Is my ‘suki’ a price fixer?
By Atty. Macario De Claro Jr.
July 3, 2019
You have recently learned about the Philippine Competition Act and have become more wary of possible violations in everyday life. A case that comes to mind is the price of your favorite snack and its competitors. All these products appear similarly priced and their producers raise prices at the same time, especially when the price of sugar or flour goes up. Another example would be the sellers of electronics at the local tiangge,promising to match lower prices from their competitors. Are these violations of the PCA?
In a previous article, I discussed bid rigging, a per se violation under Section 14(a)(2) of Republic Act (RA) 10667 or the PCA. You worry that the scenarios above may pertain to another per se prohibition under Section 14(a)(1) of the PCA: price fixing. Let’s break it down.
Price fixing is an agreement among competing businesses to directly or indirectly raise, lower, or maintain purchase or selling prices. Under fair market competition, the dynamics of supply and demand determine the prices of goods and services. Companies are expected to establish prices and other terms of trade on their own. When businesses subvert the market and agree to fix prices and restrict competition, they are engaging in anticompetitive behavior that often leads to higher prices for end-consumers or less incentive for businesses to innovate. As such, price fixing is a major concern of the Philippine Competition Commission (PCC).
Competitors need not meet formally in a boardroom and decide to fix prices for them to be culpable. The agreement may be written, verbal, or inferred from observed conduct. Do some of your company’s suppliers or clients routinely exhibit a pattern of identical contract terms or price behavior that appear lacking a legitimate business explanation? They may have entered into a price-fixing agreement.
Of course, not all price similarities result from price fixing. They can often just be the effect of normal market conditions. Products that are practically identical, like similar varieties of rice, will usually be similarly priced, because the prices farmers charge rise and fall with the seasons or as a result of natural and man-made calamities, even without any agreement. Rising consumer demand due to higher incomes or changing consumer attitudes can also cause uniform price increases when the supply of a product is limited.
Price-fixing agreements do not only pertain to up-front prices. They can also be about other terms of trade that affect prices to consumers, such as delivery fees, discount programs, or installment interest rates. Competing businesses and their representatives should be wary about discussing, in any context, present or future prices, pricing policies, promotions, bids, costs, capacity, terms or conditions of sale, among other confidential business information, that competitors must protect and use in making independent pricing and other strategic decisions.
Given this information, are your snack manufacturers and electronics vendors violating the PCA? Perhaps not. Unless agreements were made to fix snack prices, price changes that result from rising input prices are expected from the ordinary conduct of business. As for the electronics vendors, matching competitor prices, so long as it results from independent price setting and not coordination agreements, is the very mechanism that allows consumers to benefit from highly competitive markets.
But actual price fixers must be forewarned. Since price fixing is a per se violation under the PCA, there can be no justification of such conduct. Similar to bid riggers, price fixers, regardless of claimed intent or effects, will be prosecuted and may be fined and penalized according to the fine and penalty schedule in the PCA and its implementing rules and regulations. The fine will be tripled if the price fixing involves basic necessities and prime commodities as defined by RA 7581 or the Price Act.
To encourage cooperation by possible informants, the PCC provides incentives, such as a price fixing participant may still be immune from prosecution or have the administrative fines reduced if said participant will avail himself of the PCC’s Leniency Program.
Thus, if anyone suspects that any of the above anticompetitive conducts may have been committed, you may report this to the PCC immediately. Help the PCC keep an even playing field for business to ensure that the consuming public will always get their money’s worth.
Commissioner de Claro is a CPA lawyer who has worked in companies in the fields of manufacturing, mining, telecommunications, real estate, and banking and finance prior to his appointment to the Philippine Competition Commission. A litigation and corporate lawyer, he once served as legal consultant to the Department of Environment and Natural Resources. He graduated from the De La Salle College with a BS in Commerce, Major in Accounting and earned a Bachelor of Laws degree from the Ateneo de Davao Law School.
(Originally published on Business Mirror’s Competition Matters column on July 3, 2019 here.)