Published 13 March 2020, The Daily TribuneUnlike the US Constitution which conferred the US Congress with the power to enact antitrust laws in very broad terms, the 1987 Philippine Constitution expressly mandated the state to “regulate or prohibit monopolies when the public interest so requires” and that “no combinations in restraint of trade or unfair competition shall be allowed.” At the same time, the Constitution “recognizes the indispensable role of the private sector, encourages private enterprise, and provides incentives to needed investments.”
Pursuant to these provisions, in 2014, the Philippines enacted Republic Act 10667 or the Philippine Competition Act. According to the principal sponsor of the bill that became the law, “(a) fair competition policy will level the playing field for Filipino businesses and allow more Filipinos to exercise their entrepreneurial spirit. It will encourage competition, innovation, and the creation of better products and services. It will drive production efficiencies and better supply chain management; and, ultimately, give the Filipino public a wider range of products and services to choose from while driving down prices.” This was essentially reflected in the policy statement of the law by providing that “the provision of equal opportunities to all promotes entrepreneurial spirit, encourages private investments, facilitates technology development and transfer and enhances resource productivity” (and) recognizing that “(un)encumbered market competition also serves the interest of consumers.” In short, the law appears to have a dual objective of not only advancing consumer interest but of competitor interest as well.
To advance its policy objectives, the law created a Philippine Competition Commission (PCC) that has the power to among others, (i) prohibit mergers and acquisitions that will substantially prevent, restrict, or lessen competition in the relevant market; (ii) stop and redress anti-competitive agreements between or among competitors (a) that are per se prohibited, or (b) which have the object or effect of substantially preventing, restricting or lessening competition; (iii) stop and redress an entity’s abuse of its dominant position; and (iv) stop and redress anti-competitive agreements other than those between or among competitors which similarly have the object or effect of substantially preventing, restricting or lessening competition.
From the foregoing, our competition law prohibits essentially three types of anti-competitive conduct: Anti-Competitive Agreements, Anti-Competitive Mergers and Acquisitions, and Abuse of Dominant Position.
The first refer to agreements between competitors (horizontal agreements or horizontal conduct) or between and among enterprises in a production or distribution chain (vertical agreements) that prevent, distort, or restrict competition in a territory. However, agreements that “contribute to improving the production or distribution of goods and services or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefits” may be excluded from the definition of an anti-competitive agreement.
An example of an anti-competitive agreement is that involved in United States v Socony-Vacuum Oil Co. (1940). In this case, several major oil companies (buyers) in the Mid-Western area informally agreed, because of the economic conditions at that time, to purchase large quantities of surplus gasoline (buyers) from independent refiners (sellers) on the spot market at the fair going market price. Sellers were assigned to the buyers so that regular outlets for “distress gasoline” would be available, to the end that “distress gasoline” would not overhang the markets and depress them at any time. The informal agreement in turn allowed the oil companies to charge more at retail. The US Supreme Court considered this a violation of the Sherman Act (1890), holding that “a combination formed for the purpose and with the effect of raising, depressing, fixing, pegging, or stabilizing the price of a commodity in interstate or foreign commerce is illegal per se.”
The second (Anti-Competitive Mergers and Acquisitions) refers to merger or acquisition transactions that lead to a substantial lessening of competition, or significantly impede effective competition in the relevant market. The third is Abuse of Dominant Position (or monopolization or single firm conduct) where “dominant position” means “a position of economic strength that an entity or entities hold which makes it capable of controlling the relevant market independently from any or a combination of the following: competitors, customers, suppliers or consumers.”
The third conduct refers to actions of a dominant player to exploit its dominant position in the relevant market, or to exclude competitors in a manner that harms the competition process. Just like the first conduct, the third conduct is also qualified. The law provides that “nothing in this Act shall be construed or interpreted as a prohibition on having a dominant position in a relevant market or on acquiring, maintaining and increasing market share through legitimate means that do not substantially prevent, restrict or lessen competition; and “(t)hat any conduct which contributes to improving production or distribution of goods or services within the relevant market, or promoting technical and economic progress while allowing consumers a fair share of the resulting benefit may not necessarily be considered an abuse of dominant position.”
In United States v Aluminum Co. of America (Alcoa), the US court ruled that Alcoa had illegally monopolized the industry by excluding competitors. However, the court qualified that a (t)he successful competitor, having been urged to compete, must not be turned upon when he wins.” In other words, the mere size of an entity and of its market power does not mean that there was abuse of its dominant position if it had achieved such status “by lawful means” and “developed by natural growth.”
Recently, a government agency has limited the number of riders that may participate in the pilot run of motorcycle taxis to 15,000 per a ride-hailing app. The agency justified its move by invoking its mandate, which includes fostering competition. Indeed, our competition law provides that the “relevant regulator (is not constrained) from pursuing measures that would promote fair competition or more competition as provided in this Act.” Following Alcoa, however, a limitation on the number of riders that may participate in the pilot run of motorcycle taxis to 15,000 per a ride-hailing app, with the excess to be distributed to its incoming competitors, may ironically amount to an anticompetitive government measure. This is especially true if no abuse of dominant position is shown and the clause “as provided in this act” would be construed as essentially referring only to the elimination of the prohibited acts or agreements under the law.
On the premise that the government merely promotes, but does not create, competition in a free market or that the government merely creates a framework to provide a more competitive business environment, can the government “create” the actual competition where previously there was none? The PCC itself seems to answer this in the negative.
In the end, competition laws involved a delicate balancing act to promote and encourage competition while carefully avoiding the unintended consequence of stifling the very competition the law itself intends to promote. The robustness of the Philippine and other foreign markets surely makes this new but complex area of the law something to seriously consider by both new and established businesses alike in their business decisions.
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