On 18 August 2015, the Competition Commission of Singapore (the “CCS”), which has been involved in several high-profile abuse of dominance and unilateral conduct cases in recent years, released an Occasional Paper (the “Paper”) which discusses Most Favoured Nation (“MFN”) clauses. This is the CCS’ fourth occasional paper.

The Paper observes that, based on the US, EU and Australian antitrust cases examined, MFN clauses can potentially give rise to both anti-competitive effects and pro-competitive benefits on the market, the extent of which depends on various factors such as the market structure, the form of the MFN clause used, and the characteristics of the sellers and buyers in the market. For example, the use of across-buyers MFN clauses may give rise to anti-competitive effects such as raising entry barriers in the buyers’ market which leads to reduced entry and higher prices to consumers, and facilitating and sustaining collusion between the sellers. Yet, these clauses may also result in potential efficiencies such as reducing search costs for buyers and negotiation costs for both buyers and sellers, avoiding hold-up of investments, providing flexibility in long term contracts, avoiding price discrimination between customers, and signalling the quality of the seller’s products.

In the Singapore context

The CCS suggests, in the Paper, that where MFN clauses are found to be part of a network of agreements to facilitate horizontal collusion, such clauses may be considered as having the object to prevent, restrict or distort competition and hence may still breach the section 34 prohibition under the Competition Act. In the context of dominance, MFN clauses which maintain or reinforce dominant market position through exclusionary effects may breach the section 47 prohibition. In such cases, it is noted that market share figures may not necessarily be a good indicator of the full extent of the effects, as the MFN clause would affect the behaviours of other firms.

Reference material

The Occasional Paper is available from the CCS website www.ccs.gov.sg by clicking here.