Companies in breach of the Competition Act risk suffering serious consequences. How much do you know about competition law in Singapore? Have you been a victim of anti-competitive behavior? Is your business adequately guarded against potential breaches of the law?
A victim of anti-competitive activity
Huat owns and runs Novelfoto Pte Ltd, a company in Singapore selling photographic equipment and accessories. Delighted by the growth in Novelfoto’s revenues, no doubt due in par t to the recent revival of interest in photography as a hobby (everyone now seems to own a DSLR), Huat has big dreams of expanding the business - to increase product offerings and eventually to provide consultancy or training services.
Lately however, he has been troubled by the behavior of some of his competitors. About a year ago, he was approached at his offi ce by one of his competitors, Ah Seng, to go for a “secret chit-chat session” with other competitors. Huat was surprised by the sudden appearance of Ah Seng and puzzled by his dodgy invitation, but politely declined despite Ah Seng’s persistent promptings and mumblings about “increasing profi ts”. Shor tly after that, Huat noticed that some of his competitors (including Ah Seng) had drastically lowered the prices of their goods, all at the same time. Customers soon stopped patronising Novelfoto in favour of his competitors as he was unable to sustain the business by matching his competitors’ impossibly low prices. Huat suspected it was no coincidence that his competitors had all dropped their prices at the same time. Could it be that they had all colluded to fi x prices with the objective of pushing him and other honest players out of business? Despite his resolve not to go down without a fi ght, it was not long before Huat was forced to close shop, as he was no longer able to bear fur ther consecutive months of massive losses.
A few months after Novelfoto had closed down, Huat discovered to his shock that prices of his ex-competitors’ photographic goods had, within a shor t period of time, been hiked up exponentially to what he knew in his experience to be cutthroat levels. Fur thermore, for those prices, the shops were not even selling up-to-date models of equipment. Huat could not help but feel that photography enthusiasts in those shops were being cheated of their money and, worse, that he had been robbed of his dreams. He thought sadly to himself: is this fair?
Competition law in Singapore
The Competition Act of Singapore (“Act”) was passed by Parliament in 2004 with the objective of promoting the effi cient functioning of markets and prohibiting anti-competitive activities that unduly prevent, restrict or distor t competition - the very situation illustrated in Huat’s case. The mission of the Competition Commission of Singapore (“CCS”), which administers and enforces the Act, is “championing competition for growth and choice”. This mission statement succinctly describes the rationale for the need of the Act.
Competition is fundamental to the growth of the economy as it spurs businesses to be more efficient, innovative and responsive to consumer needs in order to win customers. As businesses increase in productivity and allocate resources more effi ciently, the economy benefi ts as a whole, including consumers (and businesses) who enjoy greater choices, lower prices and better quality or variety of goods and services.
However, as firms compete with each other, it is necessary to ensure that a level playing fi eld is created for businesses big and small. Left to their own devices, there will be a number of fi rms (as in Huat’s case) which will attempt to gain market share and maximise profi ts not by improving their products or services or by increasing their productive effi ciency, but by driving out rivals or potential entrants and then exploiting customers. The Act’s aim is to protect consumers and businesses from such anti-competitive practices.
What is prohibited anti-competitive behaviour?
The Act prohibits and penalises the following three types of business conduct:-
(1) Anti-competitive agreements: These are agreements among competing fi rms to fi x prices, limit the quantity of goods or services available on the market or divide the market amongst themselves. In par ticular, it is an infringement to form a car tel to restrict competition by fi xing prices, rigging bids or controlling the production of products.
(2) Abuse of a dominant position: This refers to conduct by dominant fi rms that abuse their market power in ways unrelated to competitive merit and which work against long term economic effi ciency, for example, predatory behavior towards competitors or forced exclusive arrangements with customers to exclude potential competitors.
(3) Mergers that substantially lessen competition in Singapore: These are mergers which distor t competition in Singapore because of a par ticular concentration of market power and have no offsetting effi ciencies.
Apart from matters excluded specifi cally in the Act, the Act applies to commercial activities carried on by private sector under takings in all industries.
What happens if the Act is breached?
In Huat’s case above, what he could have done was to notify CCS of the suspected anticompetitive behavior of his competitors. CCS encourages members of the public and companies to lodge complaints to CCS furnishing appropriate information should anti-competitive practices be detected. The identity of all complainants is kept fully confi dential and information furnished to CCS will not be disclosed unless permission has been given by the complainant.
As par t of its formal investigation, CCS is empowered to carry out offi ce raids. That is, CCS offi cers may enter offi ce or business premises, even in some cases without a warrant and without prior notice, to take any equipment (including computers) or copies of documents which they deem necessary for the investigation.
Businesses that are found to have violated the Act may be fi ned up to 10% of their turnover for up to three years of breach. Although there is a leniency programme, under which companies involved in anti-competitive practices may approach CCS to seek an exemption from fi nancial penalties (under cer tain specifi c conditions), such companies still suffer other serious consequences, including losing their public reputation, having to halt or modify business activities and operations, and being exposed to claims by third par ties who have suffered losses arising from their infringements.
As at the end of last year, around 100 cases in total (including notifi cations for guidance, competition advisories, applications for leniency, etc.) have been star ted by CCS and at least three-quar ters of those cases have been completed. To date, CCS has issued infringement decisions in respect of four cases - the fi rst, in early 2008 where a car tel of six pest control fi rms were fi ned a total of S$262,759.66 for bid-rigging; the second, in November of last year, where 16 coach operators and their association were fi ned S$1,690,000.00 for colluding to fi x prices; the third, in June of this year where 14 electrical and building works companies were fi ned a total of S$187,592.94 for bid-rigging; and the four th, also in June this year, where SISTIC was fined S$989,000.00 for abuses of its dominant position.
How do I prevent infringements?
CCS has made it clear that any form of communication with competitors on anticompetitive agreements or matters relating to profitability such as prices, pricing strategy, allocation of markets or production quotas should be avoided. In any discussion of anti-competitive practices, even silence of one par ty may be deemed by CCS to be approval or consent by that par ty of the discussion and the planned anticompetitive activities. Par ties in such cases should instead express their fi rm objection and leave the discussion immediately.
Internally, compliance programs should be put in place to monitor sales and procurement processes, as well as to ensure that employees understand the risks and consequences of anti-competitive practices and know what to do when placed in any anti-competitive situation. Such programs should also be subject to regular evaluation in order to identify areas for improvement in effectiveness.
The Competition Act is not intended to shelter businesses in Singapore from healthy global competition but rather to protect consumers and businesses from manipulative competition which limits consumer choice and stunts innovation and productivity growth. Businesses in Singapore which are aware of competition laws and put in place appropriate policies and measures are far better equipped to safeguard themselves from infringing the law and from falling prey to the anticompetitive practices of others.