Continuing from the previous article, lawyer Jeremiah Chew from Ascendant Legal LLC talks about the second prohibited conduct of the 3-part series: abuse of dominance.
This guide is divided into the following sections:
- What is the law on abuse of dominance?
- What does it mean to be “dominant”?
- Examples of abuse of dominance
- How does it affect you?
- If I am a consumer
- If I am a business engaging in B2B transactions
- If I am a business trying to enter a new market
- What you can do to ensure that you are compliant – a checklist for businesses
- What you can do if
- You have reason to believe that a dominant player in the market is abusing its dominance
- Your business has a dominant position in the market, and you are concerned about your business strategy
- Get in touch with Jeremiah
Prologue
We’ve all had gripes about the rising cost of living in Singapore. Your neighbourhood kopitiam raises the price of a coffee by 20 cents. Petrol prices seem to stay the same no matter how the price of oil drops. And then the government announces that it is raising the price of water by 30%!
Price increases are often legitimate and an unavoidable part of the business world. However, when a company abuses its power in the market to eliminate competitors so that it can freely raise prices, this may constitute an abuse of dominance which infringes the Competition Act.
Want to find out what actions a business can legitimately take to beat the competition, and what falls on the wrong side of the law? Read on…
#1. What is the law on abuse of dominance?
The Competition Act prohibits businesses from engaging in conduct which amounts to abuse of a dominant position in any market in Singapore. The Act and various CCS guidelines provide some examples of abuse of dominance: predatory behaviour towards competitors, limiting production or technical development to the prejudice of consumers, applying dissimilar conditions to equivalent transactions with other trading parties (“price discrimination”), and attempts to foreclose the market such as forcing retailers to enter into exclusive purchasing agreements.
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.
It is important to understand that the Act does not prohibit businesses from being dominant. It only prohibits the abuse of that dominance. There is nothing wrong if a business dominates a market through legitimate means such as offering better goods and services than its competitors, or coming up with innovative product offerings.
#2. What does it mean to be “dominant”?
A dominant business is one that has substantial market power. Such a business will not face strong competition from other businesses. As such, if it raises prices or lower the quality of its products, customers may have no choice but to continue buying products from that business. A dominant business may also be able to harm competition by placing illegitimate pressure on existing competitors, or making it harder to enter the market.
To assess whether a business is dominant, it is necessary to determine the relevant market. If there are ten airlines flying to Malaysia from Singapore, and each has around a 10% market share, it may be that none of them are dominant in the market for flights from Singapore to Malaysia. But if one of these airlines is the only airline flying to East Malaysia, then it may well be dominant in the market for flights from Singapore to East Malaysia. The point is that a business which sells a range of products may be dominant in the market for some of those products, but not all of those products.
A business’ market share is a good starting point for assessing whether it is dominant. As a starting point, if a business has a market share above 60%, it is likely to be considered dominant in that market. However, it is very possible for a business to be dominant at a lower market share.
There are many other factors which will be considered in assessing whether a business is dominant. For instance, if there are many established competitors with deep pockets in that market, they may be able to compete effectively with a business with high market share, and that business may not be dominant. If there is a high amount of buyer power and buyers are able to negotiate terms with suppliers on an equal footing, a supplier with a large market share may not be dominant.
#3. Examples of abuse of dominance
Competition law can and does affect goods and services which we consume every day. Some instances of abuse of dominance which have been investigated by the CCS are:
- June 2010: SISTIC → SISTIC, which enjoyed around 90% of the market for ticketing services in Singapore, was investigated for entering into a series of exclusive agreements. Among others, agreements were signed with the Esplanade and the Singapore Sports Council, which required all events held at the Esplanade and the Singapore Indoor Stadium to use SISTIC as the exclusive ticketing service provider.The CCS found that this amounted to an abuse of dominance, which allowed SISTIC to raise its booking fee for ticket buyers in 2008. SISTIC was fined S$769,000 upon appeal.
- January 2013: Coca-Cola→ The CCS investigated Coca Cola Singapore Beverages after receiving a complaint that it had included anti-competitive provisions in its agreements with retailers, such as exclusivity conditions and loyalty-inducing rebates. The investigation ceased after Coca Cola Singapore Beverages voluntarily agreed to amend its agreements to remove potentially anti-competitive provisions.
Famous decisions in other countries involving abuse of dominance include:
- Internet Explorer – Microsoft was investigated by the European Commission for bundling (pre-installing) its internet browser, Internet Explorer, with its Windows operating system, which in the EC’s view gave Internet Explorer an unfair advantage over other browsers. Microsoft initially agreed to offer consumers a choice of browser on Windows, but apparently dropped this feature in a subsequent Windows update. In 2013, the European Commission fined Microsoft €561m for failing to comply with the agreement.
- Samsung / Apple – Samsung owned several “standard essential patents” – which are essential to implement an industry specific standard – for smartphones and tablets. While Samsung had initially committed to licensing these patents to third parties on standard terms, it refused to license these patents to Apple, a key competitor in the mobile electronics market. The European Commission investigated Samsung, which eventually committed not to seek any injunctions for 5 years in the European Economic Area on the basis of its standard essential patents.
#4. How does it affect you?
If I am a consumer
Competition law aims to protect consumers. If businesses abuse their dominance by raising their prices or lowering the quality of their products, consumers suffer, especially if they do not have any alternative source to purchase those products from.
Predatory pricing is an example of abusing dominance which, at first sight, may not seem to hurt consumers. It refers to a dominant business pricing its products at a very low price so that other businesses will not be able to effectively compete, and will be forced out of the market. Consumers may enjoy lower prices at first. However, as the dominant business has managed to eliminate its competition, it will be able to raise its prices in the long run, and customers may have no choice but to accept these higher prices.
If I am a business engaging in B2B transactions
Potential forms of abuse which hurt businesses engaging in B2B transactions include tying and full-line forcing. Tying refers to a situation where a purchaser buying one product is forced to buy a second product from the dominant supplier. Full-line forcing refers to a situation where a purchaser is required to stock all the products of a supplier, even though it may only be interested in a few of those products. The purchaser suffers because it has limited freedom of choice to purchase goods from other suppliers, even though these other suppliers may be supplying goods at a lower price or of a higher quality.
Price discrimination occurs when a supplier charges different prices to different purchasers for the same product. The purchasers which are charged lower prices will find it easier to compete in the consumer market for that product, while the purchasers which are charged higher prices find it harder to compete and may eventually be forced out of the market. While price discrimination is a common practice in many industries, it may breach the Competition Act where it is used to harm competition in Singapore.
If I am a business trying to enter a new market
Exclusive purchasing agreements are common to many industries. However, when a dominant supplier forces its purchasers to enter into an exclusive purchasing agreement, this may amount to an abuse as those purchasers would not have the freedom to select other suppliers. This makes it difficult for new suppliers to enter the market, as they would have a diminished customer base to work with.
Separately, suppliers will often control facilities and materials which are essential for a business to compete in the market. Where a dominant supplier refuses to supply these facilities and materials to a business without any objective justification, and this results in substantial harm to competition, it may constitute an abuse of dominance.
#5. What you can do to ensure that you are compliant – a checklist for businesses
| Know your industry | Assess the state of competition in the industry. Is it an industry where a few big firms dominate the market? Do consumers have enough buyer power to negotiate pricing and other terms of purchase? Are there many barriers to entry, such that it would be hard for new firms to enter the market? These factors are directly relevant to whether a business can easily establish dominance in the market. |
| Know yourself – assess whether you are dominant | What is the market that you operate in, and what is your share of that market? If you have a market share of more than 60%, you are likely to be considered dominant in the market. But remember that you can be considered dominant despite having a lower market share! Think about the last time you tried to raise prices, or make changes to your products. If consumers were unhappy with the prices or the changes, did they switch to another supplier or were they forced to stick with you? |
| Review your existing policies and contracts | If your assessment is that you are dominant, review your existing policies to ensure that they are not anti-competitive, especially those which are designed to have an impact on your competitors, or to prevent new competitors from entering the market. Review your existing contracts, keeping an eye out for clauses such as exclusive purchasing, tying or full-line forcing clauses. If any of your contracts have these red flags, it may be necessary to amend or delete the problematic clauses. Seek help from your in-house counsel or external lawyers if necessary. |
| Training | Provide training on abuse of dominance in general, as well as how it applies to the business specifically (especially for employees who are responsible for negotiating contracts / management-level personnel who are in charge of implementing policies and setting the direction for the business). |
| 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 have reason to believe that a dominant player in the market is abusing its dominance
You can lodge a complaint with the CCS if you are aware of an abuse of dominance in any market 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 abuse of dominance, such as:
- Information about the business(es) involved in the abuse;
- The market that is affected by the abuse, 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.
Your business has a dominant position in the market, and you are concerned about your business strategy
If you are concerned about whether your business strategy amounts to abuse of dominance, you have the option of applying for guidance or a decision from the CCS. “Guidance” means that the CCS will inform you whether your strategy is likely to be anti-competitive, whereas a “decision” means that the CCS will provide you with its view as to whether the strategy infringes the Competition Act (i.e. a decision is more conclusive than guidance).
You may apply for guidance or a decision from the CCS by filling the form at this link. You will need to provide information about your business (including financial information), details of your business strategy and information on the relevant markets, among others. You will also need to pay an initial fee when submitting the application (S$3,000 when seeking guidance, S$5,000 when requesting for a decision). There may be additional fees incurred if the CCS requires further information from you in order to determine the application.
Compiling the necessary documents and information for the application process will require a significant amount of time and effort on your part (and the CCS will also have to spend time and effort to review the application). In order to ensure that your (and the CCS’s) resources are used efficiently, it is strongly recommended that you take the time to conduct a self-assessment of whether your business strategy raises any competition issues, before contacting the CCS to apply for guidance or a decision. If you are unsure or feel that you are not in a position to conduct a self-assessment, you may wish to contact a competition lawyer to assist you with the process.
Further details may be found on the CCS’s website here.
#7. 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.
Disclaimer
The information contained in this article is accurate as at the time of publication. All views expressed are solely the opinions of Jeremiah Chew and do not necessarily reflect the opinions of his firm. This article is not to be relied on as legal advice and you are advised to seek legal advice from a solicitor for any questions you may have in relation to the above-mentioned topic. All rights are fully reserved, and you may not reproduce or amend this article in whole or in part without obtaining the prior express written consent of Asia Law Network and Jeremiah Chew.
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.
