Daren Shiau Partner Competition & Antitrust 2 March 2015 ABA SIL 2015 Asia Forum: Managing Pricing and Distribution for Global Companies – Price Maintenance and Vertical Restraints around the World (Singapore segment)

1 ASEAN Economic Community by 2015: Competition law and policy to be implemented in 10 member states. However, different political and economic systems. Introduction Southeast Asia

2 Small and open economy. Reliance on foreign investment and trade. Most markets international. World’s busiest port and transport hub. Imports are constraint on competition. Internet a significant distribution channel. Introduction Singapore

Chicago School approach: –Vertical agreements are excluded from Section 34 of the Competition Act which prohibits cartels. –Vertical agreements are not excluded from Section 47 of the Competition Act which prohibits abuse of a dominant position. Therefore vertical agreements are likely to have an effect on competition only: (1) where the firm imposing a vertical restraint is already dominant, or (2) where the vertical agreement is used to enforce an upstream or downstream cartel. 3 Vertical agreements in Singapore CCS’ characterisation

Therefore, the CCS considers exclusive dealing imposed by a party to likely raise competition concerns if: –The party imposing the exclusive obligation is dominant. –A significant proportion of the market is foreclosed to competitors as a result of the exclusive dealing. 4 Vertical agreements in Singapore Example of exclusive dealing

The CCS will also take into consideration the following factors in its assessment: –The coverage of the exclusive dealing. –The constraints imposed by the exclusive dealing. –The structure of the market. –Possible efficiencies of the exclusive dealing. –Whether the exclusive dealing has led to actual, observable effects in a market. Tests used include the ‘profit sacrifice’ test and ‘no economic sense’ test. 5 Vertical agreements in Singapore Example of exclusive dealing

6 Vertical agreements in Singapore Example of MFN clauses Website X Consumers Sellers CxCx CyCy PxPx P direct PyPy Website Y P direct ≥ P x and P y ≥ P x

Case Number: CCS/600/008/07 7 Vertical agreements in Singapore Abuse of a dominant position by SISTIC.com Pte Ltd Artificial perpetuation of dominance Ticket buyers pay more Exclusive agreements with venues & event organisers Raise booking fee Offer discounts and other incentives Restrict event organisers’ choice Ticketing services industry

The exclusive agreements entered into by SISTIC, the venue operators and the event promoters “left ticket buyers with no choice but to purchase tickets through SISTIC”. CCS decided that: –Operators and promoters’ were restricted in the choice of ticketing service providers, artificially perpetuating SISTIC’s dominant position, and affording SISTIC the ability to charge ticket buyers higher prices. –Higher revenues generated from ticket buyers in turn provided SISTIC the buffer to sustain discounts and other incentives used to attract and retain operators and promoters exclusively. 8 Vertical agreements in Singapore Abuse of a dominant position by SISTIC.com Pte Ltd

9 Regulators other than CCS Illustration of electricity transmission Generation Potentially competitive TransmissionDistribution Retail Lines services exhibit economies of scale resulting in a natural monopoly Potentially competitive Generation and retail businesses structurally separated from network business. Profits of monopoly transmission grid owner regulated by Energy Market Authority in 2001, limiting financial benefit of vertical restraints. Transmission Code sets out obligations for monopoly transmission grid owner to provide non-discriminatory access to transmission system.