Market behaviour prohibitions – Bid rigging

6 pest control companies implicated for bid rigging

• First CCS case, 2 October 2007

• Colluded to submit tender for termite treatment project

• Submitted cover bids / pricing

Total penalties imposed: SGD 262,759.66

Case - Bid rigging

“Bid rigging activities resulted in increase of 36% of tender value”

Study on bid rigging activities in the construction industry by Gregory Werden of the Antitrust Unit, Department of Justice, USA (2004)

Straits Times 2 August 2007

The BusinessTimes,6 August 2008

Relief and Exemptions for First Prohibition• Need to satisfy 4 conditions :

– Identifiable Benefits – Benefits could not have been provided without the ‘anti

competitive agreement’ – Detrimental effect proportionate to the benefits provided and – Does not eliminate competition

• Hard core infringements such as price fixing and bid rigging unlikely to be exempted

Relief and Exemptions for First Prohibition

Consider the following:

(a) Control/limit of supply of plastic bags by hypermarkets every Saturdays

(b) Agreements between banks to share information on credit rating and the refusal to offer services to loan defaulters/ dishonoured cheques

(c) Agreement between members of a Gun Association to limit/refuse supply of inferior air guns made from China

(d) Decision to fix prices to its retailers to enhance branding

Prohibitions regime (Second Prohibition)

Market Behaviour

Section 4Prohibition

Anti – competitiveagreements

Section 10Prohibition

Abuse of dominantposition

Section 10Prohibition

Abuse of dominantposition

Abuse of dominant position

• S10(1) prohibits conduct which amounts to an abuse of the firm’s dominant position in any market

- It’s ok to be in a dominant position, but illegal if/when that position is abused

- Dominance arising out of efficiency should be encouraged

Will only be concerned on abusive behaviour of such monopolistic powers

• Being dominant is NOT illegal

Verizon Communications In., Petitioner vs Law Offices of Curtis V. Trinko, LLP (2004) 540 U.S. 398:

“The opportunity to charge monopoly prices at least for a short period is what attracts "business acumen" in the first place; it induces risk taking that produces innovation and economic growth. To safeguard the incentive to innovate, the possession of monopoly power will not be found unlawful unless it is accompanied by an element of anti-competitive conduct.”

Abuse of dominant position

DOMINANCE• Dominance = Market power

• Factors indicating dominance:– Large market share– Barriers to entry– Statutory Monopolies

• No prohibition of becoming Dominant

SUBSTANTIAL MARKET POWER• A firm cannot be dominant unless it has “substantial market power” (UK OFT)

• A firm has substantial market power when it can:

– Raise prices consistently & profitably above competitive levels (power over price); and

– Take action to exclude rivals from the market or deter them from entering the market (power to exclude)

Section 10(2) Examples

(a): Directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions on suppliers or customers

Excessive pricing / raising rival’s cost

(b): Limiting or restricting production, market outlets or access, technical or technological development or investment to the prejudice of consumers

Market foreclosure / exclusion

(c): Refusing to supply to a particular enterprise or group or category of enterprises

Refusal to supply, refusal to deal

(d): Applying dissimilar conditions to equivalent transactions with other trading parties

Price discrimination, discounts, rebates, and price (or margin) squeeze

(e): Making the conclusion of contracts subject to acceptance by other parties of supplementary conditions which by their nature or according to commercial usage have no connection with the subject matter of the contracts

Tying

(f): Predatory behaviour towards competitors Predatory pricing

(g): Buying up a scarce supply of intermediate goods or resources required by a competitor

Market foreclosure / exclusion

Exclusionary vs Exploitative Type

AMD Japan

TransmetaIntel Japan

Mitsubishi Toshiba

CASE

Exclude rival CPU suppliers by giving rebates if domestic PC

makers meet conditions that it buys 90% to 100% of its supply of CPUs from Intel Japan, or doesn’t use rivals’ CPUs for its popular PC

products from May 2002

Maintain or strengthen pre-existing market power in supply market for CPU for domestic PC markets

Rivals’ market share:24% (2002) 11% (2003)

Intel Japan’s market share: 76% (2002) 83% (2003)

Manufacturer market for PCs in Japan

Wholly

owned

subsidiary

Intel(USA)

Market Foreclosure

Excessive/Predatory Pricing

• Napp Pharmaceuticals Holdings Ltd v Director General of Fair Trading (IR) (2002) CAT 1000/1/1/01,

• Major supplier of drugs to the government hospital and other parts of UK

• Predatory discounting of drugs (selling below cost) to government hospitals and charged excessive prices to other customers (less or no competitor)

• Prices of drugs raised by more than 100%

Tying/Market Foreclosure/Refusal to Supply

• Microsoft v Commission (2007)

• Microsoft was found to have abused its dominant position based on:

- Tying of its media player with its OS (client pc market)- Refusal to supply interoperability information (work group

server market)

• Microsoft were fined EURO 497,000,000

General Exclusions

• Commercial activity under – Energy Commission Act 2001– Communications and Multimedia Act 1998

• General exclusion– Compliance with LEGISLATIVE requirement– Employee Collective agreements – Services of “general economic interest”

Part III – Malaysian Competition Commission

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Competition law eco system in Malaysia

Competition Commission

Working Committees can be formed under Section 14

Competition Commission Act

Competition Appeal

Tribunal

Court

Enterprise/ ConsumerAgents,

consultants, advisers

Section 17(2)(d) Competition

Commission Act

Enterprises

Decision

Appeal Decision

Private action

Decision

Commission may appoint to carry out its functions

Enterprises

Complaint

• Special Committee with regulators

• Malaysian authorities & sector regulators

• MACC??• International authorities

Inter regulatory working

committeesSection 39 Competition

Commission Act

Appeal

Inter-working

Guidelines and Competition Champion

• Commission has power to publish Guidelines to clarify and supplement the Competition Act– Procedure– Definition of Market– Leniency etc.

• Commission– To advise Government on all matters concerning

competition– To conduct market review on competition issues in any

market and make recommendations to the Government

Complaints and Investigation

• Any victim of anti-competitive behavior can complain to the Commission

• Minister can direct MyCC to conduct investigation

• Commission has very wide powers– Raids (with or without warrant)– Seizure of documents

• OFFENCE (distinct from INFRINGEMENT):– Obstruction– “tipping off” is an offence– Threats and reprisals are offences – includes cancellation

of orders or refusal to trade

• Very broad powers

• Commission officers have powers of police officers

• May RETAIN (not merely make copies) documents and records

• May seal premises and seize all things “other than the necessary clothing”

Complaints and Investigation

Suspected infringement of Chapter 1 or 2

Complaints

Proposed decision by the Commission

Written representation or oral hearing

Leniency regime 3 High Court Order –

directing party to comply

Power to accept undertaking 2

Investigation

Interim Measures 1

Finding of an Infringement 4

Finding of non-infringement

Competition Appeal Tribunal

Decision- FINAL

Market Review

Competition Commission

Competition Appeal Tribunal

Investigation Processes

Closure – inform complainant

PROCESS

Penalties

Maximum 10 % of WORLDWIDE TURNOVER

ENTERPRISE (any

entity)

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PENALTIES

SECTION 4 AND 10 OFFENDERS

ENTERPRISEISE

OTHER TYPES OF PENALTIESFIRST OFFENCERM 5 MILLION

SUBSEQUENT OFFENCERM10 MILLION

FIRST OFFENCE RM 1 M OR 5 YRS IMPRISONMENT

SUBSEQUENT OFFENCE

RM 2 M OR 5 YEARS IMPRISONMENT

PENALTIES FOR OTHER OFFENCES

BODY CORPORATE

NOT A BODY CORPORATE

Other Issues

1. Right of Private Action Stand Alone rather than mere follow on Advocacy needs of judges Friends of the court Experiences of other jurisdiction

2. Leniency provision under Section 41 Competition

Act 2010 Mechanism for application Application of leniency plus Application of leniency where cartel has been

discovered in other jurisdiction Application of leniency under civil action

Other Issues

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Thank You