national economic outlook conference 2019 - 2020 · prof dr saadiah mohamad 28 november 2018 the...

PROF DR SAADIAH MOHAMAD

28 NOVEMBER 2018

The Impact of Competition Policy and Enforcement on the Economy

NATIONAL ECONOMIC OUTLOOK CONFERENCE 2019 - 2020

PRESENTATION OUTLINE

2“PROMOTING COMPETITION, PROTECTING YOU”

MALAYSIA COMPETITION COMMISSION

INTRODUCTION

COMPETITIONPOLICYINMALAYSIA

THEORYOFHARM

CASES

CHALLENGES

1

2

3

4

5




INTRODUCTION


THEORYOFHARM

CASES

CHALLENGES

1

2

3

4

5

An Overview of Competition Policy



Source:Compe,,onPolicyWorks:TheEffectofCompe,,onPolicyontheIntensityofCompe,,on–AnInterna,onalCrossCountryComparison,2005

ThemainaimsofcompeDDonpolicyaretopromotecompeDDon;makemarketsworkbeMerandcontributetowards

improvedefficiencyinindividualmarketsandenhancedcompeDDvenessofbusinesses.

Compe**onpolicyaimstoensure:

✓ TechnologicalinnovaDonwhichpromotesdynamicefficiencyindifferentmarkets

✓ EffecDvepricecompeDDonbetweensuppliers

✓ Safeguardandpromotetheinterestsofconsumersthroughincreasedchoiceandlowerpricelevels

The Importance of Competition Policy

5


•  Economicbenefitsofcompe**on;

•  Needforcompe**veinfrastructure;

•  Compe**onpolicyandlawareessen*aldevelopmentcomponents;

•  Compe**onpolicyandenforcementpromotemarketefficiencyandgrowth;

•  Conversely,marketreformscannotsucceedwithoutappropriatecompe**onpolicyandlaw

Source:UNCTAD(2004),Compe,,on,Compe,,venessandDevelopment:LessonsFromDevelopingCountries

Number of Jurisdictions with Competition Law and Competition Authority



Source:OECD(2014),ChallengesofInterna,onalCo-opera,oninCompe,,onLawEnforcement&Interna,onalCompe,,onNetwork2018

138compe**onauthori*es2018

Impact of Competition Policy to GNI Growth



Source:UNCTAD,WorldInvestmentReport1997 Year

CountrieswithcompeDDonlaws,sampleof101countries

Pillars of Competition Policy



There are four key pillars of compe**on policy in the UK and in theEuropeanUnion

This involves the elimina*on of agreements that restrictcompe**on includingprice-fixingandotherabusesbyfirmswhoholdadominantmarketposi*on.

Liberalisa*on involves introducing compe**on in previouslymonopolis*csectorssuchasenergysupply, retailbanking,postalservices,mobiletelecommunica*onsandairtransport.

AnDtrust&cartels:

MarketliberalisaDon:

Pillars of Competition Policy (cont.)



Compe**on policy analyses state aid measures such as airlinesubsidiestoensurethatsuchmeasuresdonotdistortthelevelofcompe**onintheSingleMarket.

Thisinvolvestheinves*ga*onofmergersandtake-oversbetweenfirms(e.g.amergerbetweentwolargegroupswhichwouldresultintheirdomina*ngthemarket)

Stateaidcontrol:

Mergercontrol:

Examples of Competition Policy in Action

10

“PROMOTING COMPETITION, PROTECTING YOU”


•  Preven*ngmergers/acquisi*onsthatcreateamonopoly•  Lawstointroducecompe**onintothepostalservicesindustry•  Forcedsalesofassetse.g.BAAandairportsintheUK

•  Stockmarketfloata*onoftheRoyalMail•  Part-priva*sa*onofNetworkRailsimilartothesell-offofHS1-

the high-speed link that connects London's St Pancras to theChanneltunnel,onalong-termconcession

De-regulaDon-lawstoreducemonopolypower:

PrivaDsaDon-transferringownership:

Examples of Competition Policy in Action



•  Strong laws and penal*es against proven cases of price fixing or

collusionthatinvolvesmarketsharing•  CompaniesbreachingEUandUKcompe**onrulesriskheayfinesofup

to10percentofglobalturnover-seniorexecu*vescanbejailed

•  A reduc*on in import tariffs encourages cheaper products from

overseas•  Increasingorelimina*ngimportquotascanalsohavethesameeffect•  Allowing new countries into the European Union single market

increasescontestability

ToughlawsonanD-compeDDvebehaviour:

ReducDonsinimportcontrols:

Effect of Competition Policy on Intensity of Competition



Source:Compe,,onPolicyWorks:TheEffectofCompe,,onPolicyontheIntensityofCompe,,on–AnInterna,onalCrossCountryComparison,2005

•  Ingeneral,developedcountriesintroducecompe**onpolicyearlierthanemergingeconomiesandindustrializedcountries.

•  Experienceoftheapplica*onofcompe**onlegisla*onandoverallgovernmenteffec*venessexplainasubstan*alpartofthepercep*onoftheeffec*venessofcompe**onpolicy.

•  Theeffec*venessofcompe**onpolicyisofsignificantinfluenceontheintensityoflocalcompe**on.

•  Incountrieswithahighintensityoflocalcompe**onthestandardoflivingishigher.

•  Thenewcompe**onlegisla*onimprovesrapidlywhileestablishedcompe**onagenciesmakelielefurtherimprovementintheirapplica*onperformanceaaeracertain*me.




INTRODUCTION


THEORYOFHARM

CASES

CHALLENGES

1

2

3

4

5

ESTABLISHMENT OF MALAYSIA COMPETITION COMMISSION

14

Competition Act 2010 (Act 712) and Competition

Commission Act 2010 (Act 713) was gazetted

on 10 June 2010.

Malaysia Competition Commission (MyCC) was established on 1

April 2011.

Competition Act 2010 came into force on 1

January 2012.

TWO GENERAL LAWS ON COMPETITION



CompeDDonAct2010(Act712)An act to promote economic development by promo*ng andprotec*ng the process of compe**on, thereby protec*ng theinterests of consumers and to provide for maeers connectedtherewith.

CompeDDonCommissionAct2010(Act713)An act to provide for the establishment of the Compe**onCommission, to set out the powers and func*ons of suchCommission, and to provide for maeer therewith or incidentalthereto.

COMPETITION ACT 2010 (1 JANUARY 2012)



PROCESSOFCOMPETITION

CONSUMER ENTERPRISES

ECONOMICGROWTH

•  Competitive Pricing

•  Choices •  Quality

•  Innovative •  Entrepreneurship •  Efficient

MALAYSIA COMPETITION COMMISSION (MyCC)



Anindependentbodyformedon1April2011(7yearsold)undertheCompeDDonCommissionAct2010toenforcetheCompeDDonAct2010(CA2010).AnagencyofKPDNHEP.

MainRolesInclude:

Inves*ga*on&Enforcement

Advocacy

Marketreview

Exemp*on

Compliance

PolicyAdvice

LeniencyRegime

SCOPE OF LAW (EXCLUSION)



TheMyCChasthepowertoenforceCA2010onallcommercialacDviDesconductedbyanyenDtywhichoffergoodsand

servicestoconsumerinthemarket(excepDonmarketsunderMCMC,EC,MAVCOMandPetronas[upstreamonly])

i.   CommunicaDonsandMulDmediaAct1998;ii.   EnergyCommissionAct2001;iii.  AviaDonCommissionAct2015;and

(AmendmentofFirstScheduleOrder29February2016)iv.  Petroleum Development Act 1974 and the Petroleum

RegulaDons1974.(AmendmentofFirstScheduleOrder30December2013)

MAIN PROHIBITIONS OF THE CA 2010

19



ANTI-COMPETITIVEAGREEMENTS

ABUSEOFDOMINANTPOSITION

ANTI-COMPETITIVEPRACTICES

ANTI-COMPETITIVE AGREEMENTS (S.4)



ANTI-COMPETITIVEAGREEMENTS

PRICE-FIXING(HORIZONTAL)

MARKETSHARING

(HORIZONTAL)

LIMITINGORCONTROLLING(HORIZONTAL)

BIDRIGGING

(HORIZONTAL)

RETAILPRICEMAINTENANCE(VERTICAL)

EXCLUSIVEAGREEMENT(VERTICAL)

ABUSE OF DOMINANT POSITION (S.10)



ABUSEOFDOMINANTPOSITION

UNFAIRPURCHASEORSELLINGPRICES

ORUNFAIRTRADING

CONDITIONS

PREDATORYBEHAVIOUR

APPLYINGDIFFERENTCONDITIONS

REFUSINGTOSUPPLY

TYING/BUNDLING

LIMITINGORCONTROLLING

“DOMINANT POSITION”



Asitua*oninwhichoneormoreenterprisespossesssuchsignificantmarketpowertoadjustprices,outputs

ortradingtermswithouteffecDveconstraintfromcompeDtors

Note:60%marketshareindica*veofdominance

Beingdominant(includingmonopoly)inanymarketis

notaninfringement!Source:GuidelinesonChapter2Prohibi,on,AbuseofDominantPosi,on,MalaysiaCompe,,onCommission

TYPE OF INVESTIGATIONS



COMPLAINT SecDon15,CA2010

EX-OFFICIO(MyCC’SINITIATIVES) SecDon14(1),CA2010

MINISTERIALDIRECTION SecDon14(2),CA2010

Source:Compe,,onAct2010(Act712)

STATISTICS OF SECTION 14 & 15 OF CA 2010 (UPDATED 31 OCTOBER 2018)



2012 2013 2014 2015 2016 2017 2018 TOTAL RECEIVED

TOTAL CLOSED

COMPLAINT 8 68 80 75 51 64 119 466 376

EX-OFFICIO 2 10 13 6 9 6 0 46 43

MINISTERIAL DIRECTION 1 2 3 1 3 0 2 12 10

Source:Inves,ga,onandEnforcementDivision,MalaysiaCompe,,onCommission

ASSESSMENT & INVESTIGATION

25


InvesDgaDon(63)

Terengganu

Pahang

KelantanSabah

Sarawak

JohorNegeriSembilanMelaka

Selangor

Perak

Perlis

KedahPenang

IndustryunderinvesDgaDon

Terengganu

Pahang

KelantanSabah

Sarawak

JohorNegeriSembilanMelaka

Selangor

Perak

Perlis

KedahPenang

Industryunderassessment

Assessment(28)

GOVERNMENT PROCUREMENT,

AGRICULTURE, F&B, HEAVY INDUSTRY, PUBLIC TRANSPORTATION,

FINANCIAL SERVICES, SERVICES, TOURISM, MOTOR

SERVICES

GOVERNMENT PROCUREMENT,

INFORMATION TECHNOLOGY, FINANCIAL PRODUCT, SERVICES, LOGISTICS,

MANUFACTURING, BEVARAGES

Source:Inves,ga,onandEnforcementDivision,MalaysiaCompe,,onCommission

Competition Across the Supply Chain

26


Level of compe**on across the supplychain exerts influence on final prices.Measures must focus on curbing abusivemonopolis*cpower,promo*nghealthyandfairmarket.

RETAILWHOLESALEPRODUCER

Market Assessment in Selected Industries



Source:WorldBank(2014).SynthesisReport:AssessingMarketConductthatImpedesCompe,,oninSelectedIndustries*foryear2011

•  Overhalfoftheindustriesinthemanufacturingsectorlacktradecompe**veness.Inpar*cular,concentratedindustriessuchastransportequipment,lackexportcompe**veness.

•  Miningandquarryingindustriesandmanufacturingarehighlyconcentrated.•  OnethirdofMalaysianservicesindustriesfaceoligopolis*ccompe**on.•  Poultryindustrycompe**onassessmentdealswiththreecompe**on-related

issues:ver*calintegra*onandcompe**on,pricingbehaviourandasymmetricpricetransmission,andseparategeographicmarkets.

Industry CR4HHI

2005 2010 ChangeTransportEquipment - 3,660 2,880 -780

MiningandQuarrying 76.0% 5,661 3,848 -2,164

Services 30.0% - - -

Poultryfarming 88.5% - 3,450* -

DECISIONS



Infringement NoInfringement

CameronHighlandFloriculturistAssocia*on–6Dec2012 PerdanaApartment–12Feb2015

MalaysiaAirlineSystemBerhad,AirAsiaBerhad&AirAsiaXSdn.Bhd–31Mar2014

SarawakRestaurantAssocia*on–16Apr2015

TubeIceManufacturers(TubeIce)–30Jan2015 1TubeIceManufacturer–30Jan2015

SibuConfec*onaryBakeryAssocia*on(SCBA)–12Feb2015

9SibuConfec*onaryandBakeryAssocia*on(SCBA)–16Apr2015

ContainerDepotOperators(CDOPenang)–1June2016 MyEggConsor*umSdn.Bhd.–4June2015

MyE.G.ServicesBerhad(MyEG)–24June2016 Federa*onofSta*onersandBookSellersAssocia*onofMalaysia–26Oct2015

DaycareandTui*onCentres–29Oct2018 MegasteelSdn.Bhd.–15Apr2016

DongwhaFibreboardSdn.Bhd.AndEvergreenFibreboardBhd.(Woodsellers)–7Feb2017

AveryDennisonMaterialsSdn.Bhd.AndUPMReflatacSdn.Bhd.–7Feb2017

TOTAL FINE IMPOSED



CASE PENALTYIMPOSED

MAS&AirAsia RM20,000,000.00

TubeIceManufacturers RM252,250.00

SibuConfec*onaryandBakeryAssocia*on RM247,730.00

CDOPenang RM645,774.00

MyEGServicesBerhad RM6,412,000.00?(upto28Dec2017)

DaycareandTui*onCentres RM33,068.85

RM27,951,022.85

Source:MyCCCalcula,ons,2018




INTRODUCTION


THEORYOFHARM

CASES

CHALLENGES

1

2

3

4

5

Effects of Competition Law



Consumer

MarketEfficiency

EconomicGrowth&Development

Effects Within Competition Law

32



CompeDDonLaw

BusinessConduct

CompeDDon

EffectsofCompeDDonLaw

DeterrentEffects

CompeDDveEffects

•  Compe**on law exists primarily in order to deter business conduct thatwouldinflictcompe**veharm.

•  This implies that preven*on of compe**ve harm by compe**on lawproceedsintwostepsandentailstwocause-effectrela*onships.

Source:TwoContextsforEconomicsinCompe,,onLaw:DeterrenceEffectsandCompe,,veEffects,2018

Effects on Economic Outcomes



1)  Australian Produc*vity Commission found that the pro-compeDDvereformstoinfrastructure intheearly1990sled to price changes that boosted Australia’s grossdomes*c product by 2.5 per cent, and the averagehousehold’sincomebyA$7000perannum.1

2)  The European Commission has found that theliberalizaDon of the European telecoms markets from1998hasbroughtmorecompe**ontothemarkets,andinturnbroughtmajorbenefitstoconsumersintheformoflowerpricesandbeeerservices.2

3)  LiberalizaDon in the US air transportaDon led to bothlower fares and higher output. A liberal regulatoryenvironmentandlowgovernmentcontrolyieldsbusinessfaresthatarebetween20and40perlower.3

Thereisgeneralagreementamongeconomiststhatcompe**onpolicyhasastrongroleinimprovingtheproduc*vityandoverallhealthoftheeconomy.

Source:Varioussources

CompeDDonAuthoriDes

OtherPolicymakers

CompeDDoninmarkets

ProducDvitygrowth

Economicgrowth

Impact of Competition Policy on Macroeconomic Performances



Study Sample/Period MainFindingsClougherty(2010)

25jurisdic*ons.1996-2007

Posi*veimpactofan*trustbudgetoneconomicgrowth.

Petersen(2013)

154countries.1960-2005

Studyanalyzingtheimpactofan*trustlawondemocracy(nosignificantimpact)andondevelopmentandgrowth(posi*velong-termeffect).

GutmannandVoigt(2014)

179countries.1971-2012

Strongeffectongrowthandinvestment.Noeffectonproduc*vitygrowthandFDI.

Ma(2011) 101countries.(developedandDevelopingcountries)1990-2004

Nosta*s*callysignificantimpactofthecompe**onlawindexbutposi*veimpactoftheeffec*veenforcementofcompe**onlawinrichcountries(upper-middleincomeplushigh-middleincomecountriesaccordingtotheWorldBankclassifica*on).

•  Anumberofrela*velyrecentstudiesaeempttoassesswhethercountrieswithcompe**onlaws•  To conclude, the majority of the studies described in this sec*on find a posiDve impact of

compe**onpolicyongrowthmainlyduetoaposi*veeffectonproducDvity.Source:EU(2015),Ex-posteconomicevalua,onofcompe,,onpolicyenforcement

ELEMENTS OF THEORY OF HARM



Atheoryofharmshouldbe:

a)  logicallyconsistent

b)  reflecttheincen*vesthatvariouspar*esfacec)  beinlinewiththeavailableempiricalevidence;and

d)  ar*culatehowconsumershavebeen/willbeharmed

TheoryofHarm

Thetheoryofharmwillbeusedasaparametertodeterminewhetherconductbyfirmsinthemarketcontravenecompe**onlawprovisions(an*-compe**veagreements,abuseofdominant

posi*onandmergerprohibi*on).




INTRODUCTION


THEORYOFHARM

CASES

CHALLENGES

1

2

3

4

5

CASES: PRICE FIXING



Source:DOSM,MyCCCalcula,ons,2018

IceManufacturersBriefFacts •  25 icemanufacturerswhoagreed to increase thepriceofedible

tube iceby50senperbagand thepriceofblock icebyRM2.50perbigblockfromJan1,2014.

•  Enterprises were found to have infringed s 4(2)(a) of theCompe**onAct2010.

Est.PopulaDon 7,209,175(KlangValley,Selangor&Putrajaya)

EsDmatedConsumpDon

3,605.88Bag/dayfor50%oflocalpopula*on

1,316,144.37Bags(est.annualconsump*on)

Pricefixing Pre-fixing:RM2.00/bag,Post-fixing:RM2.50/bag

Costsbornebyconsumers:RM0.50/bag

IntervenDon FineImposed:RM252,250.00

CASES: PRICE FIXING (cont.)



Source:DOSM,MajlisPembandaranSibu,MyCCCalcula,ons,2018

SibuConfecDoneryandBakeryAssociaDon

BriefFacts •  MyCCfound15enterprisestohaveinfringeds4oftheCompe**onAct2010inrela*ontoapricefixingagreementbetween24enterpriseswhoweremembersoftheSibuConfec*oneryandBakeryAssocia*on

•  TheSCBAwasfoundtohaveengagedinanan*-compe**veconductbyagreeingtoincreasethepricesofconfec*oneryandbakeryproductsby10-15%inSibu

Est.PopulaDon 299,768(Sibu)

EsDmatedConsumpDon

149,884persons(50%oftotallocalpopula*on)

749,420pcs(est.annualconsump*on,5pcsperconsumer)

Pricefixing Pre-fixing:RM2.00/pc,Post-fixing:RM2.50/pc

Costsbornebyconsumers:RM0.25/pc

IntervenDon FineImposed:RM247,730

CASES: ABUSE OF DOMINANCE



Source:DOSM,PenangPort,MyCCCalcula,ons,2018

ContainerChainandContainerDepotOperators

BriefFacts •  ContainerdepotoperatorsincreasedthedepotgatechargesfromRM5toRM25andthecontainerdepotoperatorsfixingarebateofRM5offeredtohauliersinrespectofthedepotgatecharges

•  Price-fixingdistortedcompe**oninthemarketfortheprovisionofemptycontainerstorage,maintenanceandhandlingserviceswithinafiveto15kmradiusofPenangPort.

CalculaDons No.ofTEUS =827,013Price/Cost(before) =RM5.00x827,013(A) =RM4,135,065Price/Cost(aaer) =RM20.00X827,013(B) =RM16,540,260

CoststoConsumers (B)–(A) =RM12,405,195

IntervenDon FineImposed:RM645,774




Source:CIDB,MyCCCalcula,ons,2018

SandOperatorsinKelantan

BriefFacts •  Allegedprice-fixingbetweenagroupofsandoperatorsfortheterritoriesofKotaBharu,PasirMas,TanahMerahandMachanginKelantan.

•  Theoperatorshaveundertakentorescindtheissuedpricelistofsanddated10January2017,terminateanyotheran*-compe**vebehaviourinrela*ontothepricelistaswellasissueapressreleaseoftheirundertakingtothemajornewspapers.

CalculaDons Est.annualsandconsump*on=352,997MTPrice/Cost(before) =RM14.00/Tonne(A) =RM4,941,958Price/Cost(aaer) =RM22.00/Tonne(B) =RM7,765,934

CoststoConsumers (B)–(A) =RM2,823,976

IntervenDon Removeprice-fixingarrangement




MyEGServices

BriefFacts •  MyEG had violated the Compe**on Act 2010 by abusing itsdominant posi*on in harming compe**on in the downstreammarket in which MyEG Commerce is par*cipa*ng as aninsurance agent for online foreign workers' permit renewalapplica*ons.

•  MyEG had imposed different condi*ons to the very sametransac*ons with its compe*tors which had harmedcompe**on in the downstream market for the sale ofmandatoryinsurances.

IntervenDon •  FineImposed:

TotalpenaltyofRM2.2million

DailypenaltyofRM7,500from25June2016




GigaShippingandNexusMegaCarriers

BriefFacts •  Giga and Nexus had engaged in conduct that foreclosed a newentrantintothemarkettoprovideforthetransporta*onofmotorvehiclesfrompeninsularMalaysiatovariousportsinEastMalaysia.

•  At thematerial *me,Giga-Nexusmonopolizes themarket for theprovision of logis*c and/or shipment services of motor vehiclesfromPeninsularMalaysiatoEastMalaysia.

IntervenDon MyCCacceptedtheundertakingwiththefollowingcondi*onsamongstothers:

a.  To remove all exclusivity clauses or clauses with the effect ofexclusivity

b.  Publishtheundertakingin5majornewspapersc.  Undertake to con*nue their compe**on law compliance

programd.  Reimbursethecompe**oncommission’sadministra*vecosts




INTRODUCTION


THEORYOFHARM

CASES

CHALLENGES

1

2

3

4

5

CHALLENGES



•  Lowawarenessoncompe**onlaw

•  Malaysiaisayoungcompe**onjurisdic*onthatrequiresincreasedtalentsandcapacitytobeatparwiththemoreestablished.

•  Emergingchallengesduetodisrup*vetechnologiese.g.digitaleconomy

•  BesidesMyCC,Malaysiahassectorregulators(avia*on,telecommunica*ons,energy)thatincludesauthorityoncompe**on

•  LimitedresourcestocarryoutpolicyimpactstudiesSource:UNCTAD(2010&2015),StudyonAwarenessandPercep,onofCA2010andMyCCinMalaysia,May2017

CONCLUSION



•  Hascompe**onpolicyandenforcementbeeneffec*ve???

•  Numerousstudieshaveconfirmedposi*velinkbetweencompe**onpolicyandbenefitsofmarketefficiency,consumerwelfareandeconomicgrowth.ConfirmedinempiricalstudiesnotconfinedtowesterneconomiesbutJapan,SouthKoreaandotherdevelopingeconomies.

•  Youngerjurisdic*onsindevelopingeconomiesfaceachallengeindevelopingtalentandcapacitytobeatparwiththemoreestablishedjurisdic*onsandbeabletorespondtotheincreasingdemandsofcomplexnatureofcompe**onwork.

•  Thiscallsforhighercommitmentandresourcesbygovernmentaswellasdevelopmentofacommunityofstakeholdersconsis*ngofpoli*cians,policymakers,lawyers,economists,businessesandthepublicwhoareALLawareofcompe**onissues.

national economic outlook conference 2019 - 2020 · prof dr saadiah mohamad 28 november 2018 the...

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