Buyer Power

Buyer Power

Overview

Buyer Power is the ability of a buyer to obtain terms of supply more favourable than a supplier's ordinary contractual terms. In other words, it means the influence exerted by an undertaking or group of undertakings in the position of a purchaser of a product or service to obtain from a supplier more favourable terms, or to impose a long term opportunity cost including harm or withheld benefit which, if carried out, would be significantly disproportionate to any resulting long term cost to the undertaking or group of undertakings.

An undertaking or group of undertakings having buyer power is able if it wished to influence the bargaining process eventually earning more favourable terms of trade to the detriment of the supplier.

Buyer Power can be defined either as a monopsony or a bargaining buyer power. A firm has monopsony power if its share of purchases in the upstream input market is sufficiently large enough that it can cause the market price to fall by purchasing less and cause it to rise by purchasing more.

Bargaining power, on the other hand, refers to the bargaining strength that a buyer has with respect to its suppliers by virtue of factors such as market concentration in both the upstream and downstream markets. Abuse of Buyer Power can therefore arise through conduct by a buyer, motivated solely by the hope of gaining a competitive advantage that is likely to lessen suppliers' ability to invest in new capacity, products and production processes, which is ultimately detrimental to the interests of consumers.The Department also gives advisory opinions in regards to Abuse of Buyer Power.

Acts constituting abuse of buyer power include ,but are not limited, to the following:

  • Late payment; where a buyer undertaking delays payment without justifiable reasons in breach of agreed terms of payment to suppliers.
  • Demand for preferential terms by buyer undertakings which are unfavourable to the suppliers or demanding limitations on supplies to other buyers.
  • De-listing; Unilateral termination of a commercial relationship without notice, or subject to an unreasonably short notice period and without an objectively justified reason.
  • Threat of de–listing; Use of delisting threats to obtain undue advantage and suppress suppliers from raising genuine complains against the buyers.
  •  A buyer undertaking depressing prices by a small but significant amount where there is difficulty in substitutability of alternative buyers or a buyer undertaking reducing prices below competitive levels.
  • Transfer of costs such as where buyers transfer impose a requirement for the suppliers to fund the cost of a promotion or to deploy permanent staff at the buyer’s business premise.
  • Unjust refusal to receive ordered goods; A buyer’s refusal to accept delivery of goods for reasons not attributable to the supplier.
  • Unfavorable treatment like demanding lower buying prices than all other suppliers or demanding limitations on supplies to other buyers.

The Authority may then apply administrative remedies as provided for Under Section 36 of the Act, or pursue a criminal route as provided for under section 24 of the Act.Punishment for infringing the law being imprisonment for a term not exceeding 5 years, a maximum fine of Ksh10 million, or both, for criminal prosecutions.

The Authority may also impose an administrative penalty of up to 10% of the preceding year's turnover of the undertaking(s) in question, issue cease and desist orders and issue orders to remedy damage caused by the infringement.

The complainants are required to file their complaint in a prescribed manner and provide all the relevant information concerning Abuse of Buyer Power Issues.On receipt of a complaint, the Buyer Power department will:. 

  • Acknowledge receipt of the complaint and advise the complainant on any information gaps.
  • Upon receipt of all the information from the complainant, the Authority shall analyse&/ investigate the complaint and contact the accused party for information if necessary. 
  • The Authority may then apply administrative remedies as provided for Under Section 36 of the Act, or pursue a criminal route as provided for under section 24 of the Act.
  • Complaints that do not fall under the Authority’s jurisdiction are referred to the relevant Government Agencies.
  • Note that the Authority may at any time, during or after an investigation into an alleged infringement of the prohibitions contained in the Act, enter into an agreement of settlement with the undertaking or undertakings concerned.

For timely investigations and determination of a complaint, complainants are expected to:

  • Lodged complaint with the Authority on matters that are not before any court or the Competition Tribunal.
  • Abide by notice from the Authority requesting for further information.
  • Abide by a notice to appear before the Authority for an interview if issued.