Philippine Competition Act

What is Competition Law?

Competition law, being regulatory in nature, seeks to protect competition by controlling
the exercise of market power, either by single firms, or by firms acting together, which
leads to higher prices, less choice, and less quality and less innovation in products and
services

What is a market?
A market is a group composed of buyers and sellers of a particular good or service.
Five kinds of markets
1)Perfectly competitive
2)Monopoly
3)Oligopoly
4)Monopolistic competition
5)Monopsony

Perfectly Competitive Market

In a perfectly competitive market, where there are a large number of participants
interacting with each other in the economy, no particular buyer or seller is exercising too
much influence over the price or the amount of goods and services being traded.
Firms are referred to as “price takers.”

The Law of Supply and Demand

This law explains how supply and demand are related to each other and how that
relationship affects the price of goods and services.
If supply is greater than demand, prices fall.
If demand is greater than supply, prices rise.
Quantity of goods supplied rises when the price of the good rises.
When the price falls, the quantity supplied falls.
Quantity demanded of a good falls when the price of the good rises.
When the price falls, quantity demanded rises.
Supply and demand rise and fall until an equilibrium point is attained.

Factors that influence supply

1)Technology
2)Input prices
3)Prices of related goods
4)Government policy
5)Special influences

Factors that influence demand

1)Average income
2)Population
3)Prices of related goods
4)Tastes
5)Special influences

Why do we want a perfectly competitive market?

A competitive market is one with multitude of buyers and sellers. It drives market prices
lower and offers consumers a wide range of choices. A truly competitive market encourages
efficiency and innovation, motivating businesses to excel.

Imperfectly competitive markets

1)Monopoly
2)Oligopoly
3)Monopolistic competition
4)Monopsony
These are the markets which competition law aims to control or regulate

What is a monopoly?
In a monopoly, there is only one firm in the market which produces a particular good or
service.
Monopolists are “price makers.”
Monopoly causes inefficiency in the market.
Monopolists produce less than the socially efficient quantity.
They charge prices way above the costs of production.
What are natural monopolies?
Natural monopolies exist in a particular market if a single firm can serve that market at
lower costs than any combination of two or more firms.
They usually exist in electricity, water distribution.

What is an oligopoly?
An oligopoly refers to a situation where there is more than one but only very few firms in
an industry.
The problem with oligopoly is that the sellers, who are very few, do not always compete
with each other. Worst, these sellers oftentimes collude with each other to create a cartel.
A cartel is a group of firms acting as one.
i.e. oligopoly at the OPEC (produces 44% of the world’s oil)

What is Duopoly?
A special kind of oligopoly
In a duopoly, there are two firms who have dominant control over a particular market.
i.e. Airbus and Boeing produce wide-bodied jet airplanes

Monopolistic Competition
Monopolistic competition resembles a perfectly competitive market.
The only difference is that in a perfectly competitive market, products are identical with
each other while in a monopolistic competition, the products are differentiated.
The differences between the same products in a monopolistic competition allows each seller
some degree of freedom to raise or lower prices, more so than in a perfectly competitive
market.
A firm in a monopolistic competition is more of a price-marker than a price-taker.
Ex. Market for barbers and hairdressers

What is a monopsony?
The flipside of monopoly.
Monopolist: seller with no rivals
Monopsonist: buyer with no rivals.
A monopsonist can easily dictate the price of a particular good or service being sold by
firms in a market.
i.e. large mining town which depends on one mining company

Anti-Trust Law (Competition Law) in the United States

The Sherman Act of 1890 sought to dismantle “trusts” or large manufacturing
conglomerates which dominated railroad, steel, corn industries in the US during the 19th
century
The Federal Trade Commission and the anti-trust division of the US DOJ are the primary
govt entities tasked to enforce anti-trust laws
The Sherman Act was enacted to break primarily the monopoly of Standard Oil; broken
up in 1911

Section 19, Article 12 of the 1987 Constitution sets out the policy of regulating or
prohibiting monopolies during instances when the public interest requires it. The same
provision also expressly prohibits unfair competition and combinations in restraint of trade
Statutes Treating Anti-Competitive Conducts
Article 186, RPC; Article 28, NCC; Consumer Act, General Banking Law of 2000, etc.

Philippine Competition Act

-signed into law on July 21, 2015
-aims to enhance economic efficiency and promote free and fair competition in trade,
industry, and all commercial and economic activities; prevent economic concentration
which will control the production, distribution, trade or industry; and penalize all forms of
anti-competitive agreements, acquisitions, with the objective of protecting consumer
welfare and advancing domestic and international trade and economic development

What is the welfare standard/goals of the PCA

-economic welfare goals: consumer welfare, producer welfare, total welfare
-non-economic welfare goals: nationalism/protectionism, helping the marginalized sectors,
etc.
This multi-faceted approach takes into consideration the country’s particular socio-
economic and cultural dimensions, to ensure the promotion of social justice, as enshrined in
the Constitution
-in the US and EU, only consumer welfare

The Philippine Competition Commission

-composed of a chairperson and four commissioners
-citizens and residents of the Philippines
-of good moral character, or recognized probity and independence and must have
distinguished themselves professionally in any of the ff fields: economics, laws, finance,
commerce or engineering
-at least one must be a member of the Bar with at least 10 yrs experience and one an
economist

Scope and Jurisdiction of the PCC

Sec. 3. This Act shall be enforceable against any person or entity engaged in any trade,
industry and commerce in the Philippines (territorial). It shall likewise be applicable to
international trade having direct, substantial, and reasonably foreseeable effects in trade,
industry, or commerce in the Philippines, including those that result from acts done outside
the Philippines (extraterritorial application)
Extraterritorial Application in the US
1)The activity has a direct, substantial and reasonably foreseeable effect on American
domestic, import or export commerce
2)The activity has effect that gives rise to an anti-trust claim
3)The activity would not adversely affect international comity

Extraterritorial Application in the EU

Implementation Doctrine: this allows the EC to assert jurisdiction over non-EU companies
that sell directly into the EU irrespective of the company’s physical presence in the EU
Qualified Effects Doctrine: permits the EC to extend to any conduct that has an immediate,
foreseeable, and substantial effect on competition in the US

Other Jurisdictional Limitations of the PCA

1)non-application to activities of employees (CBAs cannot be anti-competitive)
2)non-application to trade associations (Sec. 48)
3)non-retroactive applications
4)Statute of limitations (5 years)
5)Date of effectivity (April 8, 2015)
6)Applicability to governmental actions; rule on suability (governmental vs. proprietary)

Original and Primary Jurisdiction of the PCA (Sec. 12)

1)Conduct inquiry, investigate, and hear and decide on cases involving any violation of the
PCA and other existing competition laws motu propio or upon receipt of a verified
complaint from an interested party or upon referral by the concerned regulatory agency,
and institute the appropriate civil or criminal proceedings
2)Review proposed mergers and acquisitions, determine thresholds for notifications,
determine the requirements and procedures for notification, and upon exercise of its
powers to review, prohibit mergers and acquisitions that will substantially prevent, restrict,
or lessen competition in the relevant market.

3) Upon finding, based on substantial evidence, that an entity has entered into an anti-
competitive agreement or has abused its dominant position after due notice and hearing,
stop or redress the same, by applying remedies, such as but not limited to issuance of
injunction, requirement of divestment, and disgorgement of excess profits under such
reasonable parameters that shall be prescribed by the rules and regulations implementing
the PCA.
4) Upon order of the Court, undertake inspections of business premises and other offices,
lands, and vehicles, as used by the entity, where it reasonably suspects that relevant books,
tax records, or other documents which relate to any matter relevant to the investigation are
kept, in order to prevent the removal, concealment, tampering with, or destruction of the
books, records, or other documents.
5) Issue adjustment or divestiture orders including orders for corporate reorganization or
divestment in the manner and under such terms and conditions as may be prescribed in the
rules and regulations implementing the PCA
PCC’s Power to Conduct Inquiries and Investigations
The purpose of fact-finding or preliminary inquiry is to ascertain whether there are
reasonable grounds to conduct a “full administrative investigation” for any violation of the
PCA, its implementing rules, or other competition laws.

Administrative in Nature
The PCC, after due notice and hearing, and on the basis of the facts and evidence
presented, may issue an order for the temporary cessation or desistance from the
performance of certain acts by the respondent entity, the continued performance of which
would result in a material and adverse effect on consumers or competition in the relevant
market.
Criminal in Nature
If the evidence so warrants, and at any time after termination of the preliminary inquiry,
the PCC may file before the DOJ criminal complaints for violations of the PCA or relevant
laws for preliminary investigation and prosecution before the proper court. The DOJ shall
conduct such PI in accordance with the Revised Rules on Criminal Procedure.

PCC’s Power to Hear and Decide Cases

 Decisions of the PCC are appealable to the CA
 As a general rule, the appeal shall not stay the order, ruling or decision
 The RTC of the city or province where the entity or any of the entities whose
business act or conduct constitutes the subject matter of the case, conducts its
principal place of business, shall have original and exclusive jurisdiction, regardless
of the penalties and fines imposed, of all criminal and civil cases involving violations
of the PCA and other competition-related laws
 Any person who suffers direct injury by any reason of any violations of the PCA
may institute a separate and independent civil action after the PCC has completed
the preliminary inquiry
Prohibitions under the PCA
1)anti-competitive agreements
2)Abuse of dominant position
3)anti-competitive mergers and acquisitions

What are anti-competitive agreements?

Anti-competitive agreements include any form of contract, arrangement, or understanding
among businesses to fix prices, manipulate bids, allocate markets, or restrict outputs.
The agreement may be formal or informal, explicit or tacit, and written or verbal.
Sec. 14, PCA
a) The ff agreements, between or among competitors, are per se prohibited:
• Restricting competition as to price (price fixing), or components thereof, or other
terms of trade;
• Fixing price at an auction or in any form of bidding including cover bidding, bid
suppression, bid rotation and market allocation, and other analogous practices of
bid manipulations
b) The following agreements, between or among competitors which have the object or
effect of substantially preventing, restricting or lessening competition shall be prohibited:
• Setting, limiting or controlling production, markets, technical development, or
investment
• Dividing or sharing the market, whether by volume of sales or purchases, territory,
type of goods or services, buyers or sellers or any other means
c) Agreements other than those specified in (a) and (b) of this section which have the object
or effect of substantially preventing, restricting, or lessening competition shall also be
prohibited
Acts prohibited by Sec. 14
• Price fixing
• Bid rigging
• Output limitations
• Market sharing
Price Fixing
-competitors collude with one another to fix prices of goods or services rather than
allow prices to be determined by market forces
Bid Rigging
-parties participating in a tender process coordinate their bids, rather than submit
independent bid prices
Output Limitations
-agreements which, among others, limit output or control production by fixing
production levels or setting quotas, or agreements which deal with structural
overcapacity or coordination of future investment plans (i.e. OPEC and Russia agree to
cut oil production)
Market Sharing
-producers restrict their sales of G/S to certain geographic areas, developing local
monopolies

Anti-Competitive Agreements
The first step in anti-trust investigations usually involves the determination of whether the
agreement in question is horizontal or vertical
Horizontal Agreement
-if the parties involved are competing sellers of the same product at the same level of
distribution
i.e. Apple and Samsung
Vertical Agreement
-the parties are not actually competing with each other, as one party is classified as an
“upstream” participant for a certain good and relies on the other to distribute the goods
i.e. Apple and Globe, Samsung and Smart

Anti-Competitive Agreements
The second step requires a determination if the agreement is subject to the rule of per se
illegality or the rule of reason
Per Se Illegal
-refers to those agreements that are clearly and irrefutably illegal, i.e. restrictions as to
supply or importation, market sharing, market allocation, bid-rigging
Rule of Reason Analysis
- Describes a system of analysis utilized to assess the legality of allegedly anti-competitive
conduct (Sec. 14c)

Anti-Competitive Agreements
Sec. 30. Criminal Penalties – imprisonment from 2 to 7 years, and fine of not less than P50
million but not more than P250 million. The penalty of imprisonment shall be imposed
upon the responsible officers, and directors of the entity. If the entities involved are
juridical persons, the penalty of imprisonment shall be imposed on its officers, directors, or
employees holding managerial positions, who are knowingly and willfully responsible for
such violations.

Possible Justifications/Exceptions
Justified Horizontal Agreements
-those which contribute to improving the production or distribution of G/S or to promoting
technical or economic progress (Sec. 14c)
- using rule of reason analysis
Joint Ventures (contractual or incorporated JVs)
Single Economic Doctrine
-an entity that controls, is controlled by, or is under the common control with another
entity have common interests, and are not otherwise able to decide or act independently of
each others, shall not be considered as competitors. i.e. agreements between parents and
subsidiaries

Control is presumed to exist when the owns directly or indirectly, through subsidiaries,
more than one-half of the voting power of an entity, unless in exceptional circumstances, it
can clearly be demonstrated that such ownership does not constitute control.
Control also exists even when an entity owns one-half or less of the voting power of an
entity, when:
(a) There is power over more than ½ of the voting rights by virtue of an agreement with
investors
(b) There is power to direct or govern the financial and operating position of the entity
under a statute or agreement
(c) There is power to appoint or remove the majority of the members of the board of
directors or equivalent governing body
(d) There is power to cast the majority vote at meetings of the board of directors or
equivalent governing body
(e) There exists ownership over the right to use all or a significant part of the assets of
the entity
(f) There exists rights or contracts which confer decisive influence on the directors of
the entity
 Other Exceptions:
Trade Associations, provided:
1)These are not in any way be used to justify a violation of the PCA;
2)That it shall not be illegal to use the association as a forum to discuss or promote the
quality standards, efficiency, etc.
3)That such is done without any anti-competitive effect or intent

Combinations or Activities of Employees

i.e. CBAs

Abuse of Dominant Position

A dominant position refers to a position of economic strength that an entity or entities hold
which makes it capable of controlling the relevant market independently
-dominance can exist on the part of one entity (single dominance) or two or more entities
(collective dominance)
-having a dominant position is not treated as anti-competitive under the PCA
-what is prohibited is the abuse by one or more entities of its/their dominant positions

Hallmarks of Abuse
1) Predatory pricing or selling G/S below cost with the objective of driving competition
out of the market, i.e. Amazon vs brick-and-mortar competitors
2) Imposing barriers to entry - committing acts that prevent competitors from growing
within the market in an anti-competitive manner; the higher the entry barriers are,
the more circumspect a competition authority will be
3) Tying – making a transaction subject to acceptance by the other parties of other
obligations when, by their nature or according to commercial usage, have no
connection with the transaction, i.e. Google and Android

Price Discrimination
- Pertains to the pricing strategy of firms to charge different prices to different
consumers for the same G/S
Exploitative Behavior Toward Customers or Competitors
- Imposing restrictions on the lease or contract for sale or trade of goods or services
concerning where, to whom, or in what forms goods or services may be sold or
traded, such as fixing prices, giving preferential discounts or rebate upon such
price, or imposing conditions not to deal with competing entities, where the object
or effect of the restriction is to prevent, restrict, or lessen competition substantially,
i.e. retail price maintenance through SRPs
Free Rider Problem – primary pro-competitive justification for RPM; free-riding occurs
when a firm is able to capture the benefits of investments that another firm has made
without paying for them
Restrictions or Refusal to Supply or Refusals to Deal
- I refuse to deal with you if you deal with my competitor
Blocking of Access to Essential Facilities
- Limiting production, markets, or technical development to the prejudice of the
consumers, i.e. interconnection of telcos

Possible Justifications/Exceptions under PCA for Abuse of Dominant Position

 Sec. 15 – having a dominant position in a relevant market or on acquiring,
maintaining and increasing market share through legitimate means that do not
substantially prevent, restrict, or lessen competition
 In the PCC’s evaluation of an alleged predatory pricing by a dominant entity or
entities, the PCC shall consider whether the entity/entities have no such object and
the price established was in good faith to meet or compete with the lower price of a
competitor in the same market selling the same or comparable product or service of
like quality.
 As regards the questioned setting of prices or other terms or conditions of an entity
that discriminate unreasonably customers or sellers of the same G/S, Sec. 15
provides that the ff shall be considered as permissible price differentials: socialized
pricing for the less fortunate; price differential which reasonably or approximately
reflects differences in the cost of manufacture, sale or delivery resulting from
differing methods, technical conditions, or quantities in which the G/S are sold or
delivered to the buyers or sellers; price differentials or terms of sale offered in
response to the competitive price of payments, services or changes in the facilities
furnished by a competitor; and price changes in response to changing market
conditions, marketability of G/S, or volume

 Permissible franchising, licensing, exclusive merchandising or exclusive

distributorship agreements such as those which give the party the right to
unilaterally terminate the agreement, where the object or effect of the restriction is
not to prevent, restrict, or lessen competition substantially
 Agreements protecting intellectual property rights (i.e. right of patent holder),
confidential information, or trade secrets

Anti-Competitive M&As
Merger – occurs when two or more firms join to form a single firm
Acquisition – when one firm purchases the shares of another firm
Kinds of Merger
1)Horizontal –merger between or among competitors, i.e. SMC and Holcim
2)Vertical – merger between a supplier and a customer, i.e. Ikea buying forest lands
3)Conglomerate – merger of firms whose businesses are unrelated, i.es. SM and Goldilocks

Anti-Competitive M&As
 - The PCC, motu propio, or upon notification, has the power to review M&As
- Anti-competitive M&As refer to transactions that could lead to a substantial
lessening of competition, or significantly impede effective competition in the
relevant market
- Notification may be voluntary or compulsory
Compulsory Notification
- Size of person test: refers to the value of assets or revenues of the ultimate parent
entity of at least one of the parties
- Size of the transaction test: refers to the value of assets or revenues of the acquired
entity
- P6B for the size of person test and P2.4B for the size of transaction test
- Within 30 days from the signing of the definitive agreement
- Agreement which fails to comply with the notification requirement considered void
plus administrative fine

Possible Justifications/Exceptions for M&As

- The concentration has brought about or is likely to bring about gains in efficiencies
that are greater than the effects of any limitation on competition that result or
likely to result from the merger or acquisition agreement; or
- A party to the merger or acquisition agreement is faced with actual or imminent
financial failure, and the agreement represents the least anti-competitive
arrangement among the known alternative uses for the failing entity’s assets (failing
firm exemption)

Maverick – a firm that plays a disruptive role in the market to the benefit of customers
Disruptive technology examples include e-commerce, online news sites, ride-sharing apps,
and GPS systems
If one of the merging firms has a strong incumbency position and the other merging firm
threatens to disrupt market conditions with a new technology or business model, their
merger can involve the loss of actual or potential competitors
i.e. LBC and Lalamove (maverick) – may raise anti-trust concerns

The Herfindahl-Hirschman Index

- The HHI is a measure of the size of firms in relation to the industry and an indicator
of the amount of competition among them
- The HHI is calculated by summing the squares of the individual firms’ market
shares, and thus gives proportionately greater weight to the larger market shares
- When using the HHI, the fact-finder considers the pre- and post-merger levels of the
HHI

Markets are generally classified into 3 categories:

1)Unconcentrated markets – HHI below 1500
2)Moderately concentrated markets – HHI between 1500 and 2500
3)Highly concentrated markets – HHI above 2500
The fact-finder would employ the ff general standards for the relevant markets it has
defined:
-unconcentrated markets: mergers resulting to an increase in the HHI of less than 100
points are unlikely to have adverse competitive effects
-moderately concentrated markets: mergers resulting in moderately concentrated markets
that involve an increase in the HHI of more than 100 points potentially raise significant
competitive concerns
- Highly concentrated markets: mergers resulting in highly concentrated markets that
involve an increase in the HHI of between 100 and 200 points potentially raise significant
competitive concerns and often warrant scrutiny

Market Power
- One overarching element that must be established in almost all cases involving
competition law is the market power of a party
- To determine market power, look at the relevant market: market in which a
particular G/S is sold, taking into consideration the relevant product market and
relevant geographic market
- Relevant product market comprises all those G/S which are regarded as
interchangeable or substitutable
- Relevant geographic market comprises the area in which the entity concerned is
involved in the supply and demand of G/S
- Where do consumers look when considering the purchase of a product or service

Tools of Enforcement of the PCC

1) Leniency program – immunity from suit; reduction or waiver of administrative fines to
an entity that was or is a participant in an anti-competitive agreement in exchange for the
entity’s voluntary disclosure of information regarding such agreement (whistle blower
incentive)
2) Forbearance – refraining from enforcement of something that is due; i.e. to avoid
shortage of supply due to pandemic, ECN will not intervene against cooperation measures
3) Inspection orders – SC rule took effect Nov. 16, 2019 (certain SCCs enforceable
nationwide but concurrent jurisdiction of SCC in the locality)

PCC Power to Issue Adjustment or Divestiture Orders

1) Injunction
2) Disgorgement of excess profits, I.e. PCC orders Grab (condition for acquisition of
Uber) to refund P5M to riders; divestiture (order to change structure through
disposal of business, shareholdings, assets by sale or exchange), i.e. Bayer
acquisition of Monsanto, Bayer sold one business to BASF