For a long time, consumers in the United Arab Emirates suffered from unfair competitive practices that they experienced as a result of companies looking to gain the best profits. The companies thus took advantage of the fact that there were no existent rules and regulations that could control the unhealthy competition in the region. Unhealthy competition is act as a barrier to new firms joining that would automatically provide services that are price friendly to the users. Additionally, consumers are supposed to receive quality goods and services from the companies. However, in the presence of weak regulations with regards to products within the country, consumers receive products that are of low quality. The UAE region has experiences rapid growth due to the huge potential that the region holds against other markets. As a result, companies flock the market to cash in the high end consumers visiting the region and the residents. Amidst the gold rush, companies end up engaging in unethical competitive practices that end up harming the consumers in terms of pricing and quality in the long run (Abu-Hammour, 2005, p.223),.
The paper looks at the description of the UAE competitive law. The paper also evaluates and asses the benefits of a stringent competition law regime. The paper will discuss the thesis in details and provide a comprehensive explanation to the concepts in such a way that the readers will be able to understand properly without any difficulty.
Description of the UAE competitive law
The UAE competitive law was put inforce in February 23, 2013. The law introduces a comprehensive system of merger control and restrictions on the non-competitive agreements and monopoly practices.
Affected entities by the law
The law does not apply to the UAE government and the related institutions in the country. Additionally, the law exempts the entities that operate in the oil and gas sector, financial services, electricity and water, pharmaceuticals, telecommunications, transportation and waste management. Another category described under the law is the de minimis category that is explained as the enterprises with a significantly small market share and also enterprise whose decisions and agreements have a small effect on the market. The law therefore has a large limitation since the categories mentioned are numerous and hold many companies which are all exempted and can participate in the competitive practices that are unethical (Charny, 2001, p.11).
The law on the other hand applies to all natural or legal persons within the UAE who participate in the economic activities of the country or holds an intellectual property within the country. The law has also defined the economic activities that occur outside that UAE but are likely to affect the competition within the country’s market to be regulated. The entities covered are generally private businesses of individuals and global businesses making their way to the Arab Emirates through numerous means.
Scope of the law
Abuse of dominant position – The law states clearly that companies with a dominant position in the market are prohibited from taking advantage of the dominant position that they hold that will prevent or even limit competition. Some of the advantages that a company can take to show the dominant position can be; performing a service or selling a good at a price that is less than the actual cost incurred by the company thus creating a competitive advantage that is unfair to the other competitors and working to oblige a client to deal with an establishment that is competitive enough in that market.
Restrictive agreements – The restrictive agreements under the law include price fixing, exclusive distributor agreements, and horizontal collusion among many others. In this clause, the law looked to prevent any agreements that would spar competitive advantage of a firm which can be deemed as unfair. Companies always look to have mergers in order to ensure that there is increased competitive advantage over the other firms. However, the UAE competitive law looks at eliminating all these agreements that would lead to unfair and unethical competitive practices between stakeholders (Ogus, 2009, p.56).
Market sharing and allocation, bids colluding, and limitation of free flow of services and goods are all considered as prohibited under the competitive law.
The new competitive law offers harsh penalties considered as extraordinary to the UAE regulations that range from AED500,000 to AED5 million. The penalties vary from one party to another based on the percentage of yearly sales made in the cases of economic concentration transactions non complaints. The courts also have a right to order for the closure of a business for a period not more than six months and not less than three months.
Gaps in the law
The law does not provide an exemption or make it clear about the way family businesses are treated. Family businesses may act as other competitive businesses and may participate in mergers and acquisitions that might lead into unfair competitive practices. However, the law does not provide for these cases thus family businesses despite the fact that they are worth a description in the law are not described and explained.
Benefits of a stringent competition law regime
A stringent competitive law regime can be considered as important in the development of a country’s market. Laws represent authority in any place and the availability of the laws first ensures that companies respect that there is an existent market that is regulated by a government that is sovereign. The benefits of stringent competitive law regime can range from consumer benefits to the benefits to the existent businesses and new upcoming ventures in the market (Paul, & Gidley, 2009, p.70).
Companies in a bid to maximize on profits and minimize on revenues, they look to ensure that they charge some of the highest prices that they can place in order to see increased revenues that are generally considered acquired from unethical practices. Companies therefore can decide to charge some of the highest prices in the market that will see the consumers spend most of their money on products in the long run. However, the benefits acquired in the long run are more or less equal to the ones they would acquire with lower prices of goods.
The competitive law looks at restricting competitive practices that will see competitors take advantage of their positions to exploit the consumers in the long run. Through a practice like price fixing, companies are able to manipulate the consumer desperation into consuming a product that does not fit into the quality of the price tag placed. Consumers are thus better protected through the competitive laws that restrict the issue with regards price ceiling by companies that involve in mergers.
Improves production efficiency
Introduction of competitive laws will ensure that products that are released into the market are of good quality and important to the consumers. Without the law, manufacturers look at having numerous products that will ensure that there is a high return on investment in the long run. However, the competitive law ensures that products manufactured meet a certain standard. As a result, all products manufactured shall have met the standard requirements of the business set up (Revesz, 2002, p.88).
Creates an ease in entry into the new markets by new firms
New companies often fear making an entry into a market where there is high competition and activities. As a result, many entrepreneurs get discouraged by the barriers to entry in a new market. The barriers range from a large number of factors. Some of the factors include competition, starting capital and existing patents. Competition provided mostly looks at discouraging new entrants into a market by ensuring that there is a capture in a significantly large market share. Additionally, some competitors look for opportunities for smaller companies to acquire them and gain another significantly larger market share. The practices highly discourage new market entrants and drive the businesses of the companies low and highly susceptible to failure in the long run.
The competitive law on the other hand looks at eliminating such vices that look to kill competition and grow oligopoly like structures in the market. The competitive law prevents mergers and acquisitions that will result to single monopoly like structures in the market that will regulate prices of goods and services.
Protects small entities in the market
In any market, there is an existence of small businesses and large businesses within the market. Small businesses look to ensure that they continue surviving within the market by maximizing on profits and re investing their income within the businesses and outside the businesses. Small businesses are important in any market that is available as they create a new wave of competition for goods and services which is important for development of an economy in the long run. Every year, there are new generations of entrepreneurs that come up with innovations and ideas that are important for development. Without the existence of the competitive law, the innovators and entrepreneurs would have suffered due to the problem (Int'l Business Publications, 2015, p.110).
The establishment of the competitive law looks to protect these small firms that exist in the market and look to compete the larger firms. Larger firms look at taking advantage of the smaller firms by ensuring that they suppress their development by either acquiring them or participating in unlawful competitive practices that are highly prohibited by the law. Competitive law is important in ensuring that smaller firms continue to exist to support and build the nation in a different manner.
Promotes discipline over managers
Laws are usually put in place to ensure that there is discipline among the people and among businesses. The case is applicable to competition among players in the market. Managers might prove to be indiscipline and inappropriate to the people and the laws and regulations that are put in place by countries. The case mostly happens due to increased need for show of power to the subjects. Rules however are important since when broken, the end result might be catastrophic to the people in the country.
Stringent competitive laws will ensure that managers behave in a certain manner that is required and set by the law. Disciplined managers would ensure that companies run smoothly and develop beyond a certain level of growth and development (Int'l Business Publications, 2009, 15).
Low cost productions
The cost of production in a company is something that most businesses try to avoid and reduce in the best possible way. Low cost of production leads to increased profits and revenues by the company in the long which is important. The goal of every firm is profit maximization which the firm will help improve to achieve. However, unfair competitive practices because an increased cost of production since they discourage partnerships that always look for reduced cost of production.
Stringent competitive practices look at eliminating all ways in which a company will lose money through high costs of production. Competitive practices see companies prevent others from acquiring the necessary ground for growth and development. In the light of this, companies are unable to fix their high production costs. However, regulations that look at eliminating all unfair competitive practices are important in ensuring that there is sufficient ways of reducing production costs. As a result, there would be new and better products acquired through innovation that a company can input in since there will be savings enough for research and development within the company.
Efficient allocation of resources
Resource allocation in a region depends on a large number of factors which governments consider. Some of the factors include population distribution of an area and functioning markets. A person can determine whether resources are used efficiently when there can be a determination of whether the quantities of the services and goods are produced as required. The concept of marginal cost and marginal benefits is important as it helps in determining how efficient a resource was allocated to a given area. Functioning markets are an important factor in determining whether a resource has been well allocated.
Stringent competitive laws ensure that there are well functioning markets that are important in ensuring that products and services are well distributed to the people within a particular region. The laws are therefore efficient in enhancing the growth and development of functioning markets within the countries which are important in ensuring that there is efficient allocation of resources. Efficient allocation of resources is an important factor in helping boost the economic situation of a region or a country at large (Gerber, and Cassinis, 2006, p.110).
Promote economic growth
The growth of an economy is a factor that requires numerous contributions to ensure that it is achieved. Economic growth is important as it ensures that the welfare of people within a country is taken care of and the people receive the best services that they require from their governments and other bodies. However, some issues within a country can frustrate the efforts to ensure that there is growth of an economy significantly within a short period of time. Market forces are among the key issues that are a main contributor towards the growth of an economy at large.
Competition is an important factor in developing stable markets for goods and services to the people and the country. Even though the factor is important, some companies look to explore their might by using their influence to consequently acquire a better competing power in the market. Such efforts frustrate the development of small businesses which are important for economic growth and development within a country. Stringent competitive laws help in developing stronger competitiveness among companies in the market. As a result, the small companies can easily develop and grow into big companies employing people and paying taxes. Resultantly, the economy develops and the growth will be seen as magnificent. Economic growth therefore requires fair markets that allow for every person to compete fairly (Dabbah, 2010, p.90).
Based on the research into the UAE competitive law and the stringent competitive laws applications, I found out that there is a need to ensure that the law is amended to fit every situation in the society.
The law should cover all aspects of the society such as family businesses which are neither quoted nor exempted from the law. The facts might be confusing especially in cases where there are court proceedings.
It is important for the competitive law to be applicable to all parties that are involved actively in a country. The exemption of numerous industries and the government institutions presents a weak spot on the law. The industries exempted are the major contributors to the UAE economy.
The paper has shown the importance of the stringent competitive laws that are put forward to ensure that there is a stable and fair market for all people. The importance is seen in the UAE market where the government introduced the competitive law that is accompanies with strict penalties. The paper has shown the structure of the law and the importance of the law illustrated well. Fair markets are important as mentioned in the paper and there is a need to ensure that there is always a fair market for goods and services within a country (Dabbah, 2007, p.45). In conclusion, the topic is important in understanding the need for competitive laws in all markets in the world.
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