Price-Fixing, Bid-Rigging and Other Anti-Competitive Practices to Avoid
On 21st March 2017, the then-Competition Commission of Singapore (now known as the Competition and Consumer Commission of Singapore, or CCCS) issued a proposed infringement decision against five companies for alleged bid-rigging in the tender for the provision of electrical services the Formula 1 (F1) Grand Prix from 2015 and 2017.
The companies: the Cyclect Group, HPH Engineering and Peak Top Engineering had allegedly colluded in their bidding for F1 tender, with the Cyclect Group preparing all price schedules and final bid prices for HPH’s and Peak Top’s submissions, so that Cyclect Electrical would win the tender. The five companies are also accused of having colluded on another tender, the provision of barcode tagging services for international school GEMS World academy.
The Four “Evils” of Competition Law
Under section 34 of Singapore’s Competition Act (CA), business entities are prohibited from entering into any agreement or engaging in any concerted practice with the object or effect of preventing, restricting or distorting competition.
The CCCS Guidelines on the Section 34 Prohibition 2016 highlight certain activities deemed to have the object or effect of restricting competition. This includes the four “evils” of Competition Law:
- Market sharing
- Limiting or controlling production or investment
These activities are considered serious infringements of the CA and as they are usually deemed to have anti-competitive effects. It is therefore important that businesses learn to recognise such practices and understand why they are considered anti-competitive.
Price-fixing is the practice whereby competitors agree to fix, control or maintain the prices of goods or services.
This can be done through direct collusion between competing firms i.e. firms explicitly agree to maintain prices at a specified level or indirectly, through the exchange of price information or the setting of recommended prices by industry associations.
For instance, in as in the case of Price fixing in Modelling Services, the Association of Modelling Professionals (AMIP) acted as the intermediary to fix prices for modelling services. 11 modelling agencies met together under the auspices of the AMIP to discuss, plan and agree upon the prices for modelling services.
Such anti-competitive behaviours do not have to be recorded in writing. A verbal understanding at, for instance a trade association meeting or at a social event, may be sufficient to show that there was a price fixing agreement.
Bid-rigging occurs when competitors agree on who should win a tender.
In support of the cartel member designated to ‘win’ the tender bid, other cartel members may suppress their bids or submit bids with much higher prices than they would otherwise offer.
Typically, cartel members take turns to be the designated ‘winner’ as in the case of Motor Vehicle Traders. Such a practice distorts competition and the party inviting the tender is likely to pay higher prices than in a competitive bidding process.
3. Market sharing
Market sharing is the practice where competitors divide up the consumer markets in various ways, such as by geographical area or customer types and agree to keep to their allotted segment of the market.
Market sharing thus allows competitors to avoid direct competition by keeping within their allotted market segments. This results in higher prices for consumers.
4. Limiting or Controlling Production or Investment
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.
Defences Available to Businesses Accused of Anti-Competitive Behaviour
The Third Schedule of the CA contains the defences applicable to a section 34 infringement.
Notably, under paragraph 9 of the Third Schedule, section 34 does not apply to agreements that produce Net Economic Benefits (NEB). NEB will be found where an agreement contributes to an improvement in production, distribution or promotion of technical or economic progress.
A notable example of where the then-Competition Commission of Singapore made a finding that an agreement produces NEB is the cooperation agreement between Qantas airways and Orangestar Investments (the holding company of Jetstar Asia and Valuair). In this case, the then-Competition Commission of Singapore found that there would be NEB in terms of better air connectivity and cost savings in parties’ operations through better scheduling and a wider scope of inventory control.
What Should Businesses Do to Avoid being Slapped with CCCS’ Infringement Actions?
Be cautious when attending meetings with anti-competitive objectives
Besides steering clear of anti-competitive business practices like the four “evils”, it is important to note that the CCCS takes a wide definition of the terms “agreement” and “concerted practice”.
Agreements are not limited to legally enforceable agreements and need not be written; it may include verbal gentlemen’s agreements. Also, physical meetings are not necessary for the competition authorities to make a finding that an agreement has been concluded. All that is required is a concurrence of wills between cartel members.
Therefore, firms must exercise caution when attending meetings with competitors as there is a risk that it could be considered part of a cartel if the meetings were organised with an anti-competitive objective in mind. The fact that a party had played limited role or might not have fully committed to its implementation or participated under pressure does not absolve it of liability. At most, it will be taken into consideration when fixing the amount of financial penalty imposed.
In some situations, firms may find themselves unwittingly caught up in such practices, i.e. pricing strategies are discussed at the meeting despite not being on the agenda. The CCCS has stated that it is important that the firm writes to its competitors and/or the trade association that it does not wish to be considered a member of the cartel or to continue to participate in such meetings.
Rely on the Net Economic Benefits defence
Firms may also choose to rely on the NEB defence if they are reasonably confident that it applies to the agreement at hand.
Seek guidance on their agreement from the CCCS
As a best practice however, firms should seek guidance from the CCCS on whether their agreement is a section 34 infringement. Guidance can be sought either on a confidential basis under section 43 of the CA or on a non-confidential basis under section 44 of the CA. No penalty will be imposed during the period of notification even if the agreement is subsequently found to be in violation of section 34.
Alternatively, firms can consult experienced corporate lawyers for legal advice on how they can structure their agreement to avoid falling foul of Singapore’s competition laws.
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