Steel and propane : the efficiency defence and horizontal mergers

This contribution evaluates the impact of s 12(1)(a)(i) of the Competition Act 89 of 1998 (the 'efficiency defence') on horizontal mergers - that is to say, mergers between firms that compete in the same markets. Horizontal mergers are central to merger regulation in competition law and most legal systems allow bodies that consider the competitive consequences of these mergers to take account of efficiencies. The author argues that an efficiency defence, despite its flaws, is probably necessary in a small economy such as that of South Africa. The article explains the difference between dynamic efficiency and production efficiency and explores, amongst other aspects, (i) who has the onus of proving efficiency, (ii) what types of gains may be recognized for an efficiency defence, (iii) how efficiency gains caused by a merger should be balanced against its anti-competitive consequences, and (iv) the principle that efficiencies must be merger-specific for purposes of the defence. The article also evaluates dynamic and production efficiencies against the requirements of the efficiency defence. It concludes that, although the locus classicus in respect of the efficiency defence in South Africa, Trident Steel (Pty) Ltd / Dorbyl Ltd, made a valuable contribution to its development, specific aspects of this defence need still to be refined.