COMPETITION LAW

and the private sector

Alain Charles J. Veloso | 6 March 2021
Partner, Quisumbing Torres
Agenda
1 What is Competition?
2 The Costs of Unfair Competition
3 What is Competition Law?
4 Role of Competition Law
5 The Philippine Competition Act: Policies, Scope,
and Application
What is Competition?
 Competition is the process of rivalry between firm seeking to win customer’s
business over time.

 Competition puts businesses under constant pressure to offer the best possible
range of goods at the best possible prices, because if they don't, consumers
have the choice to buy elsewhere. In a free market, business should be a
competitive game with consumers as the beneficiaries.

 Competition creates incentives for firms to lower prices, increase output,

improve quality, enhance efficiency, or introduce new and better products
The Costs of Unfair Competition
 Reduced output, higher prices,
reduced consumer choice, and a
transfer of income from consumers
and producers

 Deadweight Loss: some of the

benefits that would have accrued to
consumers fail to transfer, and are
lost to society

 Rent-seeking: wastage of
resources in pursuit of monopoly
position
Competition Law: Underlying Ideas
• Competition between economic actors is the best way to
organize any market (at least in most instances);
• Market power held by one or more firms is not problematic in
itself, but may be liable to abuse, which should be prohibited;
• Competition law provides the state with a public
counterbalance to control private power, without prohibiting
private power entirely; and
• The goals of competition policy are traditionally two-fold: to
promote free and fair competition in the market and
consumer welfare.
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What is competition Law

Broadly, involves the use of legal tools to control the exercise

of market power, in order to protect competition in the
market.

Market power refers to the ability of a firm (or group of firms) to raise
and maintain price above the level that would prevail under
competition… The exercise of market power leads to reduced output
and loss of economic welfare. (OECD, 1993)

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Role of Competition Law: Incentive for
Efficiency

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Policies of the PCA
 Enhance economic efficiency and promote free and fair competition

 Prevent economic concentration

 Penalize all forms of anti-competitive agreements, abuse of dominant position

and anti-competitive mergers and acquisitions to protect consumers and
advance domestic and international trade and economic development
Scope and application of the PCA
 Any person or entity engaged in any trade, industry and commerce in the
Philippines:

 It covers any entity engaged in an activity that is economic in nature, regardless

of the legal status of the entity and the way in which it is financed. It focuses on
the nature of the activity being performed, rather than on the characteristics of
the actors that perform it.

 International trade having direct, substantial and reasonably foreseeable effects

in trade, industry, or commerce in the Philippines
The three pillars of competition law

Anti-competitive
Merger control
agreements
Abuse of
dominance
Competition law, as applied:

• Agreements between firms that either aim to or have the effect of

restricting competition, thus enabling the undertakings concerned to
exercise greater market power;

• Unilateral conduct by single firms holding significant market power,

which may be exercised to exploit consumers or exclude rivals; and

• Mergers between firms, which either enable the merged firm to

exercise greater market power or make the market less competitive
overall.
Nash non-cooperation equilibrium

FIRM B
High Low
High 10,10 0,30
FIRM A
Low 30,0 4,4

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Concerted Practices: Generally
“[A] form of coordination between undertakings which, without having reached the
stage where an agreement properly so-called has been concluded, knowingly
substitutes practical cooperation between them for the risks of competition.”
(Case 48/69 ICI v Commission (Dyestuffs)) 

Leads to conditions of competition that do not correspond to “the normal conditions

of the market,” having regard to market circumstances (Cases 40/73 Suiker Unie).

Requirement for some knowing (that is, intentional, or deliberate) coordinated

limitation of competition – but no need for a distinctive ‘meeting of minds’ as such.

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Information Exchange
Info cannot be shared
• Competitively sensitive
• Current/projected
• Individually identifiable
Examples
• Customer lists
• Current or future prices
• Price formulae
• Customer – specific data or
terms
• Product characteristics /
innovation
• Profitability
• Major costs
• Plant utilization/closures
• Pending bids
Info can be shared
• Potential competitive • Non-competitively
impact sensitive
SEEK LEGAL ADVICE • Historical
• Aggregate
Examples Examples
• Capital expenditures • Legislative drafts and details of
• Information technology regulatory developments
• Cost items that do not constitute a • Annual reports
significant part of total costs • Historical cost data
• Advertising restrictions
• Historical sales data
• Response/reaction to legislative
drafts/regulatory developments
• Aggregated sales data
• Excise duties / taxes
• Regulation affecting products
generally
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Exclusive Distribution
Exclusive Distribution: A single distributor or
Supplier outlet is appointed for particular geographic
area or categories of customer.

Exclusive
If ABC enters into an exclusive distribution
distribution agreement with Distributor X, then Distributor Y
obligation will not be able to sell the ABC’s products

Retailer X Retailer Y

Harm to intra-brand competition (i.e. the competition between Retailer X and

Retailer Y as regards the ABC’s products) as Retailer Y is prevented from offering
the ABC’s products for sale.

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Exclusive Dealing
Exclusive Dealing: A manufacturer supplies a
distributor on the condition that the latter does
XXX YYY not sell competing brands.
If ABC enters into a non-compete with the
Exclusive Retailer, the Retailer will be prohibited from
dealing selling products supplied by YYY
obligation

Retailer
Harm to inter-brand competition (i.e. the competition between ABC and YYY products) as
the Retailer is prevented from offering YYY’s products for sale. This is called “foreclosure”
Difficult for other suppliers to enter or expand

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Resale Price Maintenance
 Resale Price Maintenance (RPM)
AcmeCo.
• Seller sets price that buyer (e.g. distributor,
retailer) must charge for resale of the RPM
contract product to third parties.
• Treated as an object restriction where the
seller sets a fixed or minimum resale price; Distributor 1 Distributor 2
recommended or maximum prices may only
have the effect of restricting competition.
• Buyers (e.g. distributor, retailer) can no
longer compete in terms of price. Consumers
Margin Squeeze
Form of abuse that occurs where dominant Vertically integrated (VI) firm selling
undertaking is vertically integrated, wholesale input

operating both upstream and downstream,

and thus able to influence both the costs and Downstream (DS) competitor
revenues of its downstream rivals. buying wholesale input

Charging a customer an unreasonably high

price for an input that they need for a
downstream product or service that you
compete with the customer to supply. By
DS competitor
increasing competitor costs, it will become selling retail VI firm selling
harder for the competitor to compete with ABC product retail product

in the downstream product.

Con

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Merger Control: Determining market
concentration
HHI Index:

The sum of the squares of the market shares of the firms within the
industry (sometimes limited to the 50 largest firms). An index of 0.25
is presumed anti-competitive. An increase of more than 0.02 points is
presumed anti-competitive.
Example:
(1) A30% + B30% + C20% + D10% + E10% = 0.24
Assume merger of D & E to F
(2) A30% + B30% + C20% + F20% = 0.26

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Questions?
Charles.Veloso@quisumbingtorres.com