Competition Authority of Kenya Imposes USD 6.8M Penalty on Alleged Abuse of Buyer Power

Buyer Power

The Competition Act defines buyer power as the influence of a purchaser of goods and/or services to obtain from a supplier or service provider goods and/or services on terms that are more favorable to the purchaser than the supplier/service provider. 

 

For a purchaser to impose its terms on a supplier or service provider, the purchaser must command such a large portion of the consumer market such that it can cause the price of the products or services to fall by purchasing less or cause the price to rise by purchasing more. 

 

Abuse of Buyer Power

The exercise of such power to the detriment of suppliers for the gain of purchasers is considered as an abuse of buyer power. In determining whether a buyer with buyer power has abused it, the Authority will largely consider the following:

 

i) the commercial terms of the contracts with suppliers

• • The following contractual terms are likely to be construed as abuse of buyer power:
  • unreasonable discounts;
  • irregular rebates; 
  • imposition of promotional fees; or 
  • payment of fees in order to gain access to the buyer’s platform/infrastructure.

 

 

ii) the dependency of the supplier on the buyer

• • A buyer whose suppliers depend on for the bulk of their sales due to the buyer commanding a large market share can abuse their buyer power. The Authority, in determining whether buyer power has been abused, considers the buyer’s market share and inability of the supplier to find alternative buyers for their products/services. 
  • Acts of a buyer such as threats of delisting a supplier, refusing to accept goods ordered, unilateral variation or termination of contracts and delays in making payments all amount to abuse of buyer power.
    
    

Conclusion

The Authority is empowered to impose a financial penalty of up to ten percent (10%) of the preceding financial year’s gross turnover in Kenya for persons in contravention. It is imperative that agreements are properly negotiated to avoid impeding the provisions of the Act.