CPL 2 - Anti-Competitive Agreement (PDF)

Andrew Yip (00:11.726) In this next segment, I will talk about market behaviour prohibitions, otherwise known to competition practitioners as antitrust. This is the second of the four lectures under the Part B Competition Law Module. The first prohibition under the Competition Act is the Section 34...

Andrew Yip (00:11.726) In this next segment, I will talk about market behaviour prohibitions, otherwise known to competition practitioners as antitrust. This is the second of the four lectures under the Part B Competition Law Module. The first prohibition under the Competition Act is the Section 34 Andrew Yip (00:35.17) The origins of modern competition law can be traced to the United States in the 1890s, which sought to outlaw the restriction of competition by large companies by cooperating with rivals to fix outputs, prices and market shares through trusts, hence the term antitrust. In the past, cartels were arranged somewhat like what you see in this picture. executives holding secret meetings in what cases have referred to as smoke -filled rooms. Andrew Yip (01:18.39) These days however, most evidence of cartels can be found in emails and private messaging functions on apps or standalone messaging apps such as WhatsApp. At every dawn raid conducted by the CCCS, the scene in the office that I have witnessed usually involves cubicles sealed off in yellow barricade tape and laptops and mobile phones of suspected individuals contained within evidence bags. Andrew Yip (01:57.102) I shall now turn to the first of the two behavioral prohibitions, the Section 34 prohibition, otherwise referred to as anti -competitive agreements. As I explained in my introductory lecture, I have chosen to break down the trifecta of prohibitions in this manner for ease of understanding. Andrew Yip (02:26.094) Section 34 of the Competition Act prohibits agreements or concerted practices between decisions by associations of undertakings which have as their object or effect the prevention, restriction or distortion of competition within Singapore. Let me break this down for you in the next slide. Here are the key elements to a Section 34 prohibition. In general, the elements are agreements or concerted practices, object or effect, and the distortion of competition. The elements of an agreement under competition law are different from that of an agreement under contract law. Under contract law, there must be offer and acceptance, consideration, and an intention to create legal relations. An agreement under competition law, need not be written or even formal. In fact, cartel agreements are often deliberately left vague. The definition of an agreement under competition law covers both legally enforceable and unenforceable agreements. It even covers so -called gentleman\'s agreements. Remember the smoke -filled room text messages from the previous slides. All that is required is that there is a meeting of minds Andrew Yip (04:03.52) on the actions each party will or will not take in the market. Andrew Yip (04:10.476) Undertakings may, after a period of time, become aware of one another\'s repeated actions and without an express agreement, coordinate their behaviour as if they were engaged in collusive behaviour. Such behaviour could give rise to concerted practices which have the same economic effect as an agreement to distort competition in the market. Agreements may be infringing even if there is no anti -competitive effect on any market. All that is required is that there is an intent, otherwise known as object. Similarly, an agreement may infringe the Section 34 prohibition even if there is no intent, if the agreement has the effect of restricting competition. I have divided the conduct which may infringe the Section 34 prohibition here into hardcore or buy -object behaviour and behaviour which may have the effect of restricting competition even if the object or intent cannot be proven. Hardcore behaviour includes conduct to fix purchase or selling prices and any other trading conditions. To artificially limit control production, markets and innovation, to share product or geographical markets, bid rigging and to exchange sensitive price information. Buy effect restrictions include standardisation agreements that may prevent parties from developing alternative products that do not comply with agreed standards. Joint purchasing or selling agreements may also restrict competition. An example is an agreement between buyers to fix a price they are prepared to pay to a supplier, or an agreement to boycott certain identified suppliers. Andrew Yip (06:15.967) Let me elaborate on hardcore restrictions in my next Andrew Yip (06:22.967) Price -fixing agreements are the most restrictive of competition. Examples include agreements to adhere to published price lists and agreements to fix a price or the components of a price such as a discount. Bid rigging occurs when firms collaborate on responses to invitations to tender, such as agreeing to allocate bids or agreeing on the lowest offer to be submitted. An example of a market sharing agreement is where competitors agree to divide a product market or a geographical market between themselves. Output limitation agreements involve controlling production by fixing production levels or quotas. Facts and circumstances will have to be examined to determine the effects that such agreements will have on competition. Whether the sharing of information amounts to an infringement of the Section 34 prohibition depends on the nature of the information shared on a case -by -case basis. Publicly available information is of course not anti -competitive when discussed generally, nor are certain categories of non -commercially sensitive information. For example, if non knowledge of past prices of a product cannot influence pricing decisions, it is unlikely that the sharing of such information will be infringing. For example, if the cyclical price change of Product X is generally every three months, a discussion of the pricing trends of Product X and its competitor products, which occurred three years is unlikely to influence forward pricing decisions. Andrew Yip (08:25.037) Here is another slide to illustrate how the types of information which may or may not infringe the Section 34 prohibition fall on a spectrum ranging from an organized exchange of sensitive data such as quantity sold, prices and discounts, which is very likely to infringe the prohibition, to an exchange of data in the public domain, which is generally acceptable. On a plain reading of the Competition Act and the Triple CS guidelines, vertical agreements are excluded from the Section 34 prohibition. This is commonly misunderstood to mean that so long as an agreement is not between competitors, the exclusion applies. In fact, the exclusion is a narrow one. Vertical agreements are agreements between undertakings which operate at different levels of the production distribution chain. For example, an agreement between a manufacturer and a distributor to distribute product Y could be an example of an excluded vertical agreement for the purposes of the Section 34 prohibition. Likewise, an agreement between that distributor and retailers of product Y, such as supermarkets, could benefit from the exclusion. However, an agreement between a car showroom and an insurance firm to always offer the latter\'s motor vehicle insurance as a default option. It\'s neither an agreement between competitors or an agreement between undertakings in different levels of a production or distribution chain. These are the headlines of a CCCS matter which went on appeal to the Competition Appeal Board. The CCCS had imposed record financial penalties of close to \$30 million. Please read the case in the Public Register. The headlines on this slide are for illustrative purposes Andrew Yip (10:44.193) Pay attention to the arguments and counterarguments as to the threshold needed to establish casual infringing information sharing outside of an organized exchange of information. This is a decided case involving information sharing, this time between four hotel groups in Singapore. Again, this slide and its headlines in the straight times are for illustration only. Please read the actual decision on the public register, which will also constitute part of your core knowledge. In this case, the CCCS had found that several hotels infringed Section 34 of the Competition Act by exchanging commercially sensitive information in connection with the provision of hotel room accommodation in Singapore to corporate customers. I attended the dawn rate in respect of this matter as counsel to one of the parties. The CCCC determined that customers for hotel room accommodation could be divided into various groups, such as corporate customers, tour agencies, airlines, or even leisure customers. The Commission also held the view that these categories are not always mutually exclusive and each hotel may categorize their customer group differently. Categorizing these broadly, customers can be seen as corporate customers and non -corporate customers. The Triple CS opined that the provision of hotel room accommodation corporate customers differs from that of non -corporate customers in terms of the negotiation process, duration of contracts and the rate setting process. Given the distinct differences which exist in the provision of hotel room accommodation to corporate and non -corporate customers, the Triple CS considered the provision of hotel room accommodation to corporate customers as a focal product for the purposes of this case. Andrew Yip (12:59.383) This headline refers to a global cartel matter, where the CCCS intervened and the entities involved were found liable for infringing Singapore Competition Law to date. Do note that when the CCCS investigates a global cartel, it may impose penalties not only on the Singapore subsidiaries of a foreign undertaking, but the foreign headquarters of such theories as This headline refers to a global cartel matter where the CCCS had intervened. The relevant entities involved were found liable for infringing Singapore competition law. In this case, the CCCS found that five capacitor manufacturers infringed the Section 34 prohibition by engaging in anti -competitive agreements. The agreements included price fixing, and the exchange of confidential sales, distribution and pricing information for Aluminium Electrolytic Capacitors, AECs, in relation to customers in Singapore. As there were parallel and contemporaneous investigations in relation to cartel conduct involving AECs by the United States Department of Justice, China\'s Competition Authority, the Japan Fair Trade Commission, the Korean Fair Trade Commission, the Taiwan Fair Trade Commission and the European Commission. The CCS had exchanges with and cooperated with the authorities in some of these jurisdictions during the period of the investigation. Similarly, in CCCS 700 Andrew Yip (14:59.127) The Triple CS had investigated a related cartel which was part of the International Auto Parts Investigation. The Commission imposed penalties on ball -bearing manufacturers involved in a global cartel involving, among others, foreign registered companies and their Singapore subsidiaries. Andrew Yip (15:22.709) In this case, the evidence showed that the agreements, discussions and decisions at the Japan meeting level, where representatives were mostly from the Japan parent companies and the Singapore meeting level, where the representatives were mostly from the Singapore subsidiary companies, were intimately linked, which was in turn reflected in the financial penalties eventually imposed. This case involved the threshold that the Triple CS had set in order for an undertaking which attends a meeting with an anti -competitive purpose to demonstrate that it is not liable under the Section 34 prohibition. Please read the case which will be part of your core knowledge. Andrew Yip (16:13.421) In this case, the Triple CS found that 16 employment agencies in Singapore had infringed Section 34 of the Competition Act by engaging in price -fixing activities. The employment agencies participated in a meeting that attempted to collectively fix the monthly salaries of new Indonesian foreign domestic workers in Singapore, with the object to restrict competition. This case involved the threshold that the CCCS has set in order for an undertaking which attends a meeting with an anti -competitive purpose to demonstrate that it is not liable under the Section 34 prohibition. Undertakings are required to publicly distance themselves when attending meetings which may have an anti -competitive purpose. whether or not such undertaking does or does not contribute to the discussion, or even when such undertaking does not follow the agreement or concerted practice formed at that meeting. In order to avoid liability by publicly distancing itself, an undertaking must inform the other companies represented with sufficient clarity that despite appearances, it disagrees with the unlawful steps which they have taken. The reason underlying that principle of law is that having participated in the meeting without publicly distancing itself from what was discussed and undertaking has led the other participants to believe that it subscribed to what was decided there and would comply with This is an early case which I am including not as core knowledge, but to illustrate as a case study conduct that can amount to price fixing. The Triple CS had in this decision, issued in November 2009, analyzed the economic harm arising from the fixing of ticket prices by coach operators and their trade association, the Express Bus Agencies Association, Andrew Yip (18:35.497) or EBAA. The Triple C has found that coach operators, together with the EBAA, had distorted the competition of the prices of coach tickets between Singapore and destinations in Malaysia for the period of three years. The operators agreed to fix the prices by procuring the setting of minimum selling prices and imposing fuel and insurance charges on passengers. The CCCS established that the coach operators had marked up the fuel and insurance charges by over 300%. Overall, the ticket price of a one -way express coach ticket to Kuala Lumpur in Malaysia increased by approximately 61 % from 2003 to 2008. If we take this to be a reflection of the increased cost of movement of goods and labour between Singapore and Malaysia, costs were therefore 61 % higher than it could have been. I will end on yet another exclusion found in the Competition Act. I have already referred earlier to the third and fourth schedules of the Competition Act. I have also spoken about the Vertical Agreements Exclusion. I will end this lecture by referring to the net economic benefit exclusion. The net economic benefit exclusion states that an argument within Section 34 of the Competition Act may, on balance, have a net economic benefit if it contributes to improving production or distribution or promoting technical or economic progress and it does not impose on the undertakings concerned restrictions which are not indispensable to the attainment of those objectives, or afford the undertakings concerned the possibility of eliminating competition in respect of a substantial part of the goods and services in question. This is a very useful exclusion, but difficult to prove in practice. This is why, in practice, in seeking to establish the competition effects of conduct, Andrew Yip (20:58.527) market definition. which will be discussed in the next lecture, and economic defences such as the net economic benefit exclusion under Section 34, it is important to involve either in -house or external competition economist resources. Andrew Yip (21:22.765) The net economic benefit exclusion can be found in the third schedule of the Competition Act at paragraph 9. This ends this lecture. Andrew Yip (21:38.807) Thank B24 CPL - Learning objectives Behavioural (Conduct) - Part III, Division 2 Section **** Prohibition -- anti-competitive **agreements (e.g. Cartel)** - Elements - \"**[Agreement]**\" includes \"gentleman\'s\" agreeemnt - Even a meeting can amount to an \'agreement\' even though no agreement is signed i.e \'meeting of the minds\' Hardcore conduct (\"by object\" restrictions), **[where intent can be proven, regardless of the subjective intent of the parties]** - Specturm of sensitive information - CCCS 500/7002/14 -- CCCS Penalises Fresh Chicken Distributors for Price-fixing and - CCS 700/002/13 -- CCS Fines Capacitor Manufacturers Involved in Global Cartel for Price-fixing and Information Exchange - **[\[2.18\] Concerted Practice = cooperation between market players substituted the risks of competition with co-operation between them]** - \[2.22\] \"Object\" or \"Effect\" are alternative, not cumulative requirements - \[2.23\] By Object - \[2.25\] Scenarios where there are **[no appreciable Adverse Effect]** if if the market share of each of the parties to the agreement **[does not exceed 25% aggregate market share 20% aggregate market share if it is unclear if parties are competitors or difficult agreement categories]** - **[Exclusions]** - [\[4.5\] If there is no appreciable adverse effect on competition] - **[Statutory Exclusions]** - **[Net Economic Benefit s9 to the Third Schedule]**