About the proposed decision on 7 Tuition and Daycare Centres: Sharing is not caring

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They say sharing brings joy and happiness… but when the Malaysian Competition Commission comes knocking on your door? Not so much joy.

(Below is based on the Proposed Decision under Section 36 of the Competition Act – Infringement of Section 4(2)(a) of the Competition Act by 7 Tuition and Daycare Centre. When the full judgement is released, this post will be updated accordingly. Certain facts may be circumstantial or speculative.)

The facts are as follows. 7 tuition and day care centres were penalised with a financial penalty of RM33K for collectively agreeing to fix and standardise the fees charged for the tuition and day care services in the SS19 Subang Jaya area. The price fixing agreement caught the Commission’s attention and were penalised accordingly. (The Commission is allowed to impose a financial penalty not exceeding 10% of the undertaking’s worldwide revenue given in the Competition Act 2010)

Competitors collude more frequently than consumers might think and it is extremely naive to think that only high profile companies collude. It exists from your neighbourhood bakery sellers ((No. MyCC.0045.2013)) to ice manufacturers ((No. MyCC.700.2.0001.2014)) [Suggestion: the MYCC should come up with a shorter name for each case]. Healthy competition means competitors are striving to better serve customers than their rivals. As a result, competitors are never sure what their competitors will do next in trying to gain a competitive advantage. However, especially in oversaturated and concentrated markets, instead of going head-to-head with their competitors, why not just make a phone call to the CEO and collude? Where competition is stiff and there’s a lack of consumer choices in a concentrated market,  that sure seems like a win-win situation for the undertakings but not for consumers… or themselves when they find themselves within MYCC’s list.

Article 4(1) of the Competition Act 2010 states that “A horizontal or vertical agreement between enterprises is prohibited insofar as the agreement has the object or effect of significantly preventing, restricting or distorting competition in any market for goods or services.” (An improvisation of Article 101 TFEU) agreement cannot be examined in isolation from the earlier context, that is, from the factual or legal circumstances causing it to prevent, restrict or distort competition. Firstly, it is necessary to assess the impact on the relevant market and then weigh them with any possible efficiency gains or positive effects. Price-fixing agreements would predominantly fall under the object category because it’s quite clear that price-fixing would only benefit themselves and have pecuniary effects on the consumers.

It’s no surprise for information exchange to be regarded as a waving red flag to competition authorities for the presence of a cartel. In fact, information exchange is often considered as the no.1 ingredient of a cartel. However, information exchange can be a double edged sword. On one hand, information exchange allows concerted practice amongst undertakings which means this allows collusion amongst the parties. On the other hand, they may also be a source of efficiency gains to remedy some market failures such as information asymmetries. In Asnef‐Equifax case, information sharing can help to reduce the disparity between the information available to credit institutions and that held by potential borrowers.

So where does one cross the line when sharing information is deemed anti-competitive or not? As a general thought, information exchange restricts competition by object if the exchange of information is individualised (as opposed to aggregated) and the exchange concerns firms’ future conduct (removes strategic uncertainty). Features of the relevant market such as concentration, nature of the product or nature of the market plays an important role.

In Bananas (EU Case), the Commission found the bananas importers had engaged in direct bilateral pre-pricing communication had taken part in a concerted practice to coordinate quotation prices for bananas. It was found that the parties communicate frequently and the conversations which took place were about future pricing policies. It would be easy to assume that the undertakings would take the information into account when determining the policy which they intended to pursue on the market. The court laid down an interesting point where in Competition law, the requirement of independence precludes direct or indirect conduct between operators designed to disclose to actual or potential competitors decisions or intentions concerning their own conduct on the market.

There are however several circumstances where information sharing is legal such as between franchisors and franchisees since communication is vital for the success of both parties to profit. Another example is where the following criteria are satisfied: (i) the arrangement must contribute to improving the distribution of the services in question or economic progress as a whole; (ii) consumers must be allowed a fair share of the resulting benefit, (iii) it must not impose any non-essential restrictions on undertakings and (iv) it must not afford the possibility of eliminating competition in respect of a substantial part of the services in question. (Asnef‐Equifax)

Comment:

Price fixing is a straightforward case because it has a ‘pernicious’ effect on competition and to be so unlikely to produce efficiencies. This is why it is a “by object” restriction instead of “by effect” because to prove the latter is harder, takes longer time and more resources.

There are, however, many much more complicated situations. I’ll touch on what was the European Competition Commission’s biggest fine ever of £2.1million on an undertaking we used everyday– Google.

Sources:

  1. Proposed decision on seven tuition and day care centres for price fixing conduct
  2. Competition Act 2010
  3. MYCC Guidelines on Anti-competitive Agreements
  4. https://www.twobirds.com/en/news/articles/2007/ecj-preliminary-ruling-information-exchanges-between-competitors
  5. Jones & Sufrin Competition law

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