Imagine a situation where two companies agree on the quantity, quality and price at which to sell their produce instead of competing for customers.

It is likely that the two firms will set higher prices, thus maximising profits at the expense of consumers.

This is what experts describe as a cartel, a situation where businesses, rather than compete, collude to fix high prices.

Markets dominated by cartels will ultimately become complacent in their business decisions and, as a result, consumers lose out through poor quality products, exorbitant prices and limited choice.

Experts warn that such practices hinder economic development, noting that effective competition laws help address such situations.

The experts were speaking to The New Times on the sidelines of a regional media workshop held in Livingstone, Zambia last week.

"Some cartels exploit consumers through high prices. Citizens are compelled to pay high prices for cheap goods and end up paying more money than they are supposed to. Cartels restrict output, limit innovation and lead to production of poor quality goods,” says George Lipimile, the Director of Competition at the Common Market for Eastern and Southern Africa (Comesa).

"Anti-competitive practices put consumers at a disadvantage as they can’t get the best prices for goods and services. Prices are always skyrocketing and business not growing,” the expert notes.

Lipimile says competition pushes companies to work hard, introduce innovations to outdo each other on the market such as offering lower prices, discounts and producing high-quality products.

"The consumer benefits from this business rivalry in terms of low prices, high quality and much more,” he notes.

He also cited the abuse of a dominant position, whereby dominant firms behave recklessly because of lack of competition as another disadvantage of cartels.

Need for regulations

Competition laws, regulations and policies highlight governments’ commitment to promoting a competitive market structure by establishing measures that promote market competition.

In Rwanda, a Competition and Consumer Protection Policy was developed with the aim of fostering a competitive environment for businesses and increasing efficiency in the economy.

The policy, which builds on the framework of Comesa competition policy and regulations, sets a number of strategies to counter unfair business practices and ensure the protection of consumers.

They include prohibiting the hoarding of producer and consumer goods for the purpose of bringing about a price increase, holding manufacturers and importers liable for any defective products and providing a system for civil and criminal suits for the recovery of damages suffered as a result of restrictive business practices.

Rwanda has as well signed a number of bilateral, regional and multilateral treaties, conventions and agreements with the aim of creating a favourable and competitive environment for business.

"We believe competition is an essential element of an open market economy. Markets need to be protected against the creation of dominant positions, cartels and abuses of market power,” explains Sindiso Ngwenya, Comesa Secretary General.

"Competition policy is there to help nations achieve economic prosperity and increase society welfare. This is done by forcing companies to adhere to certain standards and level the playing field,” he adds, noting that competition leads to greater dynamism in industry, and helps create jobs which consequently leads to poverty eradication.

Ngwenya says competition is not an end in itself or something useful only for domestic economies.

"It is also a tool to help us react and cope with the changes we face at the international level,” he says.

The Comesa Competition Law prohibits a wide range of horizontal and vertical agreements, including cartels and abuses of a dominant position.

The regional regulation act is, however, yet to be adopted by all member states and this creates challenges in its implementation, officials from the regional bloc say.

Jp.bucyensenge@newtimes.co.rw