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Bklet 2 Key Prohibitions under the Competition Act Explained
Contract Law (LAWS10021)
University of Manchester
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KEY PROHIBITIONS
UNDER THE
COMPETITION ACT
EXPLAINED
KEY PROHIBITIONS
UNDER THE
COMPETITION ACT
EXPLAINED
1. ANTI-COMPETITIVE AGREEMENTS
2. ABUSE OF A DOMINANT POSITION
3. MERGERS THAT SUBSTANTIALLY
LESSEN COMPETITION
What are prohibited under the Competition Act?
Why businesses should be familiar with the do’s and don’ts of the Competition Act? a. Breaching the Competition Act can hurt your business
Anti-competitive conduct
a. Anti-competitive agreements i. Case study 1: Ball bearings cartel ii. Case study 2: Price-fixing by employment agencies iii. Case study 3: Bid-rigging by pest control companies busted iv. Case study 4: Information sharing between ferry operators v. Case study 5: Price-fixing by coach operators nixed b. Abuse of a dominant position i. Case study 1: Abuse of dominance by ticketing service provider ii. Case study 2: Beverage company changes its business practices in Singapore’s soft drinks market c. Mergers that substantially lessen competition i. Case study 1: Merger between top online recruitment advertising service providers
- What can I do?
a. File a complaint with CCCS b. Apply for leniency c. Increase awareness of anti-competitive practices d. Implement compliance programme e. Apply to CCCS for Guidance or Decision
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02
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Directly or indirectly fixing prices of goods and services
Competitors can breach the law by agreeing to increase or maintain prices. They may also indirectly fix prices by, for example, agreeing to offer the same discounts or credit terms.
Bid-rigging The most common form of tender manipulation is bid- rigging where competitors do not bid independently for a tender. Instead, bids submitted are a result of collusion or co- operation among competitors.
Market sharing Competitors agree to divide turfs by not competing for one another’s customers who are segmented either by territory, type or size of customers. As a result, customers are not able to choose the best deals as there are fewer suppliers willing to transact with new customers.
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Section 34 of the Competition Act prohibits agreements which prevent, restrict or distort competition within Singapore. This applies regardless whether the agreements are entered into within, or outside, of Singapore.
Examples of such agreements include:
####### ANTI-COMPETITIVE CONDUCT
Limitation of output or control of production or investment
Competitors agree to limit or control their output, production or investment. By controlling the level of supply of goods or services, the competitors are able to influence the prices of the goods or services in the market.
These four types of agreements are amongst the most serious forms of anti-competitive activity that bring about substantial harm to businesses and consumers.
ANTI-COMPETITIVE AGREEMENTS
03
Price-fixing among
competitors (thus
forming a cartel)
is considered
one of the most
harmful types of
anti-competitive
conduct. It distorts
the terms of trade
between the
cartelists and their
customers, with
the latter not being
able to enjoy better
value-for-money
purchases.
Mr. Toh Han Li Chief Executive, CCCS
“Agreement” here takes a wide meaning and includes many forms and settings. Agreements can be made via email, through a phone conversation, text messages, in the form of a ‘wink and a nod’ during meetings, or in a social setting. Exchange of sensitive commercial information between competitors is prohibited. Similarly, if you receive sensitive commercial information from unsolicited sources, and you do not indicate your disapproval of this to the other party clearly and immediately, you may also have infringed the law. You are liable even if you may have played only a limited part in the setting up of the agreement, or may not be fully committed to its implementation, or participated upon pressure from other parties.
Even if the anti-competitive conduct is an act of an employee and is not authorised by you as the owner, your business will still have to bear the penalties under the Competition Act.
TAKING YOUR CHANCES?
05
Should a competitor attempt to discuss anti-competitive tactics or plans with you, you should end the discussion immediately. You should distance yourself from such discussion (e. step out from the meeting) and make clear your objections to such discussions.
Your mere presence may be taken that you agree to be a party to the anti-competitive agreement, even if you remain silent throughout the discussion or do not agree to the contents of the discussion.
WHAT SHOULD YOU DO?
####### I should not
####### be part of
####### this meeting!
####### ASE STUDY
In May 2014, CCS* announced its first infringement decision involving an international cartel. The case involved four Japanese ball and roller bearing manufacturers and their Singapore subsidiaries. The four parties were Koyo, Nachi, NSK and NTN. They were found to have engaged in anti-competitive conduct such as setting an agreed price list, making a minimum price agreement for Singapore, and also agreeing on the relevant exchange rates to be applied.
The case came to light after CCS* received an application for immunity from Koyo under CCS’s leniency programme. CCS’s investigations revealed that at regular meetings in Japan, the parent companies discussed and agreed on overall strategies for the Singapore subsidiary companies to implement. The Singapore subsidiaries also met regularly to discuss how to implement the strategies decided by their Japan parent companies. The parties were found liable for such extraterritorial anti-competitive agreements as these agreements restricted competition in Singapore.
The parties were penalised more than SGD9. million in total. Koyo, being the first to come forward and provide evidence of the infringing conduct to CCS*, was granted full immunity from the financial penalty. One of the parties, Nachi, appealed to the Competition Appeal Board, which upheld CCS*’s infringement decision but reduced Nachi’s penalty.
In January 2011, a group of 16 employment agencies in Singapore came together to address the issue of reduced supply of Indonesian Foreign Domestic Workers (“FDWs”) in Singapore. During the meeting at Keppel Club, the agencies discussed, amongst other issues, increasing the monthly salary of new Indonesian FDWs in Singapore to SGD450. The employment agencies maintained that the sole aim of fixing the salaries of new Indonesian domestic workers was to resolve the problem of shortage of supply to Singapore. Some among them argued that they were not aware of the purpose of the meeting and they did not propose the figure of SGD450. They therefore felt that they played a minor role in the whole incident.
Under the Competition Act, such discussions which have the object of directly or indirectly fixing prices are prohibited. It does not matter if the parties involved played a big or small role in the decision to fix prices. All 16 agencies were imposed penalties ranging from SGD5,000 to SGD42,317, totalling SGD152,563.
#1:
BALL BEARINGS CARTEL
#2:
PRICE-FIXING BY
EMPLOYMENT AGENCIES
*CCS has been renamed CCCS with effect from 1 April 2018
16 coach operators offering bus services from Singapore to Malaysia were found to have used the umbrella of their association, Express Bus Agencies Association (“EBAA”), to implement two price- fixing agreements. The Executive Committee of EBAA had agreed to set a Minimum Selling Price (“MSP”), aimed at preventing price wars and minimising any slashing of ticket prices among competitors. This created a price floor where prices were generally set higher than the MSP. Having established a price floor via the MSP, subsequent prices were increased under the mechanism of a Fuel and Insurance Charge (“FIC”). For infringing Section 34 of the Competition Act by entering into the price-fixing agreements, the 16 coach operators and their association were penalised a total of SGD1 million in 2009. Six of the operators appealed to the Competition Appeal Board (“CAB”), which upheld CCS’s decision on infringement. The CAB also agreed with CCS’s decision to impose the financial penalties, but reduced the amount to SGD1 million.
#5:
PRICE-FIXING BY
COACH OPERATORS
ABUSE OF A DOMINANT POSITION
The Competition Act does not prohibit companies from achieving market power or striving towards it.
It is perfectly legitimate if a company achieves its market power through competitive merits such as being more efficient or innovative, or because it enjoys greater economies of scale due to its size.
However, Section 47 of the Competition Act prohibits any ABUSE of a dominant position. This happens when a business with substantial market power abuses its position to either block rivals from competing with itself, stop rivals from entering the market, or weaken their ability to compete effectively. Where the abusive conduct has or is likely to have a significant adverse impact on competition in the market, CCCS will take action.
To decide whether there is abuse of dominance; CCCS will ascertain two key facts:
#1: The company must be dominant in the market. #2: The company’s business conduct must be abusive. Both features must be present for CCCS to establish a case of abuse of dominance.
####### ASE STUDY
*CCS has been renamed CCCS with effect from 1 April 2018
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WHAT CONSTITUTES ‘ABUSE’?
This refers to business conduct which harms (or is likely to harm) competition in a market.
Examples of conduct that may amount to an abuse by a dominant firm include:
EXCLUSIVE DEALING: Competitors are shut out from the market
A dominant supplier may dictate that a retailer buys only from him and not from his competitors. A requirement may be imposed on the retailer to sell a minimum volume of the product. Such requirements from a dominant supplier may practically prevent the retailer from sourcing even small quantities from a competitor, thereby cutting off any opportunities for the competitor to grow.
WHAT DOES ‘DOMINANCE’ MEAN?
Dominant firms have substantial market power. This generally means that they
do not face sufficiently strong competitive pressure and have the ability to
sustain prices above competitive levels.
Dominance can be assessed in a number of ways. They include:
Extent of existing competition – A company may enjoy substantial market power if there are few competitors or substitutes for its goods or services. Hence, customers do not have many choices or are not able to switch easily to other alternatives. Market share can be used as indicator of competitive constraints faced by a company from existing competitors. A market share above 60% indicates that a company is likely to be dominant.
Extent of potential competition – Barriers to entry are important in assessing potential competition. It may be difficult for new players to enter a market due to high capital cost, limited access to key inputs or distribution outlets, government regulations, economies of scale, network effects, etc. In such instances, existing market players are less concerned about potential competition. They are therefore more likely to be dominant.
Buyer power – If customers have strong bargaining power, they will be able to constrain the market power of a company. Customers have greater bargaining power if they are better-informed about alternatives available, are key customers to the seller, or are able to produce the goods or services themselves.
####### ASE STUDY
SISTIC, the largest and dominant ticketing service provider in Singapore was found to have abused its dominant position in June 2010. They made exclusive agreements with key venues such as the Esplanade and Singapore Indoor Stadium that required SISTIC to be the sole ticketing service provider for any events held at those venues. In addition, SISTIC had exclusive agreements with 17 other event promoters, which required SISTIC to be the sole ticketing service provider for all events organised by these companies. These exclusive agreements had prevented SISTIC’s competitors from having access to the market, as event promoters at these venues had no choice but to sell tickets through SISTIC for all their events. The 17 other event promoters also had no choice to try out different ticketing companies for different events. Ticket buyers were left with no choice but to buy tickets through SISTIC for a large number of events. As a result, SISTIC had few competitors and consumers also had no bargaining power. CCS* found that SISTIC had infringed Section 47 of the Competition Act, and directed it to remove any contractual clause(s) that require SISTIC’s contractual partners to use SISTIC exclusively. On appeal, the Competition Appeal Board upheld the infringement decision, but reduced the penalty imposed on SISTIC to SGD769,000. The ticketing services industry has become more competitive and dynamic since, with new entrants and new services such as print-at-home tickets.
Following a complaint received in March 2012, CCS* commenced investigation in the local soft drinks market. Coca Cola Singapore Beverages (“CCSB”) was alleged to have incorporated restrictive provisions in its supply agreements with on-premise retailers, such as exclusivity conditions and conditional rebates.
CCSB subsequently voluntarily amended its supply agreements to remove potentially anti-competitive provisions and also provided an undertaking to CCS*. Having thoroughly reviewed the facts and circumstances of the case, CCS* ceased its investigation but continues to closely monitor market practices in the local soft drinks market. In general, agreements which serve to prevent, restrict or distort competition are discouraged and may be illegal under the Competition Act. All businesses should proactively review their competition compliance practices to ensure that their business conduct fully comply with the Competition Act.
#1:
ABUSE OF
DOMINANCE BY
TICKETING SERVICE
PROVIDER
#2:
BEVERAGE COMPANY
CHANGES ITS
BUSINESS PRACTICES
IN SINGAPORE’S
SOFT DRINKS MARKET
*CCS has been renamed CCCS with effect from 1 April 2018
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MERGERS THAT SUBSTANTIALLY
LESSEN COMPETITION
WHAT IS A MERGER?
A merger takes place where:
- two or more independent business entities merge;
- one or more business entities acquire direct or indirect control of another entity; or
- one entity acquires all or a substantial part of the assets of another entity such that it can replace or substantially replace that entity in the business or in the relevant part of the business.
The creation of a joint venture where two or more business entities establish, on a lasting basis, an autonomous economic entity also amounts to a merger.
WHAT IS AN ANTI-COMPETITIVE MERGER?
Not all mergers give rise to competition concerns. Section 54 of the Competition Act only prohibits mergers that have resulted, or may be expected to result, in a substantial lessening of competition in Singapore (e. causing a significant increase in prices above the prevailing level, lower quality, and/or less choices of products and services for consumers) without offsetting economic efficiencies.
Indicative merger thresholds
Generally, competition concerns are unlikely to arise in a merger situation unless:
- The merged entity will have a market share of 40% or more; OR
- The merged entity will have a market share of between 20% and 40%, and the post-merger
combined market share of the three largest firms is 70% or more.
Mergers may also be approved on the basis of suitable commitments presented by the merging parties. CCCS is unlikely to be concerned with merger transactions that only involve
small companies, namely where:
- The turnover in Singapore in the preceding financial year of each of the parties is less than SGD5 million; AND
- The combined worldwide turnover of all the parties is less than SGD50 million in the financial year preceding the merger.
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IS THERE ANY OBLIGATION TO SUSPEND THE TRANSACTION PENDING THE OUTCOME OF THE ASSESSMENT (STANDSTILL CLAUSE)?
The CCCS procedure has no holding effect, and merging parties may carry the anticipated merger into effect or proceed with further integration of the merger, as the case may be, at their own risk, prior to a decision by CCCS.
HOW LONG DOES THE APPROVAL TAKE?
The assessment of a merger consists of two phases.
In “Phase 1”, within an indicative timeframe of 30 working days, CCCS will undertake an assessment of the filing based on information submitted in response to a simplified set of questions in Form M1. This allows CCCS to approve mergers that clearly do not raise any competition concerns under the Competition Act.
If CCCS is unable to conclude that the proposed merger does not raise any competition concerns during the “Phase 1” review, CCCS will provide the applicant(s) with a summary of the key concerns, and upon the filing of a complete Form M2 and response to the “Phase 2“ information request, CCCS will proceed to carry out a more detailed assessment (“Phase 2” review). CCCS endeavours to complete the “Phase 2” review within 120 working days.
WHAT HAPPENS IF PROHIBITED MERGERS ARE IMPLEMENTED?
Where CCCS finds that the Section 54 prohibition has been infringed, it may issue such directions as it deems appropriate to result in the prohibited merger from being effected and, where necessary, to remedy, mitigate or eliminate any adverse effects of such infringement, which include:
unwinding the merger or other modifications;
divestments;
requiring the merged entity to enter into agreements designed to prevent or lessen the anti-competitive effects of the merger;
financial penalties up to 10% of the turnover of each relevant merger party in Singapore for each year of infringement, for a maximum period of three years; and
guarantees or other appropriate securities.
####### ASE STUDY
CCS* received the merger notification for decision on 20 February 2014 on the proposed acquisition of JobStreet Singapore by SEEK Asia Investments Pte Ltd. They were two of the top online recruitment advertising service providers in Singapore, with SEEK owning the JobsDB.com and JobStreet owning the JobStreet platform. CCS* has found that the proposed acquisition of JobStreet Singapore by SEEK Asia Investments Pte Ltd will substantially lessen competition in the market for online recruitment advertising services in Singapore. However, CCS* granted approval of the merger, after SEEK Ltd and SEEK Asia Investments Pte Ltd made the following structural and behavioural commitments:
Not to enter into exclusive agreements with its customers. This would give employers and recruiters, as well as job seekers, the choice of using other online recruitment advertising platforms.
Keep prices at current levels, allowing for inflation. This addressed the concern that the merger entity might increase prices post-merger since they no longer needed to compete for customers.
Divest all its assets in jobs.com (including the domain name jobs.com) to address potential competition concerns. Jobs.com is a site that aggregates recruitment advertisements listed on other job portals.
Find a purchaser for the sale of the divested aggregator site within six calendar months, failing which it must appoint one or more independent persons to sell the divested business at no minimum price. The commitments were accepted by CCS* after taking into account industry feedback. CCS* Chief Executive Mr. Toh Han Li said, “CCS*’s decision strikes a balance between addressing the competition concerns identified, while at the same time allowing the merger to proceed. The commitments seek to preserve competition, choice and innovation in the online recruitment advertising services market post- merger.”
MERGER BETWEEN TOP ONLINE RECRUITMENT
ADVERTISING SERVICE PROVIDERS
*CCS has been renamed CCCS with effect from 1 April 2018
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If you or your businesses are currently involved in a price-fixing agreement with your competitors, you can approach CCCS to seek immunity or leniency from financial penalties.
Under the Leniency Programme, the first person or company to come forward and provides evidence of such cartel activities before CCCS commences formal investigations will be given a full waiver of the financial penalty. For more information on CCCS’s leniency programme, please refer to the CCCS’s website or call our hotline at 1800-325-8282.
If you wish to increase awareness of anti-competitive practices among your staff so that they can avoid breaching the law unknowingly, you may contact CCCS directly to find out more about the workshops and seminars that CCCS conducts regularly to raise understanding of the Competition Act among companies.
APPLY FOR LENIENCY
INCREASE AWARENESS OF
ANTI-COMPETITIVE PRACTICES
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To help your company steer clear of trouble spots, do put in place an effective compliance programme.
The compliance programme must be tailored to your company’s particular requirements. Here are some features of an effective compliance programme:
IMPLEMENT COMPLIANCE PROGRAMME
Appropriate policies and procedures should be carefully designed and implemented. These may be documented in a compliance manual.
Senior management’s support for the compliance programme and their adherence to the programme should be visible, active and regularly reinforced to signal the company’s commitment to the programme.
Training should be conducted regularly for employees at all levels on competition law and the company’s policies and regulations regarding anti-competitive practices.
Regular evaluation and review should be conducted to ensure that the compliance programme is working properly as well as identify and address areas of possible risk.
Bklet 2 Key Prohibitions under the Competition Act Explained
Module: Contract Law (LAWS10021)
University: University of Manchester
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