Sharing Markets Or Sources Of Supply Economics Essay

The Malaysian Competition Act 2010 was passed by the Parliament on 6th May 2010. It came into force with effect from 1st January 2012. It will promote a competitive environment and give foreign financiers more confidence in the country’s business practices. The Act will oversee all firms, including government-linked companies (GLCs). It delivers the legal framework for restricting anti-competitive practices in the market. It also applies to all commercial activity within Malaysia and those outside of Malaysia which have consequences on competition in any market in Malaysia. Anti-competitive practices are divided into 2 main prohibitions, (a) Anti-competitive agreements and (b) Abuse of dominant position. The Malaysia Competition Commission is established to enforce the implementation of the Act. Its main role is to protect the competitive process for the benefit of businesses, consumers and the economy.

ANTI-COMPETITIVE AGREEMENTS

In Competition Act 2010, section 4(1) stated that, a horizontal or vertical agreement between enterprises is prohibited insofar as the contract has the object or consequence of significantly preventing, restricting or distorting rivalry in any market for goods or services.

Price Fixing

Under Competition Act 2010, s 4(2)(a) has clarified that it is illegal to collectively agree to ¬x, directly or indirectly, a buying or selling price or any other trade-off situations. A direct way of price fixing would be raise or retain the price at a fixed level. Whilst, an indirect way would be for enterprises to give or not to give the same credit term or discount. Plus, price should also be set based on the market demand and supply.

Sharing Markets or Sources of Supply

According to the CA 2010 s 4(2)(b), it is unlawful for enterprises to share markets or sources of supply. However, enterprises can do this by distinct among themselves in the market (either by geographical area or customer types) and operation is only allow in areas assigned. The purpose is to ensure there is no competition for their products or services in the specified area.

Limit or Control

CA 2010 s 4(2)(c) has clarified that, it is illegal for enterprises to collectively agree to limit or control production, market outlets or market access, technical or technological development or investment. When production, market outlets or market access are limited or controlled, supply will be reduced and prices will go up because there will not be enough supply to meet demand. Moreover, by reducing spending on technical or technological development and investment, cost of production goes down. All these measures ensure that prices are arti¬cially manipulated in order to maximise pro¬ts. Enterprises engaging in such unfair practices make large pro¬ts without being e¬ƒcient and innovative

Bid Rigging

Under CA 2010, s 4(2)(d) said that it is illegal for enterprises to engage in bid rigging. The purpose of the tender process is to select from among a range of bidders, a competent enterprise that o¬€ers the best price on the most attractive terms. Bid rigging defeats this purpose. Enterprises take part in bid rigging by ¬rst agreeing as to which amongst them is to win the bid. The other enterprises will then: submit bids at unacceptably high prices, or withdraw their bids, or refrain from bidding to enable the pre-selected enterprise to win the bid. The winning bidder then rewards those who conspired with it by awarding them sub-contracts. Enterprises may also go on rotation to take turns to win bids. Bid rigging results in the most cost e¬ƒcient enterprise not winning the bid. It thereby drains the resources of the economy, consumers and enterprises that do not participate in bid rigging.

ABUSE OF DOMINANT POSITION

According to s 10(1), an enterprise is prohibited from engaging either independently or collectively in any conduct which amounts to an abuse of a dominant position in any market for goods or services. “Dominant position” is defined as the ability of such businesses to adjust prices or dictate trading terms in the market without effective constraint from competitors or consumers.

Section 10(4) provides that there is no presumption of dominance based on market share.

Price Discrimination

Price differences may be necessary, for example because of remoteness of markets resulting in higher cost of transport or due to bulk practice by a purchaser enabling lower cost of supply. However, it becomes an abuse of dominance when price discrimination is not due to any economic reason and is unfair.

Tied Selling

Tied selling is where a supplier of one product (the tying product) requires a customer to also buy a second product (the tied product). Where there are no other suppliers for the tying product, customers are left with no choice but to buy both products.

Predatory pricing

Predatory behaviour towards competitors includes using below cost pricing to eliminate competition. In predatory pricing, an enterprise sells below cost to eliminate competitors from the market and then increases prices to gain huge profit. Consumers may enhoy low prices for a short time but eventually will have to pay higher prices when other competitors leave the market.