Key Controls of Economic Concentration Transactions in Accordance with the Competition Law
Out of its belief in the effective role of
a free economic model in achieving economic and social growth, KSA is
keen on developing an economic policy aiming to ensure real competition
within the economy, in order to push companies to improve themselves to
be able to perform their essential role in achieving development.
Accordingly, since adoption of free competition without controls leads
to adverse results, especially that practices prove that traders
frequently resort to illegal means to compete with their market
competitors or to carry out methods aiming to introduce or prevent
competition. Therefore, the Kingdom had to intervene to regulate
competition by determining its controls.
The Competition Law was promulgated by Royal Decree No. (M/25), dated
04/05/1425H and its Implementing Regulations were issued by Competition
Council Resolution No. (126), dated 04/09/1435H in order to control the
market and ensure fair competition.
Due to the risks raised by economic concentration transactions on
competition, the Competition Law sought to establish a mechanism to
monitor these transactions.
Accordingly, in the following sections we introduce the concept of
economic concentration and its transactions as well as its conditions
and impacts. We also explain the mechanisms of reviewing economic
concentration transactions and discuss the penalties and measures
prescribed to deter violations of economic concentration transactions,
as set forth in the Law.
Concept of Economic Concentration
Article (2) of the Implementing
Regulations of the Competition Law defines economic concentration as:
“any act resulting in full or partial transfer of ownership rights or
usufruct of an entity’s properties, rights, stocks, shares or
obligations to another entity that puts an entity or a group of entities
in a position of domination of an entity or a group of entities, by way
of merger, takeover, acquisition, or combining two or more managements
into one joint management or any other means which leads to having a
market share of 40% of the total sales of a commodity in the market.”
We conclude from this definition that concentration is an transaction
that aims to expand the limits of ownership of a firm (or group of
firms), so that its market share of the total supply of a commodity
within the market reach 40% or more, through legal mechanisms; notably
merger or purchase of other firms, or parts of other firms.
Thus, according to this definition, the concentration transaction may
bring about a firm of a dominant position, which will be subject to the
various prohibitions set out in the Competition Law and its Implementing
Conditions and Impacts of Economic Concentration
The Competition Law gave GAC the power to review economic concentration
transactions if they exceed a specified limit of the market share of the
firm engaged in the transaction. Some concentration transactions are
neither important nor economically significant to fear their impact on
the controls of competition within the market. Meanwhile, other
transactions are so significant in size that they might develop into
monopolies that negatively affect competition in the market.
According to the Competition Law and its Implementing Regulations,
economic concentration transactions must be controlled by a principal
condition, namely that the all firms, parties to the contract, which
constitute the subject-matter of the contract or are economically
related to it must have contributed 40% or more of the total supplies of
a commodity in the market.
Within markets of strong economic concentration, dominant companies may
misuse their market power by excluding competitors or exploiting
consumers through preventing offers, conditional sale or dumping to
remove competitors, or through resorting to exaggerated or excessive
Economic concentration transactions that are not appropriately reviewed
lead to creating a monopolistic environment and eliminating small and
medium-sized enterprises, which cannot face such major entities
dominating the market. Such small companies have a significant
contribution to the national economy, and in such case, the State will
miss out an opportunity to increase public income and reduce
It is difficult to control prices among a growing number of understudied
economic concentration transactions. Studies conducted by the United
Nations Conference on Trade and Development (UNCTAD) demonstrated that
the rise of prices of commodities and services in most parts of the
world is caused by concentration of capital in the hands of a few
powerful business groups, which dominate the market and raise prices,
creating a non-competitive market and leading to monopolistic practices.
Economic concentration transactions may cause significant harmful
impacts on the market in case they are not based on systematic grounds
and assessment studies of the position of such transactions and their
harmful impacts on the market.
Advantages of Concentration:
Needless to say, economic concentration transactions can bring about
some benefits, especially if they are made between a group of small and
medium-sized enterprises in order to increase their competitiveness and
contribution to the development process, particularly with regard to the
• Reducing costs (production, management, marketing, and distribution) by taking advantage of economies of scale;
• Increasing their negotiating ability with suppliers and distributors;
• Increasing their ability to invest in fields of research and development, and raising the efficiency of national labor;
• Enhancing the interests of consumers with regard to quality and price;
• Increasing exports and decreasing imports of the relevant commodity/service.
In case of any violation of the terms and conditions of economic
concentration transactions, the violator will be punished according to
the provisions of Article (12) of the Competition Law, which provides
that “]w[ithout prejudice to any harsher punishment provided by any
other law, and without prejudice to the provisions of Article (13)
hereof, each violation of the provisions of this Law shall be punishable
by a fine not exceeding 10% of the total turnover or not exceeding ten
million Saudi Riyals.
In case of recurrence, the fine shall be multiplied. If the violation is
being continued after the issuance of the resolution or the judgment,
the Committee may suspend the activity of the firm tentatively for a
period not exceeding one month or revoke the license permanently.
The judgment shall be published at the expense of the violator and in
all cases the violator, subject to Article (18) of this Law, shall
reimburse all profits achieved as a result of the violation."