Post–Uber/ Grab merger: Better or worse?

A few days ago, my friend and I decided to head to Sri Hartamas from KL Sentral for a healthy brunch at lunchtime. Prices during lunch hour are often higher because (of course) demand/ supply so we weren’t expecting it to be cheap but neither did we expect it to be so high. For Grab, it was RM20 which made us reconsider if the brunch was worth the trip (it’s the price of an entire meal!) For MyCar (another ride-hailing app), it was only RM11 so we were still able to get our smoothie bowls without a major heart pain. Comparing the price between Grab and MyCar, it was a massive 81% increase! Additionally, Grab used to offer many discounts and rebates in the past through text messages to its users but however, these are now nowhere to be seen.

However, as we were planning to head to Bukit Bintang for tea time after brunch, we could not book a MyCar and were forced to book a Grab which the price was higher compared to the former. This may be due to the fact that the area we were in was relatively secluded and not very convenient so the availability of MyCar was very scarce. However for Grab, being the bigger player in the market, it has more drivers hence higher coverage area so we had to use Grab instead.

I am sure many Grab passengers were disappointed with how Grab is now compared to how it was pre-merger. The price had increased but Grab claims that the prices were due to multiple factors such as surge pricing during peak hours, the algorithm to set the price based on driver availability and the number of bookings from a particular location. Weather is also an important factor taken that it was previously claimed that Malaysians would only take metered taxis during raining days or else it would be too expensive.

So what did the merger do?

In Malaysia, the MyCC has (belatedly) announced an intention to study the merger. Currently, Putrajaya is studying the risk of monopoly within the country’s ride-hailing market, which has been triggered by the merger between Grab and Uber.

A new player called Diffride has an interesting operating strategy which appears to be different from the conventional ride-hailing strategy where the company says it will only charge drivers a fee of RM5 per day to use the platform, and no commission. It will be interesting to see if this model is sustainable for the company considering that they only have 2000 drivers at the moment with an anticipated 4000 to join by the end of the year.

As reported previously, the Competition and Consumer Commission of Singapore (CCCS) and Vietnam Competition Commission had both stalled the merger citing “anti-competitive concerns”. Our counterpart across the border has done much more scrutiny and checks which has led to the CCCS to provisionally determine that ride-hailing firm Grab’s acquisition of American rival Uber’s South-east Asian business is an infringement of competition laws. On 24th September 2018, they have imposed a combined fine of S$13million of their infringement! (It was also revealed that the Uber/ Grab had even provided for a mechanism to apportion eventual antitrust financial penalties so it can be said that they saw this coming).

Honestly, it should have been a shining red light in the face of competition authorities that such a merger would cause competition concerns so I am *very very* glad that the CCCS finds that the merger had substantially lessened competition. Some of the provisional findings by the CCCS were interesting such as:

  • Uber would not have left the Singapore market in the near to medium term in the absence of the Transaction.
  • Uber had entered into an agreement to collaborate with ComfortDelGro with the introduction of UberFlash to compete with Grab, and the collaboration was only withdrawn after the Transaction.
  • Market share of taxi booking service was only at 15%. Grab holds a market share of 80%.
  • Fares have increased between 10-15%.
  • Parties have not been able to show that the Transaction gives rise to efficiencies that would outweigh the harm to competition.

Potential remedies and penalties

Reading the press release, I was particularly intrigued where the CCCS boldly said “CCCS may require the Parties to unwind the Transaction”. Such a move is often threatened but rare in practice but it is within their jurisdiction. Under Singapore’s merger notification regime, the Parties had the option of notifying the Transaction for CCCS’s clearance or seeking CCCS’s confidential advice prior to completing the Transaction. In the EU, parties were required to inform any intention of a merger which had an EU dimension.

Measures were ordered by CCCS to allow lower barriers to entry and improve market contestability which includes:

a. The removal of exclusivity obligations on all drivers who drive on Grab’s platform including rentals

b. The removal of Grab’s exclusivity arrangements with any taxi/CPHC fleet

c. The maintenance of Grab’s pre-Transaction pricing algorithm & commission rates until competition

d. Requiring Uber to sell all or part of Lion City Rentals assets to any potential competitor who makes a reasonable offer and preventing Uber from selling to Grab without CCCS’s prior approval.

Furthermore, CCCS said it may suspend the measures on an interim basis if a rival could garner over 30% of total rides in the ride-hailing services market in a month. It would remove the restrictions if the rival could maintain it for 6 months.

In Vietnam, the deal remains under competition authorities review which has warned that it could be blocked if the firms’ combined market share in Vietnam exceeds 50%.

In the Philippines, where the merger has been approved, the competition authorities will continue to monitor Grab’s compliance with conditions intended to improve the quality of service, with any breaches possibly resulting in fines.

Conclusion:

For now, worse. I find it hard to believe that Grab would charge an outrageous 81% higher than a smaller market player (where are the economies of scale theory here?). This also proves that the larger the firm, the more they likely they will consider consumer welfare. I echoed my previous post about the benefits a merger can bring: better resources, saving failing firms, barriers to exit and more. However, mergers have a much more, almost irreversible, impact on the competition market than say an abuse of dominant position. You can then later penalise an undertaking for an abuse post-merger, but not having a dominant position is always better because “prevention is always better than cure” so preventing the root of the problem is more ideal.

I would like to say that I am very impressed with CCCS’s media release by detailing the theory of harm and specifying the remedies that should be undertaken by Grab. Competition authorities are always trying to balance whether should they on one-hand empower smaller entities to raise competition or encourage growth and innovation by having less scrutiny over larger enterprises. Regardless, I am still of the view that it’s better to be safe than sorry and that the competitive levels are more contestable in the near future.

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