the choice of CAK as the host of the 2023 edition is testament to the progress made in the last 12 years.

Advocacy is a powerful force in directly changing the incentives for various players. Consumer interests have been given a voice by consumer protection advocates, increasing the incentives for action by policymakers on various issues. The congress will include sessions on building regulatory frameworks and business models to address consumer safety, building trust in digital economies, consumer safety in digital payments, innovative models on regulation, enhancing the consumer movement, and many more.

During the 1912 election campaigns, Roosevelt was on his way to an auditorium in Milwaukee to deliver one of his final campaign speeches. While perched atop an open-air vehicle, he was shot. The 50-page speech which was in his coat pocket stopped the bullet from reaching his heart. Not wanting to let a crisis go to waste, he went ahead to deliver the speech, remarking that “I don’t know whether you fully understand that I have just been shot; but it takes more than that to kill a Bull Moose”. While contextually ‘true’ that a bullet could not indeed kill a bull moose, Wilson’s win was an affirmation and endorsement for free and competitive markets. CAK’s tagline of ‘creating efficient markets for consumers’ espouses these ideals.



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