PCC: Quasi-court in full swing
by Stella Luz A. Quimbo, PhD
April 3, 2018
What do you do at the Philippine Competition Commission (PCC)? This has been the most common question asked of me since taking office last January 2016, and it deserves an answer.
Under the Philippine Competition Act (PCA), the Commission shall be composed of a chairperson and four commissioners. One must be a member of the Philippine bar and one must be an economist. The framers of the law must have recognized that the interplay between law and economics is necessary for the proper functioning of the Commission.
The Commission is an independent quasi-judicial body. Broadly speaking, it works like a court: it ascertains facts, holds hearings, weighs pieces of evidence, and makes conclusions based on the facts and evidence presented. For any decision to be adopted, three affirmative votes from the Commission members are needed.
This is the most interesting part of my job as Commissioner, and what follows is my take on this role of “quasi-judge,” as seen through the lens of an economist.
The investigation of most prohibited acts under the PCA requires economic analysis to determine if they had or might have harmful effects on market competition. For instance, the Commission can disapprove a merger if the transaction can “substantially lessen competition” in the market.
How do we know if competition would be reduced substantially after the merger? To answer this, we assess whether prices are likely to increase, quality might deteriorate, innovation would slow down, or consumer choice would be restricted.
The assessment is based on economic reasoning and evidence. The first step is to determine the “relevant market” or the scope of the assessment that will be conducted. In a relevant market, products are substitutable, which means that price increases would cause consumers to shift from one supplier to another.
Next, the economic analysis determines if there is ability or incentive to increase prices after the merger. When two competitors who offer substitutable products merge, a price increase by one may cause enough consumers to shift to the other, such that overall profit for the merged entity increases.
Deciding on a merger without going through the rigor of economic analysis might not only harm a market, but also may erode the Commission as an institution in the long run. Commission decisions that are not evidence-based could introduce uncertainty in the business environment and leave an impression of regulatory capture. Decision-making must abide by scientific and legal standards to ensure a robust case.
The Commission is likewise empowered to prohibit anti-competitive agreements and abuses of dominance.
When a case is opened, a preliminary inquiry is conducted by the Competition Enforcement Office (CEO). The Commission members take no part in the actual investigation. “Firewalls” are in place to differentiate the decision-making by the Commission from the fact-finding by the CEO. This is to ensure that the Commission remains an unbiased judge. It is only after CEO lodges a formal complaint before the Commission that its members hear the case.
Every case is thoroughly deliberated by the Commission. So far, I have found these deliberations to be a lively mix of professional debate and academic discussion, covering interpretations of the law and economic findings. An independent commission implies independence in thought among its members. Due to differences in perspective, deliberations can lead to various outcomes when it’s time to vote, particularly when a case is complex. In a few instances, there was no unanimity on how to dispose of a case.
Just like in regular courts, a Commissioner has the right to dissent from the majority position when they believe it necessary, but without upsetting the harmony of the institution. Dissenting opinion requires of the majority to fortify its position based on evidence, and to ponder on the implications of the decision. In a way, this insulates the Commission from whimsical and capricious decision making, thereby ensuring its continued independence.
This is similar to what competition does in markets. When faced with competition from a new entrant with a disruptive technology, the incumbents have little choice but to strengthen their market position with an appropriate technological response. As such, some dissent is healthy. Steve Jobs, the maverick who changed the competition landscape in the market for computer hardware, reminds us that friction is needed to polish a stone:
“It’s that through the team, through that group of incredibly talented people bumping up against each other, having arguments, having fights sometimes, making some noise, and working together they polish each other and they polish the ideas, and what comes out are these really beautiful stones.”
Commissioner Stella Alabastro Quimbo is an academician who served as professor and department chair of the University of the Philippines School of Economics before her appointment to the Philippine Competition Commission. She has an extensive research portfolio in the fields of health economics, industrial organization, microeconomics, education, poverty, and public policy and regulation.
(Originally published on Business Mirror’s Competition Matters column on April 3, 2018 here.)