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Dominant position in competition law

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Jemy Gatdula

Being Right

chess-competition

No. The article is not about sex.

Unfortunately.

It’s about the Philippine Competition Commission’s (PCC) power to investigate and punish “abuse of dominant position.” Which leaves the questions many businesses are asking: what is “dominant position” and when is it being “abused?”

As defined by law, “dominant position refers to 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.”

Hence, any acts that “substantially prevent, restrict or lessen competition,” constitute abuse of dominant position: predatory pricing; imposing barriers to entry; unrelated transaction bundling; price discrimination; and imposing restrictions on the lease or contract for sale or trade of goods or services.

Further clarification is made down the line: that nothing in the law “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.”

Also, that “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.

Finally, the PCC is not constrained “from pursuing measures that would promote fair competition or more competition as provided in this Act.”

The latter essentially means that the PCC can throw the Philippine Competition Act (PCA) down the wind if it feels like doing so.

PCC’s self-published materials make their own disclaimer that “there is nothing illegal about having a dominant position, or acquiring, maintaining and increasing market share through legitimate means that do not substantially prevent, restrict, or lessen competition.”

All the foregoing to achieve the objective of “a more equitable distribution of opportunities, income, and wealth” and “a sustained increase in the amount of goods and services produced by the nation for the benefit of the people.”

The problem, nevertheless, for a law that contains essentially penal provisions, is ambiguity.

Fellow Cantabian and competition law practitioner Annalies Azzopardi was right to say that: “The uncertainty as to what a dominant position really is falls foul of the general principle of legal certainty, which posits that rules of law should be ‘clear, equal, and foreseeable’ in order to ‘enable those who are subject to them to order their behavior in such a manner as to avoid legal conflict or to make clear predictions of their chances in litigation.’”

As elucidated by Vijay Kumar Singh (now with the Indian Institute of Corporate Affairs and formerly member of the Competition Commission of India), citing the US Supreme Court ruling in Verizon: “The practice of prohibiting ‘abuse of dominance’ is a challenging and complex task for the competition agencies around the world for two simple reasons, i.e. there are several practices which may amount to an abuse of dominant position (predatory pricing, offering rebates etc.) and there is a very thin line of difference between the legitimate practice of an enterprise to become dominant in market, which is perfectly justified from a business perspective, and using the dominant position unfairly to the detriment of the competition in markets (“Competition Law Dominant Position and Its Abuse: Meaning of Dominant Position,” September 2014).”

From our own legal definition of dominant position, three elements stand out: a) position of economic strength, b) allowing it the independent ability to c) prevent effective competition within the relevant market.

But as Ms. Azzopardi points out: “Walker and Pearce Azevedo argue that this ‘legal’ definition can never make sense in economic terms since [amongst other reasons] ‘No successful firm can truly act independently of its customers and consumers to an appreciable extent, due to the discipline of the demand curve, whereby, if a firm raises its prices, it will sell fewer units, whether it is dominant or not (“Dominant Position: A Term in Search of Meaning” Birmingham, Global Antitrust Review, 2015).’”

After all, take “predatory pricing.”

In the short term, the lowered prices clearly benefit consumers. The “predator” cannot sustain the below cost pricing for long and eventually will have to raise prices. When that happens, newer competitors can swoop in and price accordingly against the predator.

Or price differentials. Gehrig and Stenbacka identify three arguments in its favor: First, price discrimination increases the flexibility of pricing; Second, price discrimination improves fairness between consumers; and Third, in markets that are reasonably competitive, the use of price discrimination makes competition more intense (“The Pros and Cons of Price Discrimination,” Konkurrensverket Swedish Competition Authority, 2005).”

Clearly, businesses have possible tools at their disposal to avoid running afoul of the PCC: employing theoretical and empirical analysis (e.g., pricing, costing, investment options) to meet legal demands relative to determining harmful, exploitative or exclusionary practices.

Still, more specific and concrete legal standards would be helpful as well.

Jemy Gatdula is the International Economic Law lecturer for the University of Asia and the Pacific School of Law and Governance, and Of Counsel for the Policarpio and Acorda Law Office.

jemygatdula@yahoo.com

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