Exam (elaborations)
LML4802 October November Portfolio (COMPLETE ANSWERS) Semester 2 2023 - DUE 13 November 2023
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. QUESTION 1 1.1 Discovery Ltd intends to acquire Netcare Ltd before theimplementation of the National Health Insurance as proposed by the National
Health Act 61 of 2003. Conduct focused research on the companies guided by
various provisions for merger control. Thereafter, identify and classify the type
of the merger, apply the relevant factors considered for evaluation of the merger
and make a recommendation in relation to the merger as the competition
commission. You need not discuss the procedure and notification provisions of
merger regulation. (10)
In evaluating the potential merger between Discovery Ltd and Netcare Ltd, the
first step is to identify and classify the type of merger it represents. Merger
classification is vital as different types of mergers have varying implications for
competition. Commonly, mergers are categorized into:
1. Horizontal merger: Involves two companies operating in the same
industry and market.
2. Vertical merger: Occurs between companies operating at different stages
of the production or supply chain.
3. Conglomerate merger: Involves companies that are in different industries
or markets.
For Discovery Ltd and Netcare Ltd, detailed research into their operations,
market shares, and positions in the healthcare industry is necessary to ascertain
the type of merger being proposed.
The evaluation of the merger would involve considering various factors, such as
market concentration, potential for market dominance, impact on pricing,
innovation, and consumer welfare. The Competition Commission typically
assesses whether the merger would substantially prevent or lessen competition
in any relevant market.
In the healthcare industry, factors like the availability of alternative providers,
barriers to entry, and the potential impact on patient choice and healthcare costs
could be significant considerations.
Based on this evaluation, the Competition Commission would need to make a
recommendation regarding the merger. If it's determined that the merger could
substantially lessen competition or harm consumer welfare, the Commission
might recommend measures to mitigate these effects, such as divestitures of
certain assets or imposing conditions on the merger.
, However, without specific details on the market positions and other relevant
data of Discovery Ltd and Netcare Ltd, it's challenging to provide a definitive
recommendation. Detailed research into these companies' market shares,
geographical presence, and their impact on the healthcare industry would be
essential to formulate a well-grounded recommendation.
1.2 Uni Pharma (Uni) is a large pharmaceutical retailer that sources its products
from Mega Pharma Manufacturers (Mega), one of the largest pharmaceutical
manufacturers in South Africa with an 80% market share. When South Africa
experienced its first case of a COVID 19 pandemic infection, Uni, Mega and
other pharmaceutical manufacturers and retailers witnessed a vast increase in
demand for facial masks, sanitizers and disinfectants (these products). As a
result, South Africa experienced a shortage of these products. Mega had to
increase its production to meet the demand from pharmacies. At the same time,
Uni had to procure more stock to meet the demand from consumers. To ensure
the continued supply of these products to consumers, Uni increased the prices of
these products by 300%. In addition, Uni, with a market share of 40%,
approached other pharmaceutical retailers, and an agreement was reached that
they would all charge the same price for these products. Many consumers were
disgruntled by the increase, as they could not afford these products when they
were so needed.
This scenario involves potential anticompetitive behavior by Uni Pharma and
Mega Pharma Manufacturers, particularly relating to price-fixing and taking
advantage of the COVID-19 pandemic situation. Here's an analysis of the
situation based on competition law:
1. Price Increase by Uni Pharma: Uni Pharma increasing the prices of
essential products (facial masks, sanitizers, disinfectants) by 300%
during a time of increased demand due to the pandemic could be seen as
exploitative pricing. This action could harm consumers and violate
competition laws, especially if Uni Pharma has significant market power
and the price increase is not justifiable based on increased costs.
2. Agreement on Pricing among Pharmaceutical Retailers: Uni Pharma's
agreement with other pharmaceutical retailers to set the same prices for
essential products raises concerns of price-fixing. Colluding with
competitors to fix prices eliminates competition and harms consumers
by depriving them of choices and fair pricing.
3. Mega Pharma Manufacturers' Role: Mega Pharma Manufacturers'
instruction to Uni Pharma to increase prices by 300% could be seen as
an anticompetitive act. If Mega Pharma leveraged its market dominance
to force Uni Pharma into raising prices or face supply disruptions, it
could be a violation of competition laws.
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