Competition law and the issue of relevant markets

The transitory period set by the Philippine Competition Commission ended last Aug. 8. From thereon, as stated in the PCC’s Facebook account: “an existing business structure, conduct, practice, or any act that may be in violation of the PCA shall be subject to the administrative, civil, and criminal penalties.”

The “PCA” is the Philippine Competition Act (or RA 10667), which seeks to “penalize all forms of anti-competitive agreements, abuse of dominant position and anti-competitive mergers and acquisitions, with the objective of protecting consumer welfare and advancing domestic and international trade and economic development.”

One of the trickier provisions has to do with “abuse of dominant position,” which — according to the law — may constitute:

• selling goods or services below cost with the object of driving competition out of the relevant market;

• imposing barriers to entry an anti-competitive manner;

• making a transaction subject to acceptance by the other parties of other obligations which have no connection with the transaction;

• setting prices or other terms or conditions that discriminate unreasonably between customers or sellers of the same goods or services;

• imposing restrictions that prevent, restrict or lessen competition substantially;

• making supply of particular goods or services dependent upon the purchase of other goods or services from the supplier which have no direct connection with the main goods or services to be supplied;

• directly or indirectly imposing unfairly low purchase prices for the goods or services of, among others, marginalized agricultural producers, fisherfolk, micro/small/medium-scale enterprises, and other marginalized service providers and producers;

• directly or indirectly imposing unfair purchase or selling price on their competitors, customers, suppliers or consumers; and,

• limiting production, markets or technical development to the prejudice of consumers.

Tricky due to the nature of proving a subjective thing as “abuse,” as well as the various condition-setting provisos that modify the primary clauses of the law.

Tricky also at a fundamental level because of the Constitution, which provides that monopolies are not to be regulated or prohibited unless “the public interest so requires” (another subjective provision) and qualified by the fact that in the very same Article the State is mandated to “pursue a trade policy that serves the general welfare and utilizes all forms and arrangements of exchange.”

This means that the Philippine economy operates both at the domestic and international (bilateral, multilateral, regional, and global) levels.

And when we say “Philippine economy,” we mean private businesses as the government does not generate income nor should it engage in commercial enterprises.

For a successful private business, therefore, two questions come: at what point does its competitive instincts are said to be constituting “abuse of dominant position” and when it is said to be “dominant,” then dominant where?

Which leads to looking for pertinent definitions of “market.”

The “relevant market,” as defined by the PCA, is that which “refers to the market in which a particular good or service is sold and which is a combination of the relevant product market and the relevant geographic market.”

In turn, a “relevant product market comprises all those goods and/or services which are regarded as interchangeable or substitutable by the consumer or the customer”; while the “relevant geographic market comprises the area in which the entity concerned is involved in the supply and demand of goods and services, in which the conditions of competition are sufficiently homogenous and which can be distinguished from neighboring areas because the conditions of competition are different in those areas.”

But in an economy where foreign trade (exports) are a necessity, with the Philippine government keen in maintaining its bilateral and multilateral trade agreements, should the relevant market include those external to the boundaries of the country?

This is interesting because the PCA itself asserts it is “applicable to international trade having direct, substantial, and reasonably foreseeable effects in trade, industry, or commerce” in the country, “including those that result from acts done outside the Republic of the Philippines.”

The point is that “globalization of markets and production structures make it increasingly difficult to define antitrust markets to identify possible dominant positions. With FDI becoming more important than trade in terms of servicing foreign markets, markets are becoming increasingly globalized and national production systems more and more integrated through the activities of transnational corporations (L. Sleuwaegen and I. De Voldere, 2001).”

And, as can be seen above, our regulations focus mainly in identifying the market by way of demand substitution. But, again Sleuwaegen and De Voldere point out, “the process of globalization involves essentially global supply conditions and competition, and makes the interactions between global competitors a crucial element in defining the relevant market.”

It would be interesting to see how the Philippine Competition Commission navigates this complexity: promoting and encouraging newer players domestically while allowing domestic and Filipino-owned corporations the power and ability to compete on a regional and global scale, and producing world class products and services.

Jemy Gatdula is a Senior Fellow of the Philippine Council for Foreign Relations and of Counsel for the Policarpio and Acorda Law Office.

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Twitter @jemygatdula