Free competition is a matter of vital importance for the market and consumers, such that state intervention is unavoidable because it is a matter of public interest. That is why most state constitutions prohibit monopolies, monopsonies, oligopolies, hoarding, and similar practices in industrial and commercial activities.
It is imperative to clarify what is meant by free competition. According to some laws, like those in Honduras, it’s “the situation in which conditions exist for any economic agent, whether supplier or consumer, to have complete freedom to participate in the market, and those within it do not have the possibility, either individually or in collusion with others, to impose any condition in exchange relations that affects the efficient functioning of the market.”
The State has a clear interest in ensuring the proper functioning of the market, the normal development of supply, a balance in pricing policy and, above all, transparency and credibility in matters of great importance such as the securities market, guaranteeing or protecting the rights of consumers from possible abuses by those who offer goods and services. It is therefore the responsibility of the State to create the necessary conditions for everyone to have the opportunity to participate in the market. However, it also must protect free competition, ensuring the efficient functioning of the market and the welfare of consumers.
That is why legislation prohibits certain practices such as contracts, agreements, concerted practices, combinations or arrangements between competing or potential competitors, whether written or verbal, whose object or fundamental effect is any of the following:
- To establish prices, tariffs, or discounts.
- To restrict, totally or partially, the production, distribution, supply or marketing of goods or services.
- Directly or indirectly dividing the market in terms of territory, customers, supply sectors, or sources of supply.
- Establishing, agreeing, or coordinating positions or concertedly refraining from participating in tenders, quotations, competitions, or public auctions.
Furthermore, in addition to prohibited practices, legislation also combats restrictive practices relating to contracts, agreements, combinations, arrangements, or conduct that restrict, diminish, damage, impede, or violate the process of free competition in production, distribution, supply, or marketing of goods or services, which involve the following:
- Economic agents who are not competitors impose restrictions on territory, volume, or customers, as well as the obligation not to produce or distribute goods or services for a certain period to an economic agent who is a distributor or supplier to sell goods or provide services.
- The fixing of prices or other conditions that the economic agent distributor or supplier must observe when selling goods or providing services.
- The agreement between economic agents to exert pressure on an economic agent to dissuade it from a certain behavior or force it to act in a certain way.
- Concluding contracts subject to the acceptance of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.
- Transactions subject to the condition of not using, acquiring, selling, or supplying goods or services produced, distributed, or marketed by a third party.
- Setting prices below cost to eliminate competitors in whole or in part, or the application of unfair practices.
- Limiting production, distribution, or technological development by an economic agent to the detriment of other economic agents or consumers.
- The granting of favorable conditions by an economic agent to its buyers on the condition that their purchases represent a certain volume or percentage of the latter’s demand.
It should be noted that engaging in prohibited practices may result in administrative and criminal penalties. Legislation tends to consider contracts or agreements that contain prohibited practices to be null and void, in addition to administrative penalties. In the case of economic concentrations that are presumed to restrict, diminish, damage, or prevent free competition, such operations shall be suspended temporarily until the investigation is completed. Likewise, the authority may order corrective measures, such as forcing the spin-off, disposal, sale, or transferring to third parties not related to the parties involved in the concentration of rights over certain assets, tangible or intangible, shares, or stock, and to modify, transfer, or eliminate a specific line of production.
Concerning criminal liability, the criminal codes regulate the following criminal offenses:
- Withdrawal of raw materials or essential products from the market.
- Dissemination of false news or rumors.
- Agreements and practices restricting competition.
- Insider trading on the stock market.
- Obstruction of bidding or auction processes.
- Corruption in business between private individuals.
These crimes are ostensibly intended to regulate the market, guarantee free competition, combat corruption in contracting between private individuals, and, consequently, protect the interests of consumers.
This undoubtedly makes it imperative to deepen our understanding of actions that threaten free competition, as well as the criminal offenses regulated by criminal codes, to bring commercial actions into line with the law and avoid the imposition of administrative and criminal penalties.