Cartels and the
Competition Act
A guide for consumers and
businesses
Contents
Competition law in Singapore
Introduction
What is Competition law?
1
What is a cartel?
(a) Price Fixing
(b) Bid Rigging
(c) Market Sharing
(d) Production Controls
2
Why are cartels bad?
4
How to spot a cartel
Susceptible Markets
5
What can be done about cartels?
Be Vigilant!
Confidentiality
What can the CCS do?
6
Contact Us
9
Competition law in
Singapore
Introduction
This guide provides businesses and consumers
with information about cartel practices and
competition law in Singapore. It will help you
to identify possible cartel activities and show
you how to bring them to the attention of
the Competition Commission of Singapore
(CCS). The CCS is a statutory body set up
to administer and enforce the Competition
Act (Cap.50B) (the Act) and to maintain and
promote healthy competitive markets.
What is Competition law?
Consumers (including businesses) benefit from
competition as it will result in competitive
prices and the development of new and
better products. If there is no competition,
businesses need not worry about consumers
having alternative choices. They may then
have reduced incentive to lower their costs or
innovate.
Competition law deals with conduct that
reduces competition. Technically, the Act
prohibits agreements or concerted practices
between businesses that prevent, restrict or
distort competition.
What is a cartel?
A cartel is an agreement between producers
or suppliers of a good or service to limit
their production and/or to fix prices. Cartel
agreements could be written and formal but
are usually verbal, informal and secret. There
are 4 main types of cartel conduct:
(a) Price Fixing;
(b) Bid Rigging;
(c) Market Sharing; and
(d) Production Controls.
(a) Price Fixing
Price fixing involves competitors agreeing to
fix, control or maintain the prices of goods or
services.
Price fixing can be ‘direct’ where it involves
an agreement to increase or maintain actual
prices, or ‘indirect’, for example, where it
involves an agreement to offer or not to offer
the same discounts or credit terms. Price fixing
agreements do not have to be in writing. They
can be just a ‘wink and a nod’, or a verbal
understanding over a drink in a local pub, at an
association meeting or at any social setting.
It does not matter how the agreement was
reached or whether it has been carried out.
What matters is whether competitors have
agreed to collude.
(b) Bid Rigging
Bid rigging occurs when competitors agree
on who should win a tender. To support the
cartel member, who has been designated to
‘win’ that tender, the other members may
refrain from bidding, withdraw their bid, or
submit bids with higher prices or unacceptable
terms. Cartel members may agree amongst
themselves to take turns to be the designated
‘winner’ or on how to reward ‘supporters’ of
the winning bid, for example, by giving subcontracts to them.
Bid rigging usually results in the party inviting
the tender (the tenderee) paying more than
they would if the tender was competitive. The whole purpose of bid rigging is to stop
low bids. These higher prices are inevitably
passed onto consumers. A non-competitive
tender process may also result in the tenderee
receiving lower quality goods or services.
Bid rigging may take place for tenders called
by the private or public sector.
(c) Market Sharing
In a market sharing agreement, competitors
divide customers either by geographical area
or customer type (e.g. business/non-business)
and agree to sell only to their allotted
customers. As a result, they do not compete
for each other’s customers. The effect of such
agreements is that the customers are not able
to shop around for the best deals as they have
fewer suppliers. (d) Production Controls
Production control involves an agreement
between competitors to limit the quantity of
goods or services available in the market. By
controlling the supply or production of goods
or services, the cartel is able to, indirectly,
increase prices to maximise their profits.
Why are cartels bad?
Cartels inhibit competition since there is little
or no incentive to lower prices or provide better
quality goods or services through operating
efficiently or investing in technology and
innovative processes. As a result, consumers
are hurt and there is likely to be harm to the
Singapore economy as well. In particular,
cartels cause harm in the following ways:
(a) Businesses pay higher prices which
result in higher business costs. These
higher costs are eventually passed on
to consumers by way of higher retail
prices.
(b) Cartel members have less incentive to
innovate or produce better quality
goods or services. Cartels can also affect the economy as a
whole. Apart from consumers, downstream
firms may, due to higher costs or reliance on
local products that are not as innovative as
those in other countries, be less internationally
competitive. Competition not only spurs lower
prices and better quality of goods or services;
it also helps boost production as consumers
may be inclined to buy more at lower prices.
How to spot a cartel
Susceptible Markets:
Although cartels may occur in almost any
industry and can involve goods or services,
certain markets may be more susceptible to
cartels because of the nature of their industry
structure and the way they operate. Markets which are more likely to give
rise to cartels tend to have the following
characteristics:
• Few competitors (easier to communicate
with each other);
• Products with similar characteristics
(makes it easier for cartel members to
monitor each other’s prices); • High barriers to entry for potential
entrants (high prices set by the cartel
will not be easily upset by a new
entrant);
• Established communication channels
between competitors (helps them to
agree on prices and monitor each
other); and
• Excess production capacity (there is
more likely to be below cost pricing
with competition so there is a greater
incentive for cartel members to collude
to stop this from happening).
What can be done
about cartels?
Be Vigilant!
Although cartels generally operate in secret,
you may be in a position to notice if the
actions of your supplier do not make economic
sense.
The first line of defence against cartels is to be
alert. If you suspect a cartel, keep records of
the events leading to your suspicions:
• Note down the date and time of
conversations with suppliers when
the events are still fresh in your mind;
and
• Keep copies of all relevant documents,
for example, records of a tender and
all communications with the tenderers.
Voice your concerns to the CCS and provide
us with as much information as possible. Our
contact details can be found on the last page
of the brochure. You can also refer to our
website at http://www.ccs.gov.sg for further
information. While the CCS is reviewing the
matter, please refrain from discussing your
suspicions with the suppliers involved as this
may jeopardize any investigation that the CCS
may undertake.
Your vigilance will help to ensure the continued
competitiveness and efficient operation of
the Singapore economy with benefits for
consumers and businesses alike.
Confidentiality
When you make a complaint to the CCS and
you think that any information you provide
may seriously damage your commercial interest
if it is disclosed, you should clearly mark the
information as confidential and explain why
this is so. You should try to limit the amount
of information for which you are claiming
confidentiality and raise such claims with us
at the earliest opportunity. Please note that
we are unable to accept blanket requests for
confidentiality unsupported by reasons.
Where there is a valid reason for confidentiality,
the CCS will try to ensure that the information
you provide remains confidential and your
identity stays protected. However, in order
to investigate a complaint fully, it may be
necessary for us, at some stage, to divulge the
information or the source. Should we consider
it necessary to reveal any of the confidential
information you have provided, we will discuss
this with you.
What can the CCS do?
Complaints will be evaluated to see if there
are sufficient grounds to justify investigation. The CCS has substantial investigation powers
which it can exercise if there are reasonable
grounds for suspecting that the Act has been
infringed.
Cartels infringe section 34 of the Act. The
CCS can impose substantial financial penalties
of up to 10% of the turnover of the business
in Singapore for each year of infringement,
up to a maximum of 3 years.
As cartel activities are often conducted
secretly, the CCS has a leniency programme
to encourage cartel members to come
forward to provide information on cartels.
Under the leniency programme, a cartel
member, who is the first to come forward
and provide evidence of cartel activities before
commencement of formal investigations,
will be given full immunity from financial
penalty.
For more information on CCS’ leniency
programme, please refer to the CCS website
(www.ccs.gov.sg).
Contact Us:
By Email:
[email protected]
A complaint form is available on our website
at www.ccs.gov.sg
By Post:
Competition Commission of Singapore
5 Maxwell Road, #13-01 Tower Block
MND Complex, Singapore 069110
(Please mark “COMPLAINT” clearly on the
top left hand corner of the envelope so
that we may speed up the processing of
your complaint.)
By Fax:
(65) 6224 6929
We would usually expect complaints to
be made in writing with as much factual
information as possible to enable us to assess
the case. Should you wish to speak to one of
our officers before filing a complaint, please
call our hotline: 1800 325 8282. For more information on cartels and the
work of the CCS, please visit our website at
www.ccs.gov.sg