Q&A with Senator Bam Aquino on Philippine Competition Act

Q1: Congratulations! After 25 years of waiting, the Philippine congress was able to pass the Philippine Competition Act. Who should be afraid of this?

A: The Philippine Competition Act punishes entities that exhibit anti-competitive behaviours, cartel-like actions and abuses in dominant position.

If your business is playing fair, there is nothing to fear. What this bill will do is to protect fair and legitimate business practices and punish abuses in the market to achieve greater economic efficiency.

Q2: On anti-price fixing, if a company decides to follow the price of his competitor, is that considered price fixing?

A: Price matching, where a business follows suit in the general pricing of the market, is allowed in the bill. This is beneficial for consumers because it means that competitive pricing is among the factors in choosing the best products and services for them.

What is prohibited is price fixing, which is an agreement between the players in the market to manipulate the price of goods and services at the expense of the consumers.

Q3: How will abuses via high prices be determined in different industries? For instance, branded products are typically priced premium as part of their image strategy. We also all pay for Microsoft while Linux is free.

A: Premium pricing, where certain companies position themselves as premium brands and peg their products at higher price points than the usual in the markets, is allowed in the bill.

The measure does not hinder companies from choosing their target consumer base, and positioning and pricing their products based on its brand value or the overall strategy of the company.

The bill does not allow for selected companies colluding in manipulating prices in a way that limits the choices of consumers. It also does not allow a dominant player in the market to impose barriers to entry of new and upcoming brands. Furthermore, it penalizes other abuses that will prevent competitors to offer consumers better or cheaper alternatives in the market.

Q4: Will patented proprietary features be allowed since there will be switching cost to consumers? Ink cartridges, pens, coffee pods, softwares, test strips are some cases.

A: Intellectual property rights of entities are protected in this measure.

These patents are generally considered as legal barriers to entries, which are protected in the Philippine Competition Act (Section 15, Abuse of Dominant Position). It explicitly states that the right of entities to their intellectual property is not considered prohibited.

Q5: On anti-monopoly, what is the market shares threshold before the government steps in? Does this apply to joint ventures, mergers and acquisitions too?

A: Firstly, let me clarify that the bill does not directly prohibit the existence of monopolies. If a certain company has a big market share because of competitive price and high quality, it will not be prohibited from growing or maintaining a dominant position in the market.

On the other hand, abuse of dominant position is an anti-competitive behavior that makes use of the current size and influence of a company in the market to drive away competition.

Some of these are: setting prices below cost to drive away competition, imposing barriers to entry or other restrictions that prevent the competitors from developing in the market (found in Section 15).

In determining the threshold for dominance, the Commission shall be asked to look into various factors and not just on an entity’s market share. These factors include market share, existence of competition in the relevant market, and the presence of barriers to entry, among others (found in Chapter V, Section 27).

Anti-competitive mergers and acquisitions, moreover, are agreements between 2 or more companies that decide to be one entity that will impact the market negatively.

However, not all mergers and acquisitions are prohibited. Only those mergers and acquisitions that would substantially prevent, restrict, or lessen competition will be disallowed.

In any case, we’ve put a provision where the companies that are merging or in the process of acquisition should notify the Commission if their action will reach a value of a billion pesos.

The Commission then would review the transaction if it will negatively affect the market.

If the agreement reaches the transaction value of the threshold, it does not mean that the merger or acquisition will be automatically disallowed; it only means that the companies involved need to notify the Commission and wait for the Commission’s study before actualizing the agreement.

Furthermore, because of the non-retroactive nature of Philippine laws, all previous completed mergers and acquisitions before the enactment of the law are not subject to the provision on mergers and acquisitions.

Q6: Does this mean a company cannot require exclusivity arrangements with their trade partners anymore, especially if they are dominant?

A: Exclusive merchandising, distributorship, and franchising agreements are not prohibited under this measure.

The right of the entities to enter into such agreements is retained under the bill, as long as the contract or agreement has no intent of driving away competition in the market or putting the consumer at a disadvantageous position in the transaction.

Q7: Some consumer product manufacturers give exclusive discounts if retailers do not carry their competitor’s products. Will this become illegal? If so, what will be the penalty for the manufacturer? What about the retailer?

A: At the onset, imposing restrictions on lease or contracts of sale or trade of goods and services are not prohibited. However, if these agreements would fix prices, give preferential discounts or rebates, impose conditions not to deal with competitors, and the objectives are to substantially prevent, restrict or lessen competition, then these would be prohibited.

The Commission will determine the appropriate and commensurate fines and penalties for the erring companies once proven anti-competitive.

Q8: If a company is good in marketing and gain significant market shares, when will they not be bothered by the anti-monopoly act since the intent is to promote a culture of healthy competition?

A: Excellence in marketing, innovation, and other legitimate business practices are not prohibited, and in fact, is lauded in the measure.

To give emphasis, the goal of the measure is not to go after big businesses but to create an environment where companies are fairly competing for the market share and ultimately, lowering the prices, raising quality of goods and services, and increasing options for consumers.

Q9: What industries are being monitored for price fixing and monopolistic play?

A: All industries are covered by the Act and will be monitored for price fixing and other anti-competitive practices.

Q10: In your estimate, how soon can cartels be eliminated with the implementation of the Philippine Competition Act? Will the reward of continuing as a cartel still be greater than the penalty?

A: The Commission, once established, will work with the Department of Justice – Office of Competition (DOJ-OFC) on the cases that involve cartel-like behaviours.

The measure provides the exclusive power to DOJ-OFC to focus on targeting these cartel activities for a speedy and effective implementation of the law.

Cartels are considered criminal in this act. The threat of prosecution coupled with imprisonment and criminal fines will make companies and entities deter in any cartel-like behavior.

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