Finally, Congress passes Philippine Competition Act

Senator Bam Aquino

After 25 years, Congress finally passed the Philippine Competition Act.

The principal author of the measure is Senator Bam Aquino, the youngest senator of the 16th Congress and a renowned social entrepreneur.

Here, he shares his thoughts on the importance of the PCA.

Q: Who should be afraid of this measure?

A: The Philippine Competition Act punishes entities that exhibit anti-competitive behaviors, cartel-like actions and abuses in dominant position.

If your business is playing fair, there is nothing to fear. What this bill will do is to protect fair and legitimate business practices and punish abuses in the market to achieve greater economic efficiency.

Q: On anti-price fixing, if a company decides to follow the price of his competitor, is that considered price fixing?

A: Price matching, where a business follows suit in the general pricing of the market, is allowed in the bill.

This is beneficial for consumers because it means that competitive pricing is among the factors in choosing the best products and services for them.

What is prohibited is price fixing, which is an agreement between the players in the market to manipulate the price of goods and services at the expense of the consumers.

Q: How will abuses via high prices be determined in different industries? For instance, branded products are typically priced premium as part of their image strategy. We also all pay for Microsoft while Linux is free.

A: Premium pricing, where certain companies position themselves as premium brands and peg their products at higher price points than the usual in the markets, is allowed in the bill.

The measure does not hinder companies from choosing their target consumer base, and positioning and pricing their products based on its brand value or the overall strategy of the company.

The bill does not allow for selected companies colluding in manipulating prices in a way that limits the choices of consumers. It also does not allow a dominant player in the market to impose barriers to entry of new and upcoming brands.  Furthermore, it penalizes other abuses that will prevent competitors to offer consumers better or cheaper alternatives in the market.

Q: Will patented proprietary features be allowed since there will be switching cost to consumers? Ink cartridges, pens, coffee pods, software, test strips are some cases.

A: Intellectual property rights of entities are protected in this measure.

These patents are generally considered as legal barriers to entries, which are protected in the Philippine Competition Act (Section 15, Abuse of Dominant Position).  It explicitly states that the right of entities to their intellectual property is not considered prohibited.

Q: On anti-monopoly, what is the market shares threshold before the government steps in?

A: Firstly, let me clarify that the bill does not directly prohibit the existence of monopolies. If a certain company has a big market share because of competitive price and high quality, it will not be prohibited from growing or maintaining a dominant position in the market.

On the other hand, abuse of dominant position is an anti-competitive behavior that makes use of the current size and influence of a company in the market to drive away competition.

Some of these are: setting prices below cost to drive away competition, imposing barriers to entry or other restrictions that prevent the competitors from developing in the market (found in Section 15).

In determining the threshold for dominance, the Commission shall be asked to look into various factors and not just on an entity’s market share. These factors include market share, existence of competition in the relevant market, and the presence of barriers to entry, among others (found in Chapter V, Section 27).

Anti-competitive mergers and acquisitions, moreover, are agreements between two or more companies that decide to be one entity that will impact the market negatively.

However, not all mergers and acquisitions are prohibited. Only those mergers and acquisitions that would substantially prevent, restrict, or lessen competition will be disallowed.

In any case, we’ve put a provision where the companies that are merging or in the process of acquisition should notify the Commission if their action will reach a value of a billion pesos.

The Commission then would review the transaction if it will negatively affect the market.

( Josiah Go is chair of marketing training firm Mansmith and Fielders Inc. For the complete interview as well as interviews with other thought leaders, follow his blog at www.josiahgo.com.)