ABSTRACT
While market dominance is not detrimental per se, competition policy and law ensures that
firms do not abuse their dominant positions – consumer welfare is hence protected and other
producers are provided with a level playing field to compete when necessary. Thus,
Singapore’s application of competition law and policy adheres to the rule of reason,
recognizing that market dominance can be beneficial if firms do not become inefficient as a
result.
Therefore, the focus of this essay will first examine the importance of competition policy and
law especially in the context of Singapore’s stage of social and economic development, its
trade dependent open economy and relatively small domestic market. This essay will further
discuss how competition policy and law fulfills Singapore’s aim of achieving continued and
sustained economic growth through innovation and raising productivity while simultaneously
ensuring an equitable society.
Thus noting that the Competition Act exempts industries overseen by regulatory bodies such
as telecommunications and public transport, this essay will consider whether they have been
successful in inducing competition in line with these goals, since these sectors are
dominated by a few key players. Finally, with Singapore’s emphasis on innovation, research
and development in a knowledge based economy; this essay will also discuss how
intellectual property policy can facilitate competition policy.
1
OBJECTIVES OF SINGAPORE’S COMPETITION POLICY
aim, scope, enforcement
The aim of Singapore’s competition policy is to ensure that dominant firms do not distort or
restrict competition because price and non-price competition often results in substantial
benefits for consumers and the economy in general.
Therefore, under the Competition Act, the scope of Singapore’s competition policy covers
these three main areas1:
1. Section 34: the prohibition of “agreements between undertakings, decisions by
associations of undertakings or concerted practices which have as their object or
effect the prevention, restriction or distortion of competition within Singapore”
2. Section 47: the prohibition of “any conduct on the part of one or more undertakings
which amounts to the abuse of a dominant position in any market in Singapore”
3. Section 54: the prohibition of “mergers that have resulted, or may be expected to
result, in a substantial lessening of competition within any market in Singapore for
goods or services”
Exempt from the Act however, are certain sectors covered under specific and relevant acts
and regulatory bodies2. These sectors are either of great strategic importance to Singapore
or require expert in-depth knowledge which would be better handled by a separate
committee.
However, an important caveat to Singapore’s policy is that market dominance alone is not a
cause for concern; rather, it is the abuse of market dominance that needs to be addressed
and hence informs the manner in which competition is regulated. This is because market
1
Taken from the Online Statues Database
http://statutes.agc.gov.sg/aol/search/display/view.w3p;page=0;query=CompId:dfea8717-00b2-47f0-8e8f7a630e163263;rec=0
2
For example, electricity (Electricity Act) and gas (Gas Act) under the Energy Market Authority (EMA);
telecommunications (Telecom Competition Code) under the Information Development Authority.
http://www.mti.gov.sg/legislation/Documents/app.mti.gov.sg/data/pages/570/doc/frm_LEG_Competition_Se
ctoral%20Exclusions.pdf
2
dominance arises from the effectiveness and efficiency of a firm in being able to outcompete their rivals; it is only when firms abuse this position to stifle and prevent new
competition does it become a problem. What is important is hence the net economic benefit
produced by these firms.
The Competition Commission of Singapore (CCS) thus functions to regulate and enforce the
Competition Act. It has the authority to investigate possible instances where firms may be in
contravention of the law, and in the event that firms are found in infringement, the ability to
impose fines and enforce that offending firms take immediate measures to rectify anticompetitive behaviour.
3
THE IMPORTANCE OF COMPETITION
with specific reference to the Singaporean context
Profit-maximizing producers tend to extract substantial consumer surplus by abusing their
commanding market position through raising prices and reducing output. Competition is
therefore important to ensure that consumer welfare is protected and the efficiency of the
market is maintained. This is because when firms dominate markets, they may seek to
cement their position through abusing their market power with anti-competitive practices to
drive out competitors.
This is a problem for the following reasons:
1. Reduction of consumer choice and product diversity, dominant firms may create
artificial barriers to entry such as through exclusive dealing3 or engage in predatory
pricing to drive out competitors
2. Price fixing, multiple firms may engage in collusive behavior in order to raise prices
above the prevailing market price, distorting the efficiency of the market and
adversely affecting consumers4
3. Lack of competition results in inefficiency, if firms are not threatened by competition,
they have reduced incentives to lower costs or innovate and produce better products
It is thus evident that competition benefits the economy. When firms engage in price
competition, prices are lowered for the consumer, and when firms engage in non-price
3
This was seen in the case of Coca Cola Singapore Beverages, which after investigation from the CCS was
found to have obligated retailers to exclusively supply its products through “restrictive provisions in its supply
agreements with on-premise retailers, such as exclusivity conditions and conditional rebates”.
http://www.ccs.gov.sg/content/dam/ccs/PDFs/Media_Release/MediaRelease_CocaCola%20Singapore%20Beverages%20changes%20business%20practices%20in%20local%20soft%20drinks%20
market%20following%20enquiry%20by%20CCS.pdf
4
In 2011, 10 Modelling Agencies were fined by CCS for price fixing by “by agreeing to fix the rates of modelling
services”, affecting “publishers, photographers, show choreographers, show organizers and fashion labels”.
http://www.ccs.gov.sg/content/dam/ccs/PDFs/Media_Release/Media%20Release_Modelling%20Agencies%20
ID_final%20%2823%20Nov%2011%29.pdf
4
competition, firms either increase the quality of their products or generate diversity by
distinguishing their products from competitors. However, competition is especially important
in the Singaporean context because of the characteristics of the Singaporean economy as a
small domestic market and trade dependent open economy.
Small Domestic Market
Due to the nature of Singapore’s economy as a small domestic market, it seems to be the
case that it is inevitable for natural monopolies to arise in certain sectors5. These refer to
industries where in the long run, it is only feasible for one firm to exist because high fixed
costs are involved which can only be mitigated by supplying to a large amount of consumers,
benefitting from substantial economies of scale and to achieve minimum efficient scale.
Therefore, for consumers to not be adversely affected, firms must pass on these cost
savings to the consumer.
Competition policy in Singapore thus has to recognize that in certain industries, small or
relatively low domestic demand from a small population coupled with high fixed costs may
reduce the amount of competitors and competition possible. The obvious solution adopted
by Singapore has been to minimize barriers to entry for foreign firms and investment in order
to stimulate competition in the domestic economy through market liberalization
6
,
deregulation and policies to attract foreign investment. The challenge however, is that
certain markets remain which are difficult to liberalize due to the nature of the industry, such
as public transport. Alternative measures to bolster efficiency and consumer welfare thus
may need to be considered.
Trade Dependent Open Economy
5
For example, the Energy Market Company (EMC) supplies Singapore electricity market and is considered a
natural monopoly by the government – to ensure that monopoly power is not abused, the EMA acts as a
regulatory body.
https://www.ema.gov.sg/page/16/id:40/
6
For Singapore’s financial sector, from 1999 to 2001, the MAS engaged in two reform programmes with
liberalized the financial sector and gave foreign firms more opportunities to conduct business in Singapore.
http://businessperspectives.org/journals_free/imfi/2007/imfi_en_2007_01_Sufian.pdf
5
While domestic consumption is not a large factor of Singapore’s economy, it is evident that
trade features heavily – Singapore’s trade to GDP ratio from 2010 – 2012 measured at
400.2% 7 according to the WTO. In 2012, net inflow of Foreign Direct Investment (FDI)
formed 20.62%8 of Singapore’s GDP.
Competition law then must exist in order to complement and encourage foreign investment,
this entails that policies apply both to foreign and domestic firms in order to ensure that local
firms are not privileged. Correspondingly, this would create a favourable environment for
foreign firms to operate as they compete on similar grounds. Similarly, domestic firms are
protected by preventing foreign firms from abusing their market power. FDI Competition
policy through the improvement of infrastructure and formation of hubs such as Biopolis and
Fusionopolis then function as added incentives for foreign firms by facilitating the resources
they require.
Social and Economic Development Objectives
Competition law and policy thus functions in line with Singapore’s economic goals to raise
productivity and increase innovation in our knowledge-based economy by spurring product
development, research and development as firms seek to out-compete each other.
Consumers hence also benefit from increased competition whereby prices are reduced and
product quality and increase in variety.
7
http://stat.wto.org/CountryProfile/WSDBCountryPFView.aspx?Country=SG&Language=F
http://www.tradingeconomics.com/singapore/foreign-direct-investment-net-inflows-percent-of-gdp-wbdata.html
8
6
OPPORTUNITIES AND CHALLENGES
areas for improvement
Having expounded upon the benefits of competition, which thus requires its regulation and
enforcement, this essay will now examine the cases whereby current competition policy and
law fails to bring about socially or economically efficient outcomes.
Competition leading to reduced consumer welfare
Competition policy has to be mindful that competition can perjure consumer welfare instead
of improving it. This is because firms with rising costs acting in close competition may seek
to make cost reductions especially if profit margins are narrow, and this may reduce the
quality of services rendered to consumers.
One example would be the airline industry9 whereby notoriously high costs and small profit
margins have resulted in the scaling back of seat sizes especially for those in economy class,
in order to accommodate larger spaces for premium customers and increase passenger
yield. In addition, with globalization and the increased free flow of labour, harsh wage
competition may result in the depressing of incomes, most notably for those working in
labour intensive industries.
Therefore, perhaps a balance has to be struck between the need for free and unlimited
competition with the need to ensure the welfare of individuals – this is unlikely to fall under
the purview of the CCS, but alternate policies that rectify these issues which are unresolved
by competition alone will need to be implemented.
False or lack of competition
As detailed earlier, natural monopolies or industries where only a few competitors exist are
covered by separate regulatory bodies. While these regulatory bodies have been successful
9
http://online.wsj.com/news/articles/SB10001424052702304384104579141941949066648
7
in ensuring consumer interests are represented10, the problem is that due to the nature of
the industry, attempts to introduce competition have fallen short due to the issues that new
entrants face in competing with established brands. To better serve the interests of efficiency,
regulatory bodies may have to function more than just as price watchdogs and take greater
measures to increase competition.
Under the current paradigm, public transport in Singapore is regulated under the Public
Transport Council which enforces quality standards11 and ensures that fare increases are
applied only when necessary to cover costs. Despite the existence of two different vendors
– SMRT and SBS – because they ply different routes, can be considered as two different
monopolies. While this may be desirable from an efficiency standpoint for routes to not
overlap, the lack of competition reduces incentives to be more efficient. Measures thus may
need to be implemented to place them in direct competition, or in competition with third-party
operators.
For example, other private operators could be granted licenses to operate on the same
existing bus routes. It thus needs to be considered whether third party operators should be
given subsidies in order to compete with existing firms – while subsidies may make firms
reliant and inefficient, providing limited assistance for certain fixed costs, in this case
possibly the technology for EZ link card usage, may go a long way in combating the barriers
to entry against established firms which are more well-known and have advantages.
Perhaps in order to truly establish a fair playing field for new entrants, we need to go against
certain tenets of competition law and recognize that existing firms already have substantial
advantages that are not easily threatened.
Consumer Welfare
10
The most recent example being the reversal of the telcos decisions to charge existing subscribers for 4G
services, a detail that was not included in the sign-up contract, after IDA’s investigation.
http://www.zdnet.com/sg/singapore-telcos-told-not-to-charge-existing-subscribers-for-4g-7000028689/
11
The PTC conducts performance reviews of SBS and SMRT and imposes fines if they have been found to not
meet service standards.
8
Singapore’s recent implementation of lemon laws sought to protect consumer interests from
defective goods and services. Similarly, to ensure fair competition, advertising laws should
also be strengthened. Currently, the Advertising Standards Authority of Singapore (ASAS)
under the Consumer Association of Singapore (CASE) evaluates advertisements and if
found to be misleading, attempts to request compliance, failing which they can be taken to
court.
False advertising is relevant to competition policy and law as it provides an unfair and
illegitimate advantage to these firms; the imperfect information generated also disallows
consumers from making rational economic decisions in their purchases. Therefore, perhaps
more stringent measures should be introduced in order to discourage false advertising.
Competition Policy and Intellectual Property
Finally, in the transition towards a more knowledge-based economy prizing innovation and
value creation, intellectual property policies and competition policies need to balance
between the goal of providing innovators an incentive to create new products by allowing
them to generate profits from their ideas, with the issue that these new technologies may
substantially benefit competitors.
Patent law in Singapore should hence ensure that applicants have a legitimate concept or
idea that needs to be protected, and avoid the situation whereby individuals exploit patents
to litigate firms and entrepreneurs, hindering innovation from taking place. For example,
Vuestar Technologies applied for a patent in 2008 for the common practice of "internet
searching via visual images12"; obviously with the intent to profit. While the validity of the
patent can be challenged through a notice of opposition, Singapore could set a precedent in
preventing the abuse of patents and prevent firms from undergoing laborious litigation work
– perhaps a council or framework could be established to ensure that such patents are
reviewed by individuals with expert knowledge.
12
http://www.zdnet.com/spore-followed-global-process-for-patent-troll-2062042276/
9
CONCLUSION
Competition policy and law is especially important for Singapore in the context of our small
domestic economy and trade-reliant open economy. It serves the purpose of achieving
Singapore’s economic goals of efficiency and productive when firms engage in price and
non-price competition. Consumer welfare is thus also correspondingly enhanced.
However, the main challenge to Singapore’s competition policies will lie in the areas where
natural monopolies or only a few competitors exist due to substantial natural barriers to entry
such as high fixed costs. Future competition policy will thus have to ensure that regulatory
bodies and frameworks are not only able to ensure these firms do not abuse their dominant
positions, but also to induce competition in order to achieve greater efficiency.
10
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