This presentation by Kenya was made during the break-out Session 3, “Techniques and evidence for assessing predatory pricing, margin squeeze and exploitative abuses” in the discussion “Economic analysis and evidence in abuse cases” held at the 20th meeting of the OECD Global Forum on Competition on 7 December 2021. More papers and presentations on the topic can be found out at oe.cd/eac.

1. OECD Global Forum on Competition
Breakout session B3 (Kenya)
Techniques and evidence for assessing predatory
pricing, margin squeeze and exploitative abuses
PRISCA MWANYALE
"A Kenyan economy with globally efficient markets and enhanced consumer welfare for shared Prosperity"

2.  The Act does not explicitly define exploitative conduct,
Margin Squeeze and Predatory Pricing.
 Rather it Recognizes such infringements broadly through
conduct/their manifestation:-
 Section 24(2)(a) of the Act prohibits: Exploitative Pricing
Strategies
“directly or indirectly imposing unfair purchase or selling prices or other unfair
trading conditions” by a dominant undertaking.
This captures instances of excessive pricing and instances of margin
squeeze (both exploitative and exclusionary effects)
"A Kenyan economy with globally efficient markets and enhanced consumer welfare for shared Prosperity"

3.  Section 24(2)(b) of the Act prohibits
“Limiting or restricting production, market outlets or market access,
investment, distribution, technical development or technological
progress through predatory or other practices;
Broad recognition of predatory practices and other conducts that may
have predatory effects.
"A Kenyan economy with globally efficient markets and enhanced consumer welfare for shared Prosperity"

4.  Two part Test
Establishing of Dominance
Evaluation of the conduct under consideration
"A Kenyan economy with globally efficient markets and enhanced consumer welfare for shared Prosperity"

5. ◦ Definition of the Relevant market;
◦ Identification of Players in the relevant market;
◦ Market Shares; Absolute; relative; historical
◦ Entry Conditions, and
◦ Countervailing power.
"A Kenyan economy with globally efficient markets and enhanced consumer welfare for shared Prosperity"

6.  the focus is on how the conduct helps the dominant
player maintain its dominance, or
 allows the dominant to use its dominance in one market
to attempt to monopolize another market- Leveraging of
dominance.
 the effect of restricting production with the aim of
driving away competitors who have no capacity to
produce or import their inputs or creating of barriers to
entry
 abusive conduct relative to consumers; exploitative
pricing
"A Kenyan economy with globally efficient markets and enhanced consumer welfare for shared Prosperity"

7. TECHNIQUES OF ASSESSING PREDATORY PRICING,
MARGIN SQUEEZE, EXPLOITATIVE ABUSE
"A Kenyan economy with globally efficient markets and enhanced consumer welfare for shared Prosperity"

8. PRICE-COST ANALYSIS TEST
 The price-cost test involves comparing the price level of
the product in question (which is alleged to be excessive)
to the costs of production.
 Costs are considered to be a measure of the economic
value of a good on the basis that they include a capital
reward and provide for expenditure necessary to
maintain the capital stock.
 Long run average costs can be considered to be the
relevant cost measure for economic value because they
reflect costs encountered in long run competition.
"A Kenyan economy with globally efficient markets and enhanced consumer welfare for shared Prosperity"

9. Involves:-
 Analysis of prices charged to suppliers and customers
(including affiliated customers)
 Analysis of the structure of cost of production
 Analysis of the actual cost of production
 Price charged for own products –Negative or insufficient to meet its own
costs. (Predation & Margin squeeze)
 Margins are too high : Could be a case of excessive pricing
"A Kenyan economy with globally efficient markets and enhanced consumer welfare for shared Prosperity"

10. PRICE-COMPARATOR ANALYSIS TEST
 In conducting such an analysis, the firm in question’s
prices are compared to a more competitive benchmark.
 The competitive benchmark provides the price levels
that would prevail under effective competition.
 The use of a price comparator entails comparing the
prices that are alleged to be excessive against:-
"A Kenyan economy with globally efficient markets and enhanced consumer welfare for shared Prosperity"

11. PRICE-COMPARATOR ANALYSIS
 prices of similar products charged by its competitors;
prices of the same product in different markets (i.e.
different geographic regions etc.) that operate
competitively; and/or
import parity price of the product in question
 However, price comparisons are inappropriate unless a holistic
account of the costs incurred by the dominant and comparator
firms in addition to their market characteristics are considered.
"A Kenyan economy with globally efficient markets and enhanced consumer welfare for shared Prosperity"

12. PROFITABILITY ANALYSIS
The profit earned by a firm can give some insights on whether or
not a firm may be considered to be engaging in excessive pricing.
 Profits are normally expected to be in line with an undertaking’s
cost of capital or investors’ required return on investment.
If profits are considerably greater than the firm’s cost of capital
for prolonged periods of time, it may be a sign of some anti-
competitive conduct such as excessive pricing
"A Kenyan economy with globally efficient markets and enhanced consumer welfare for shared Prosperity"

13. CRITIQUE
 Need to establish Dominance for the Act to apply;
 Cautionary approach : Excessive pricing does not
automatically mean unfair;
 Involves complex economic analysis;
 Data and evidence may be difficult to obtain
 Certain promotions may be approved by a regulator
"A Kenyan economy with globally efficient markets and enhanced consumer welfare for shared Prosperity"

14. KEY TAKE AWAY
 Section 24(2)(a) and (b): Provides an expansive approach
and captures exploitative strategies;
 This broadens the application of the of law and captures
a wide range of mischief;
 Economic analysis is similar; use of broader terms is
preferred;
 Economic analysis should be explained in guidelines:-for
clarity.
"A Kenyan economy with globally efficient markets and enhanced consumer welfare for shared Prosperity"

15. END
"A Kenyan economy with globally efficient markets and enhanced consumer welfare for shared Prosperity"