Abuse of Dominance
by Atty. Johannes Benjamin R. Bernabe
June 19, 2019
Cartels are more easily understood by lawyers and economists familiarizing themselves with competition law concepts. Even laymen have a general understanding of price-fixing and bid-rigging as acts among competitors that ought to be prohibited and penalized.
However, the practices that the Philippine Competition Act (PCA) considers as constituting “abuse of dominance” are more difficult to grasp for the business community, or even among legal practitioners. This difficulty owes to abuse of dominance being such a fluid concept, with no fixed standard apart from the principle that such conduct should substantially lessen, prevent or restrict competition. Unlike price-fixing where one has a fair idea when it is, in fact, happening, abuse of dominance depends on so many variables, which have to be established before the fact of abuse is acknowledged.
First, the competition authority has to determine what the “relevant market” is. What is the product involved? In which area of the country is the product being sold or traded? Once these tricky issues of the market involved are resolved, the competition authority has to establish that the entity alleged to be involved in abusive conduct is indeed dominant in that market. But just how do you establish this? The PCA creates a rebuttable presumption of dominance if the market share of the entity in the relevant market is at least 50 percent. This presumption may, however, be set aside by the Philippine Competition Commission (PCC) if the latter finds that even with a lower market share, there exist barriers to the entry of prospective competitors, or that buyers have ease and ability to switch to other goods or services, or that other entities can have easy access to the dominant entity’s source of inputs.
Only after the PCC has established that an entity is dominant in the relevant market can it then determine that an act, such as those enumerated in Section 15 of the PCA, constitutes an “abuse” from a competition perspective. While the enumeration in Section 15 is quite comprehensive, covering everything from predatory pricing to tying the sale of a product to the purchase of a totally unrelated product or some other condition, or imposing anything from unfair selling price to undefined barriers to entry, there is a prevalent view that the enumeration in the law is not exhaustive. Indeed, lawmakers could not possibly imagine all the possible conduct, which could constitute abusive behavior resulting in a substantial lessening, prevention or restriction of competition.
This series of subjective analyses the PCC has to undertake is what lends difficulty to fixing an objective standard in ascertaining whether or not an offense has been committed under Section 15. Not only are the analyses based mostly on economic evidence, but also further compounding the difficulty is that findings based on these analyses change over time, such that they may have minimal precedential value. Thus, even in the United States, judges with limited economic training have on several occasions based their rulings in anti-trust cases involving abuse of dominance on legal procedural issues, rather than substantive analysis. It is no wonder that many resource experts from more advanced competition jurisdictions, when advising the PCC, often suggested deferring going after abuse of dominance cases, and to focus instead on cartel investigations.
Notwithstanding all these, the PCC Enforcement Office’s very first charge sheet against an entity for violation of the PCA, known in competition circles as a Statement of Objection, was filed against a real-estate developer for abuse of dominance in excluding other Internet service providers in the provision of fixed broadband services to homeowners and tenants in its various property developments. When news of this enforcement action was published in PCC’s web site as required under the rules, we in the Commission were informed that companies involved in similar lines of business started scurrying around, trying to find out if their contracts contained similar exclusivity clauses. Without awaiting the outcome of the Commission’s decision on the matter, it seems that the PCC’s Enforcement Office filing of its Statement of Objection has already had a concrete deterrent effect on possible anti-competitive behavior of businesses!
Another consequence of this filing has been its instructional value on other end-users and consumers. The PCC has recently received a spate of enquiries and informal complaints about practices of certain businesses, ranging from mall cinemas barring moviegoers from bringing food bought elsewhere to transport providers charging unfairly high prices, all of which are alleged to be abusive and anti-competitive. The PCC Enforcement Office is bound to be called upon to investigate some of these, and the Commission will in due course hear and decide these cases. Rather than ruing these developments, businesses should view these as an opportune occasion to enhance their understanding of competition law, reform their practices, if necessary, and contribute to building a culture of competition in our country.
Commissioner Bernabe served as adviser to the Senate and the House of Representatives in the drafting of, and deliberations on the Philippine Competition Act. A lawyer by profession, he was a senior fellow at the Geneva-based International Centre for Trade and Sustainable Development and served as the Philippines’s lead trade negotiator on select issues at the World Trade Organization, also in Geneva, Switzerland.
(Originally published on Business Mirror’s Competition Matters column on June 19, 2019 here.)