It is often argued that regulation is justified in cases where some form of market failure would otherwise cause an inefficient allocation of resources

a. Causes of market failure include;

i. Excess market control

This is whereby a firm gains enough capacity to control the price in the market and output. Such a monopolistic tendency when not checked may harm consumers in charging high prices and making low production. Anti-trust laws are hence enacted to keep a check on such monopolies.

ii. Externalities.

This is a situation where the actions of one party negatively or positively affect other parties. An example is a negative externality whereby the marginal social costs are higher than marginal private costs which firms may not take into account and produce a socially undesirable good. An example is the production of excess pollution by a factory if not regulated may be hazardous to other ecosystems.

iii. Public goods

These are goods that a person cannot exclude others from using. They have an incentive to free-ride since it can be provided if others pay for it, and one enjoys utility without paying. To curb the free-riders problem, regulation is imposed in the form of taxes. For instance, national defense is a public good, and regulation is imposed in the form of taxes.

b. To curb the problem of excess market control South Africa's competition policy provides consumers with competitive prices and a variety of product choices. This is made possible by prohibitions on anti-competitive conduct and restrictive practices by dominant firms. Restrictive practices include price-fixing, collusive tendering, and predatory pricing.

The policy aims at promoting economic efficiency and development, and general socio-economic welfare and making sure small businesses have an equal opportunity in economic participation.