Lee Pei Rong Rachel and Leow Rui Ping, Competition and Consumer Commission of Singapore
This is an extract from the second edition of the E-Commerce Competition Enforcement Guide - published by Global Competition Review. The whole publication is available here.
The rise of e-commerce, disruptive technologies and big data
In February 2017, the Committee on the Future Economy (CFE) outlined Singapore’s key strategies to stay ahead in a challenging global climate. The CFE report noted that the world is in an ‘era of rapid technological change’, in which disruptive innovation can change and challenge incumbents through new technology and business models. The vision for Singapore’s economy is rooted in the deepening and diversifying of Singapore’s international connections, the continued support of free and open markets, and the deepening of digital capabilities.
To capitalise on the opportunities from the digital economy, the Singapore government has been actively promoting the adoption of digital technologies as part of the strategy for Singapore’s next stage of growth and development. For example, in June 2019, the Digital Industry Singapore (DISG) was created to serve as a single interface between the government and the technology companies. The streamlined approach will enable DISG to better understand companies’ needs, with a view to anchor global technology leaders, build local champions, and nurture future-ready talent in Singapore; and to establish Singapore as a leading technology hub with deep capabilities, strong infrastructure and a vibrant ecosystem of local and global enterprises.
As the digital economy becomes an integral aspect of Singapore’s growth strategy and is expected to become a more prominent aspect of the economy, it is important for the Competition and Consumer Commission of Singapore (CCCS) to understand the developments in digital markets and their implications, and ensure that the existing competition assessment framework remains relevant. In this context, this chapter seeks to explain how the CCCS considers competition issues in the digital economy, including highlighting the recent CCCS enforcement cases; and explains how the CCCS considers that collaboration with other regulators (e.g., in data protection) would be necessary as issues in digital markets are intertwined.
The functions of the CCCS
The CCCS was first established on 1 January 2005 as the Competition Commission of Singapore (CCS), following the enactment of the Competition Act (Cap. 50B) (the Competition Act). The Competition Act is aimed at protecting businesses and consumers from anticompetitive conduct, and so assists to promote the efficient functioning of our markets and enhance the competitiveness of the Singapore economy.
The CCCS administers and enforces the provisions of the Competition Act, which prohibits specified activities that adversely affect competition within a market in Singapore, including:
- agreements or concerted practices that prevent, restrict or distort competition;
- abuse of a dominant position; and
- mergers that substantially lessen competition.
With effect from 1 April 2018, the CCS was renamed the CCCS and has taken on responsibility for the additional function of administering the Consumer Protection (Fair Trading) Act (Cap. 52A) (CPFTA). The CPFTA was enacted in 2003 and contains safeguards to protect consumers from unfair trading practices by retailers. As the administering agency, the CCCS will gather evidence and potentially file injunction applications with the court.
These functions form the backdrop for the discussion in this chapter of the CCCS’s enforcement practice in the digital economy.
The CCCS’s enforcement practice in the digital economy
In Singapore, Section 34 of the Competition Act prohibits any agreements between undertakings, decisions by associations of undertakings or concerted practices that have as their object or effect the prevention, restriction or distortion of competition within Singapore. ‘Agreement’ has a wide meaning and includes both legally enforceable and non-enforceable agreements, whether written or oral. What is required is that parties arrive at a consensus on the actions each party will or will not take. ‘Concerted practices’ refers to any informal cooperation without any formal agreement or decision. It may be found to exist if parties, even if they did not enter into an agreement, knowingly substituted the risks of competition with practical cooperation between them.
In the context of digital markets, businesses might derive additional value from the sharing of data, particularly where consumers are also informed. Data-sharing may result in businesses deriving new insights beyond their own data sets or developing more targeted solutions to business problems. Hence, the sharing of data within the framework of existing rules can be pro-competitive. In general, it is unlikely that the competitive process will be harmed where the data shared is historical; sufficiently aggregated and cannot be attributed to a particular business; not sensitive, strategic or confidential; and shared with consumers or government agencies. The sharing of data with businesses in other markets and industries is also unlikely to be problematic.
In contrast, an appreciable adverse effect on competition is more likely where only a few companies operate in the market; where data sharing is frequent; where the data shared is commercially sensitive; and where the sharing is limited to certain participating companies in the market to the exclusion of their competitors and buyers. Unless the sharing of data in those circumstances can result in net economic benefits, it is likely to raise competition concerns.
Use of algorithms by digital platforms
The use of algorithms may bring about efficiency gains and promote market transparency to the benefit of consumers. For example, with automated pricing algorithms, firms can more easily adjust prices to offer competitive pricing to consumers, taking into consideration their competitors’ pricing in real time.
However, algorithms could potentially make it easier for companies to collude and fix prices. Businesses may use monitoring algorithms to collect and analyse real-time information concerning their competitors’ prices, business decisions and other market data. Algorithms may also prevent unnecessary retaliations through their ability to predict and distinguish between intentional deviations from collusion, and natural reactions to changes in market conditions or even mistakes. The ease and speed with which competitors’ actions can be monitored may facilitate collusive outcomes by reducing incentives for deviations, making collusion more efficient.
The CCCS has not yet issued an infringement decision in relation to algorithm-driven anticompetitive conduct. As such, it has not yet come to a firm position on some of the issues involved, such as the assessment of legal liability for self-learning algorithms. That said, where the use of algorithms by businesses is to support or facilitate any pre-existing or intended anticompetitive agreement or concerted practice, such cases fall squarely within the existing enforcement framework. Where algorithms are used in classic ‘hub-and-spoke’ scenarios that involve competitors colluding through a third-party intermediary, this would equally be caught by the Section 34 prohibition. Such a scenario could arise, for example, where there is an industry-wide use of a single algorithm to determine prices, and competitors use and rely on that same third-party owned ‘hub’ (a pricing algorithm) to coordinate their pricing strategies.
Example of CCCS’s enforcement activity in relation to anticompetitive agreements in the digital market
In 2016, the CCCS issued an infringement decision against 10 financial advisers in Singapore. They were found to have infringed the Competition Act by engaging in an anticompetitive agreement to put pressure on their competitor, iFAST Financial Pte Ltd (iFAST), to withdraw its offer of individual life insurance products with a 50 per cent commission rebate to policy holders on the Fundsupermart.com website. The launch of iFAST’s offer disrupted the financial advisory industry in the distribution of life insurance products in Singapore. The use of iFAST’s established online platform to reach out to its wide client base was not only innovative but also efficient, allowing iFAST to save on distribution costs. These cost savings could then be passed on to consumers through a significant commission rebate. However, a few days later, iFAST withdrew the offer owing to collective pressure from the financial advisers. Investigations by the CCCS commenced after it noted media reports suggesting that iFAST had withdrawn the Fundsupermart offer due to unhappiness in the industry.
One of the financial advisers appealed to the Competition Appeal Board (CAB) on various grounds seeking a substantial reduction in the financial penalty imposed by the CCCS. After hearing evidence from the appellant’s witnesses and arguments from both sides, the CAB affirmed the CCCS’s decision and dismissed the appeal. The CAB stated that the result of the infringing conduct is that ‘the market never returned to the state of competition that would have existed had the Fundsupermart Offer not been withdrawn’. Had iFAST’s offer remained on the market, the parties might have had to make similar or new offers to respond to the competitive threat.
The disruptive entry of a new competitor with an innovative offering would inevitably cause displeasure and outcry among the existing market players. However, each market player should independently determine its own individual competitive response. The anticompetitive conduct by the parties in this case prevented consumers from enjoying benefits such as greater choice, greater convenience and more competitive prices. The conduct also prevented the market from becoming more competitive. This case underscores the importance of decisive enforcement action by the CCCS, to ensure that new and innovative players can access markets and compete fairly.
Abuse of dominance
Section 47 of the Competition Act prohibits any conduct amounting to an abuse of a dominant position, on the part of one or more undertakings, in any market in Singapore. According to the CCCS Guidelines on the Section 47 Prohibition 2016 (the Section 47 Guidelines), conduct that constitutes an abuse of a dominant position in a market includes conduct that protects, enhances or perpetuates the dominant position of an undertaking in ways unrelated to competitive merit. In assessing whether the Section 47 prohibition has been infringed, the CCCS will first consider whether an undertaking is dominant in a relevant market, and if it is, then whether it is abusing the dominant position in a market in Singapore.
An undertaking will be considered to be dominant if it has substantial market power. In assessing whether an undertaking is dominant, the extent to which there are constraints on an undertaking’s ability to profitably sustain prices above competitive levels will be considered. Such constraints include the extent of competition from existing competitors, the possibility of new competitors entering the market (which is affected by barriers to entry), the ability of buyers to counter the exercise of market power by the dominant player, government regulation, etc. In the context of assessing market power in digital markets, the unique features of data-driven markets would need to be taken into consideration (e.g., network effects, multi-homing, availability and access to substitute data, and the dynamism of digital markets).
It is important to bear in mind that the mere accumulation of a large amount of data by a business, in and of itself, does not equate to the business occupying a dominant position. Dominance may be strengthened due to network effects, but may be weakened due to the existence of multi-homing, ease of access to customer data, substitutability of data and the rapid evolution of digital markets.
Even if a firm is assessed to be dominant, competition concerns will only arise when the firm engages in exclusionary conduct that has, or is likely to have, an adverse effect on the process of competition. The Section 47 Guidelines state that exclusionary behaviour may include, among others, refusal to supply, or vertical restraints (e.g., tying) that foreclose (or are likely to foreclose) markets or weaken competition. Such conduct may be abusive to the extent that it harms competition; for example, by removing an efficient competitor, limiting competition from existing competitors, or excluding new competitors from entering the market.
Based on the CCCS’s experience, cases involving digital platforms typically involve the intermingling of a number of these concepts. The competition assessment in these cases typically requires a detailed consideration of all these features.
Example of CCCS’s enforcement activity in relation to an abuse of dominant position in the digital market
A relevant example is the CCCS’s investigation into the online food delivery market in Singapore in 2016. It concerned an alleged anticompetitive practice by an online food delivery provider in Singapore. The online food delivery provider had entered into exclusive agreements with certain restaurants. This prevented the restaurants from multi-homing, using other online food delivery providers’ services to reach out to a wider pool of customers and generate an additional revenue source. The exclusive agreements could also potentially reinforce network effects and foreclose the entry of new players or restrict the expansion of existing players.
However, at that point in time, the CCCS noted that the market remained dynamic and the presence of the exclusive agreements had not harmed competition. Online food delivery providers competed aggressively for market share and there was no clear dominant player in the market. As such, the CCCS opted to cease the investigation, and proceed to monitor the market instead. The CCCS issued a media release as a reminder to online food delivery providers that exclusive agreements may risk infringing competition law if the online food delivery provider becomes dominant, and that the CCCS will continue to monitor this industry and take enforcement action if necessary. In a recent market monitoring exercise following the issuance of its media release, the CCCS found that the online food delivery market has grown in size, and remained vibrant with the recent entry of a new player.
Mergers and acquisitions
Under Section 54 of the Competition Act, mergers that have resulted, or may be expected to result, in a substantial lessening of competition within any market in Singapore for goods and services are prohibited. Section 54(4) of the Competition Act also provides that the creation of a joint venture to perform, on a lasting basis, all the functions of an autonomous economic entity shall constitute a merger.
The focus of CCCS’s assessment of a merger is on evaluating how the competitive constraints on the merger parties and their competitors might change as a result of the merger. CCCS’s merger assessment typically starts with defining the relevant market(s), which provides a framework within which to identify and assess the competitive constraints a merged firm would likely face. The factors that CCCS will consider when assessing if there is a substantial lessening of competition in the relevant market, both with and without the merger, include market shares and concentration, barriers to entry and expansion, and countervailing buyer power. In assessing these factors, the unique features of data-driven markets, as identified in the section above, such as network effects, multi-homing, availability and access to substitute data and the dynamism of digital markets, should also be taken into account.
Example of a CCCS investigation of an anticompetitive merger in the digital market
A recent example would be the CCCS’s investigation into Grab and Uber to Grab and Uber on 13 April 2018 to preserve and restore competition and market conditions to the pre-transaction state, so as to prevent action that may prejudice the CCCS’s consideration of the transaction or the CCCS’s issuance of directions or remedies at the conclusion of its investigation.
On 24 September 2018, the CCCS issued an infringement decision setting out the grounds on which the CCCS had found that the transaction resulted in a substantial lessening of competition in the provision of ride-hailing platform services in Singapore. This market is a two-sided market connecting drivers on one side and riders on the other. The interdependence of drivers and riders gives rise to indirect network effects (namely, drivers are attracted to a platform with more riders and vice versa). However, a substantial percentage of the drivers in the private hire car and taxi fleet were exclusive to Grab. These exclusivity clauses would effectively prevent drivers from multi-homing and reinforce the network effect. In turn, this would greatly increase the time and upfront expenditure needed for a new potential entrant to build up driver and rider networks similar in scale and size to the parties. The barriers to entry and expansion in relation to the ride-hailing platforms are high due to these strong exclusivity-reinforced network effects.
In addition, the market for the rental of private hire cars has considerable barriers to expansion, such as the significant amount of time and upfront capital expenditure required to build a car rental network of sufficient scale, and a higher cost of maintaining private hire vehicles as compared to normal rental vehicles. Hence, such rental companies may not be able to expand and compete effectively without a tie-up with a ride-hailing platform. The CCCS was of the view that after the transaction Grab would be in a strong position to put in place exclusive arrangements with the private hire rental companies and the drivers who rent from those companies to reinforce its position in the ride-hailing platform services market.
Hence, the CCCS issued directions to Grab and Uber with the aim to lessen the impact of the transaction on drivers and riders, and to open up the market and level the playing field for new players. The directions require Grab to remove the exclusivity obligations on drivers and ensure that drivers and riders are free to choose their preferred platform. At the time of publication, these measures remain in place and the matter is pending an appeal by Uber.
Example of a CCCS decision in relation to a merger notification in the digital market
In 2014, the CCCS considered a proposed merger of the online recruitment platforms operated by JobsDB Singapore and JobStreet Singapore, and correspondingly, their jobseeker databases. The CCCS noted that quality jobseeker databases take time to build up and that jobseeker information was not something that a new entrant – even with resources – could collect overnight.
At the point of the CCCS’s assessment, none of the alternative job portals had the reach and depth of candidates as the pool the merged entity would have access to. Any new entrant would have to invest heavily in advertising and marketing to garner a critical mass of jobseekers and recruiters to its platform, to overcome the significant network effects enjoyed by the merging parties. This represented a significant barrier to entry for a new entrant.
At the end of its assessment, the CCCS concluded that the proposed transaction would be likely to result in a substantial lessening of competition in the market for the supply of online recruitment advertising services. The CCCS noted that the proposed transaction would result in a loss of rivalry between close competitors, and that there was a lack of effective competitive constraints by existing and new competitors. The CCCS was concerned that the proposed transaction would result in the following non-coordinated effects:
- ability or incentive to change the structure of the market by demanding exclusive ‘lock-in’ contracts, which would prevent customers from switching away from the merged firm;
- ability or incentive to bundle and tie products across its two brands, which would have the effect or likely effect of preventing customers from switching away from the merged firm; and
- ability or incentive to impose price increases post-merger.
Behavioural commitments were offered by the merging parties to address those concerns. In particular, to address the concern that customers would no longer be able to multi-home on other online recruitment platforms, the merging parties committed not to enter into exclusive agreements with employer and recruiter customers. Those commitments sought to ensure that competing platforms could continue to enter and expand so that competition was preserved in the online recruitment advertising services market.
Collaboration with other regulators as issues in digital markets become more intertwined
While the growth of the digital economy brings about new opportunities for businesses, it also brings about regulatory challenges for regulators, who must move rapidly with the times to be perceptive, anticipative and adaptive. It is imperative that the regulators’ policies and practices facilitate innovation or entry by new players. In particular, the policies and responses of various government agencies should be coherent and consistent. The regulator’s role is further complicated by the increasing overlap between competition, consumer protection and data privacy issues in this digital era. To effectively handle these challenges, CCCS has actively collaborated with other government agencies to ensure a coherent and consistent approach towards players in the digital market.
In this regard, CCCS is partnering with the Personal Data Protection Commission (PDPC) on a joint initiative on data portability. As data portability involves an overlap between competition law and personal data protection law, both agencies embarked on a joint study of the competition, consumer protection and personal data protection issues that might arise if a data portability requirement is introduced in Singapore. This joint study was necessary to ensure all relevant perspectives are taken into consideration when implementing a data portability requirement and determining the optimal approach to reaping maximum benefits from such a requirement while keeping impact and compliance costs manageable. A data portability requirement could give individuals greater control over their personal data by allowing them to request for their data held by an organisation to be transmitted to another organisation in a commonly used machine-readable format. The introduction of a data portability requirement also reduces switching costs for consumers, and could create the impetus for development of new products and services using the ported data. The joint study culminated in the publication of a joint Data Portability Discussion Paper, published on 25 February 2019. Subsequently, in May 2019, the PDPC commenced a public consultation on a proposed data portability requirement in Singapore.
The joint initiative on data portability builds upon CCCS’s previous collaboration with PDPC and the Intellectual Property Office of Singapore in 2017 on a joint study of the data analytics and data-sharing landscape in Singapore, and the implications of the same on competition policy and law, personal data protection and intellectual property rights. This collaboration culminated in the publication of a joint research paper, which includes an analysis of the interplay between all three areas of law.
The growth of digital platforms is an area keenly studied by competition authorities around the world, in an effort to determine if existing competition policy should be revised to better deal with technology giants. Similarly, the digital sector, including e-commerce platforms, remains one of CCCS’s focus areas in the foreseeable future. CCCS continues its efforts to deepen its understanding of technological and market developments, and continues to review the sufficiency of its assessment and regulatory toolkit to meet the challenges of a rapidly evolving competition landscape.
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