Continuing from the previous article, lawyer Jeremiah Chew from Ascendant Legal LLC talks about the first prohibited conduct of the 3-part series: anti-competitive agreements.
This guide is divided into the following 10 sections:
- What is the law on anti-competitive agreements?
- What is the purpose of this law?
- Examples of anti-competitive agreements in Singapore
- How does it affect you?
- If I am a consumer
- If I am a business owner
- What you can do to ensure that you are compliant – a checklist
- What you can do if you become aware of an anti-competitive agreement
- If I am a consumer or a business that is negatively affected by the anti-competitive agreement
- If I discover that my employees have entered into an anti-competitive agreement
- Get in touch with Jeremiah
Prologue
Imagine that you are a consumer, and your suppliers hold secret meetings to discuss how they can force you to buy goods at a higher price.
Imagine that you are part of a business association, and that association sets price guidelines and trading terms and conditions that you are pressured to follow.
Imagine that you own a large business, and that some of your employees are privately meeting with competitors to share sensitive information.
While these may sound like events that only happen in the movies, the reality is that many people and organisations in Singapore have found themselves on the wrong end of such situations.
Want to know how to avoid being victimized by an anti-competitive agreement? Read on…
1. What is the law on anti-competitive agreements?
The Competition Act prohibits agreements between businesses which prevent, restrict or distort competition in Singapore. The Act and various CCS guidelines provide some examples of behaviour which falls within this category: raising prices together (“price-fixing”), rigging bids (“bid-rigging”), market sharing, controlling or limiting production, and exchanging price / non-price information.
Certain types of businesses and agreements are exempted from this prohibition. For instance, organisations that operate services of general economic interest (e.g. supply of utilities, public transport, waste disposal) are exempted. Vertical agreements (i.e. where businesses are at different levels of the production or distribution chain) are exempted as well.
As the purpose of competition law is to ensure that markets operate efficiently, agreements that result in a net economic benefit to Singapore (e.g. by improving production or promoting innovation) will also not be considered anti-competitive.
2. What is the purpose of this law?
In a competitive market, sellers compete with each other on the price and quality of their goods and services. To win consumers over, they must constantly innovate and improve on their offerings. There is an incentive to compete – to do their best – to ensure that customers do not choose a rival’s goods and services instead.
When businesses agree to act in a certain way together, the incentive to compete is gone. Take for example a simple case of price fixing. If there are two (and only two) rival stalls at a market selling apples, they have an incentive to sell apples at a low price (say, 50 cents) to attract consumers.
However, if they agree that they will fix the price of apples at $1, there is no longer any incentive to compete on price – they know that customers have no choice but to buy at $1! Consumers lose out as they end up paying more for their apples. The economy as a whole loses out, as these businesses do not operate fairly and efficiently.
The law against anti-competitive agreements therefore seeks to benefit consumers and the economy by stamping out unfair practices such as price-fixing.
3. Examples of anti-competitive agreements in Singapore
Competition law can and does affect goods and services which we consume every day. Some anti-competitive agreements which have been investigated by the CCS are:
- March 2016: Financial Advisers — 10 financial advisers were found to have entered into an agreement to pressurize a distributor of insurance products to withdraw its rebate on life insurance products.
- March 2013: Motor Vehicle Traders — 12 motor vehicle traders engaged in bid-rigging at public auctions of motor vehicles. The traders agreed to refrain from bidding against each other at the auctions; only one of the traders would bid for the vehicles, to make it easier for that trader to win the bids. Following this, the traders would conduct their own ‘private’ auctions for the vehicles that were won at the auctions.
- September 2011: Foreign Domestic Workers — 16 employment agencies attempted to fix the monthly salaries of foreign domestic workers from Indonesia. Representatives from the agencies had collectively decided to raise the salaries offered to these workers to S$450 at a meeting. This directly benefited the agencies, who earned a ‘placement fee’ related to the domestic workers’ salaries from finding them employers in Singapore.
- November 2008: Coach Bus Services — 16 coach operators and their trade association engaged in price-fixing of coach tickets between Singapore and Malaysia. The coach operators fixed the ticket prices by agreeing on minimum selling prices, to avoid a price war between themselves. They also agreed to mark up their fuel and insurance charges, to justify charging customers more.
4. How does it affect you?
If I am a consumer
Competition law aims to protect consumers. If suppliers enter into anti-competitive agreements, consumers literally pay the price as they will have to pay more for what previously cost less. Depending on the scope of the anti-competitive agreement, customers may be negatively affected in other ways. Suppliers could collude to sell products that are of lower quality. Information sharing amongst competitors could also mean that suppliers have no incentive to innovate and develop more efficient or technologically advanced product offerings.
If I am a business owner
If your competitors or suppliers enter into anti-competitive agreements, you may gradually be shut out from the market if they decide to take collective action against you – e.g. they refuse to deal with you, they plan to steal your customers or they pressure you to take certain actions (see the Financial Advisers case above).
If you are a big player in the market and your employees are secretly meeting with competitors to share sensitive information, you may be penalized for their actions. For instance, the notorious LIBOR rate-fixing scandal came about because traders at different banks were sharing confidential financial information so that they could make greater profits from their trades (which would lead to a higher bonus at the end of the year!). Because of these rogue employees, large banks ended up paying billions of dollars in fines to competition regulators.
The CCS has the power to impose a range of punishments on errant companies. You can refer to my previous article to find out more.
5. What you can do to ensure that you are compliant – a checklist
| Preparation and planning | Identify potential areas of concern. E.g. has the industry been subject to investigations by the CCS before? Do employees regularly meet up with employees from competitors, or at trade association meetings? Is there any area where employees are allowed to operate unsupervised?
Consider the complexity and scope of the compliance audit. Is there a need to engage lawyers? If there are going to be wide-ranging changes, make sure that senior management is on board.
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| Collect and assess information | Review documents to assess the competitive state of play for the business. How does the business collect information on its competitors? To what extent does this affect the pricing of its goods and services? If the business takes parts in tenders / bids, what is the process for submitting / accepting bids from other businesses?
Interview employees to assess their general knowledge of competition law. Consider which employees are in a position to engage in anti-competitive conduct. Ask what they would do in certain scenarios.
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| Implement solutions | Come up with a competition policy or handbook if there is none. If necessary, prepare forms to allow employees to report on their meetings with competitors or to whistleblow if other employees have misbehaved. Indicate that disciplinary action will be taken against employees who do not follow the policy.
Provide employees with a point of contact (e.g. a competition compliance officer in the company) who can advise them on whether they are acting in breach of the law. Develop a protocol in case the business is ever investigated by the CCS.
If senior management is involved, have them make an announcement to all staff regarding competition compliance.
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| Training | Provide training on anti-competitive agreements in general, as well as how it applies to the business specifically (especially for high-risk employees / employees who have poor knowledge of competition law). Give examples of do’s and don’ts. For example – if an employee take part in a meeting which turns out to be anti-competitive, the employee should oppose or publicly distance the business from the meeting, otherwise the business is taken to have tacitly approved of the anti-competitive agreement.
Constant training is important as staff need to be reminded on their obligations.
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| Evaluation | Conduct regular reviews to ensure that the business remains compliant and up to date with the latest developments in competition law.
Consider holding mock raids and unannounced audits to test if employees adhere to protocols under pressure. This helps to identify areas of risk and employees who may require more training. |
6. What you can do if you become aware of an anti-competitive agreement
If I am a consumer or a business that is negatively affected by the anti-competitive agreement
You can lodge a complaint with the CCS if you are aware of an agreement which adversely affects competition in Singapore. You may fill in the online complaint form at this link, email the CCS at [email protected] or call the CCS hotline at 1800-3258282 to provide such information.
You should be prepared to provide the CCS with information relating to the agreement, such as
- The businesses that are party to the agreement;
- The origins of the agreement;
- The market that is affected by the agreement, and details on the nature of the market; and
- Documentary evidence, if any.
The CCS will keep your identity confidential. A CCS officer may speak to you to obtain further details on the complaint.
In appropriate cases, you may receive a monetary reward for providing information that leads to a decision that the Competition Act has been infringed.
If I discover that my employees have entered into an anti-competitive agreement
If your internal investigation confirms that your employees have entered into an anti-competitive agreement with your competitors, you should seriously consider making a leniency application under the CCS’s Leniency Programme as soon as possible. The Leniency Programme allows companies to admit their involvement in anti-competitive conduct, in exchange for a potential reduction in penalties imposed by the CCS.
If, amongst the parties to the anti-competitive agreement, you are the first to apply for leniency, you may be entitled to up to 100% immunity from any financial penalties if you meet the relevant criteria.
Even if you are not the first to apply, you may be entitled to up to a 50% reduction in financial penalties if you meet the relevant criteria.
You may lodge a leniency application at this link or email the CCS at this [email protected]. You can also arrange for an appointment with the CCS by calling their hotline at 1800-3258282.
If you lodge a leniency application, you should be prepared to
- Provide the CCS with all the information, documents and evidence available to you regarding the anti-competitive agreement;
- Give details about the extent to which the anti-competitive agreement has affected competition in Singapore;
- Co-operate with the CCS throughout the investigation; and
- Cease participating, or withdraw from, the anti-competitive agreement unless otherwise directed by the CCS.
Further details may be found on the CCS’s website here.
8. Preview of the next article…
In the next article, we will explore the second form of prohibited conduct – abuse of dominance. Have you an established business and been pursuing a strategy against your smaller competitors? Or are you the smaller competitor and feel that you have no room to effectively operate your business?
Do check in for my next article soon!
Get in touch with Jeremiah
Read about me HERE, you can also get in touch with me by clicking the “Request for Quote” button in my profile.
This article is written by Jeremiah Chew from Ascendant Legal LLC.
This article does not constitute legal advice or a legal opinion on any matter discussed and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and practice in this area. If you require any advice or information, please speak to practicing lawyer in your jurisdiction. No individual who is a member, partner, shareholder or consultant of, in or to any constituent part of Interstellar Group Pte. Ltd. accepts or assumes responsibility, or has any liability, to any person in respect of this article.
