Economic concentration constitutes one of the pivotal concepts in competition protection policy in the Kingdom of Saudi Arabia. The issue of economic concentration is addressed in detail in the Competition Law issued by Royal Decree No. (M/75) dated 29/6/1440H, its Implementing Regulation issued by Resolution of the Board of Directors of the General Authority for Competition No. 337 dated 25/1/1441H, as well as the controls issued by the Authority, being the competent body for implementing such laws and regulations and for overseeing economic concentrations in the market.
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Definition of Economic Concentration and Its Effects:
Economic concentration is defined as: “Any act that results in the total or partial transfer of ownership of assets, rights, shares, quotas, or obligations of an establishment to another establishment, or the combining of two or more managements under a joint management, in accordance with the controls and standards set out in the Implementing Regulation.” (1)
Economic concentration leads to an expansion in the scope of control exercised by one establishment or several establishments over the market, at the expense of one or several other entities, based on specified controls and standards.
Economic concentration is defined in French commercial law by reference to the means through which such concentration is achieved, namely through the merger of two or more undertakings, or through the acquisition by one or more persons, directly or indirectly, of one or more undertakings for the purpose of controlling or exercising dominion over them, as well as in the case of establishing a joint venture that performs the functions of an independent economic unit. (2)
Accordingly, economic concentration may lead to a dominant position for one establishment or more, and an economic concentration may also not lead to a dominant position. This leads us to the definition of a dominant position, which is defined as: “A position through which an establishment, or a group of establishments, controls a specified percentage of the relevant market in which it carries out its activity, or is capable of influencing it, or both together.” (3)
It is apparent from the foregoing definitions that the cases of economic concentration that must be monitored and verified are those that lead to a dominant position, based on several indicators, most notably the extent of the establishment’s market share, the creation of barriers preventing competitors from entering the market (such as patents, licenses, and scarcity of raw materials), and a decrease in the elasticity of supply and demand such that suitable alternatives for the product or service provided by the establishment are reduced or become non-existent. (5)
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The Authority Concerned with Verifying Cases of Economic Concentration:
The General Authority for Competition in the Kingdom is competent to verify cases of economic concentration in order to preserve and encourage effective fair competition in the Kingdom’s markets. This is done by assessing a number of factors when examining and studying an economic concentration, being one or more of the following factors:
1- The structure of the relevant markets, and the level of actual or potential competition among establishments inside the Kingdom or outside it, where such competition affects the relevant markets.
2- The financial positions of the parties to the economic concentration.
3- Available alternatives of goods for consumers, suppliers, and customers, and the extent of the ease with which they may obtain them.
4- The degree of differentiation of the goods.
5- The interests and welfare of consumers.
6- The potential impact of economic concentration on the level of prices, quality, diversity, innovation, or development in the relevant market.
7- The benefits or harms realized or potentially realized to competition arising from the economic concentration process.
8- The growth of supply and demand, and their trends in the relevant market and goods.
9- Barriers to entry and exit for establishments in the relevant market, or to continuity or expansion, including regulatory barriers.
10- The extent of the likelihood that the economic concentration will create or enhance significant market power, or a dominant position for an establishment, or a group of establishments, in any of the relevant markets.
11- The historical level and trends of anti-competitive practices in the relevant market, whether by the parties to the economic concentration or by establishments influential in that market.
12- The views of the public and parties related to the economic concentration, and sector regulators. (6)
Powers of the General Authority for Competition in Relation to Verifying Economic Concentration:
The General Authority for Competition possesses broad powers to verify cases of economic concentration in the market, whether or not the relevant establishments submit a notification of the existence of an economic concentration. These powers are as follows:
1- Powers of the Authority Regarding the Collection of Data, Information, and Documents:
The Authority may request the necessary data, information, and documents from the parties to the economic concentration and the related parties. The Authority may also accept data, information, and documents submitted by any party, and study and analyze them. (7)
2- Powers of the Authority Regarding Visits to the Parties to the Economic Concentration:
The Authority may assign specialized employees to carry out investigations and the visits necessary for the purpose of studying the economic concentration, including the following:
1- Visiting the parties to the economic concentration at their places of business during usual working hours, reviewing their documents, files, data, and records, obtaining copies thereof, interviewing the personnel of such establishments, and recording statements.
2- Visiting the parties related to the economic concentration and the establishments operating in the relevant market, and recording statements, for the purpose of collecting information, studying the technical aspects of the market, and assessing their activity and the level of competition therein. (8)
3- Powers of the Authority Concerning Public Views:
The Authority may invite the public to submit their views regarding a case of economic concentration by publishing its basic information through any appropriate media channel. Upon publication, the Authority shall specify the period for receiving views for each case separately, and the Authority may assess their relevance and rely upon them when studying the economic concentration. (9)
4- Issuance of the Decision Regarding the Economic Concentration:
The Board of Directors of the Authority shall issue its decision regarding the economic concentration by approving the concentration process, granting conditional approval, or rejecting it. This shall be done within a period not exceeding ninety days from the date of notification that the submitted filing is complete. The decision issued regarding the economic concentration, if it is a conditional approval or a rejection, must be reasoned. If the statutory period referred to above elapses without the Authority notifying the filer of the Board’s decision or announcing it to the public, this shall be deemed an approval. The Board of Directors may also determine the validity period of the decision and its geographic scope where necessary. (10)
What is the legal definition of “economic concentration” under Saudi law and what acts lead to it?
Under Saudi law economic concentration is defined as any act that results in the total or partial transfer of ownership of an establishment’s assets, rights, shares, quotas, or obligations to another establishment. It also includes the combining of two or more managements under a single joint management, provided these actions meet the controls and standards established in the Implementing Regulation. This legal framework is primarily governed by the Competition Law issued by Royal Decree No. (M/75) and its associated regulations.
The specific acts that lead to economic concentration according to the sources include:
- The total transfer of ownership regarding assets, rights, shares, quotas, or obligations from one entity to another.
- The partial transfer of ownership of these same elements.
- The merging or joining of managements from two or more separate establishments into one joint management structure.
The fundamental effect of these acts is an expansion of market control by one or more establishments at the expense of others. While such acts may result in an establishment gaining a dominant position—defined as the ability to control or influence a specified percentage of a relevant market—the sources note that an economic concentration does not automatically result in market dominance in every case.
What are the twelve key factors the General Authority for Competition assesses when studying an economic concentration?
When the General Authority for Competition (GAC) examines and studies an economic concentration, it assesses one or more of the following twelve key factors to preserve and encourage fair competition in Saudi markets:
- Market Structure and Competition: The GAC analyzes the structure of the relevant markets and the level of actual or potential competition between establishments both inside and outside the Kingdom, provided that competition affects the Saudi market.
- Financial Positions: The financial health and standing of the parties involved in the concentration are evaluated.
- Available Alternatives: The Authority looks at the availability of alternative goods for consumers, suppliers, and customers, and how easily they can be obtained.
- Product Differentiation: The degree to which goods in the market are differentiated from one another is considered.
- Consumer Welfare: The overarching interests and welfare of the consumer are central to the evaluation.
- Impact on Market Dynamics: The potential effect of the concentration on prices, quality, diversity, innovation, or development within the relevant market is assessed.
- Impact on Competition: The GAC weighs the benefits and harms—whether realized or potential—that the concentration process may bring to competition.
- Supply and Demand Trends: The growth trends and future directions of supply and demand for the relevant goods and market are studied.
- Barriers to Market Entry/Exit: The Authority examines barriers that might prevent establishments from entering, exiting, expanding, or continuing in the relevant market, including any regulatory barriers.
- Market Power and Dominance: The assessment includes the likelihood that the concentration will create or enhance significant market power or a dominant position for an establishment or group.
- History of Anti-Competitive Practices: The historical trends and levels of anti-competitive practices in the market are reviewed, focusing on both the parties involved and other influential establishments.
- Stakeholder Views: The GAC takes into account the opinions of the public, parties related to the concentration, and relevant sector regulators.
Overview of Economic Concentration
The text outlines the legal framework for economic concentration within Saudi Arabia, primarily governed by the Competition Law and its specific regulations. It defines concentration as the transfer of ownership or the merging of management structures that potentially increases an entity’s market control. The General Authority for Competition is identified as the regulatory body responsible for evaluating these shifts to prevent the emergence of unfair dominant positions. To protect market integrity, the Authority possesses broad investigative powers, including the right to request sensitive data, perform on-site inspections, and solicit feedback from the public. Ultimately, the Authority must issue a formal decision to approve, conditionally permit, or reject a proposed concentration based on its impact on consumer welfare and competitive diversity.
Sources:
(1) Article One of the Competition Law issued by Royal Decree No. (M/75) dated 29/6/1440H.
(2) Abdulaziz bin Saad Al-Dughaythir, Foundations for Examining Concentration in Light of the Provisions of the Competition Law, no edition, p. 12.
(3) Article One of the Implementing Regulation of the Competition Law issued by Resolution of the Board of Directors of the General Authority for Competition No. 337 dated 25/1/1441H.
(4) Amal Muhammad Shalabi, Limiting the Mechanisms of Monopoly (Preventing Dumping and Monopoly from a Legal Perspective), Dar Al-Jami‘ah Al-Jadidah, 2006, pp. 111 to 114.
(5) Article (22) of the Implementing Regulation of the Competition Law.
(6) Article (19) of the Implementing Regulation of the Competition Law.
(7) Article (20) of the Implementing Regulation of the Competition Law.
(8) Article (21) of the Implementing Regulation of the Competition Law.
(9) Article (23) of the Implementing Regulation of the Competition Law.
