* This is my column in BusinessWorld last May 07, 2018.
Even before the various competition bills in Congress
ultimately became the Philippine Competition Act (PCA) of 2015 or RA 10667, I
have been asking myself this question.
After all, I have observed that the main creator of
monopolies and oligopolies is the government itself through constitutional
restrictions on public utilities and creation of “natural monopolies” like
electricity transmission and distribution, water distribution, which, in turn,
require congressional franchises.
Other monopolies or oligopolies are created by various
agencies, like airline routes (CAB franchise), shipping routes (MARINA
franchise), telecommunications (NTC franchise or permit), jeepney and bus line
route (LTFRB franchise), tricycle route (LGU franchise).
So the basic question would be: What can the Philippine
Competition Commission (PCC) do to limit or curtail the granting of such
state-created monopolies and oligopolies?
Last week, I interviewed PCC Chairman Arsenio Balisacan
in his office. Sir Arsi is a friend and was my former teacher in the ’90s at
the graduate program of UP School of Economics on the subject of Development
Economics. [The discussion between Mssrs. Oplas and Balisacan, which covered
several topics, will be uploaded on BusinessWorld’s YouTube channel soon. —
Ed.]
My opening question to him was a light one, “Do many
people mistake the PCC with a racing or sports commission?” He smiled and
answered that it seems to be a common misconception for many people especially
in non-urban areas, they ask what sports competition the PCC is promoting.
The confusion may be understandable as there are 16
Commissions under the Office of the President alone. These are the Commissions
on: Climate Change (CCC), Filipinos Overseas (CFO), Filipino Language (CFL),
Higher Education (CHED), Anti-Poverty (NAPC), Culture (NCCP), History (NHCP),
Indigenous Peoples (NCIP), Muslim Filipinos (NCMF), Pasig River (PRRC), Women
(PCM), Racing (PRC), Sports (PSC), Urban Poor (PCUP), Youth (NYC), and the PCC.
I checked the latest report of the World Economic Forum (WEF),
the Global Competitiveness Report (GCR) 2017-2018, to see how competitive the
Philippine economy is and by extension, the domestic private businesses,
compared to its neighbors in East Asia.
Out of 137 countries and economies covered, the
Philippines ranked 56th overall. And of the 12 pillars of the GCR, the
Philippines scored high in pillar #2 Macroeconomic environment (22nd) and
pillar #10 Market size (27th).
But the country scored very low in three pillars: #1
Institutions (Irregular payments and bribes, Favoritism in decisions of
government officials, Burden of government regulations, Reliability of police
services…); #2 Infrastructure (roads, railroads, ports, air transport,…) and #6
Goods Market Efficiency (Extent of market dominance, Effectiveness of
anti-monopoly policy, Number of procedures to start a business, Time to start a
business, Burden of customs procedures), (see table).
There is a direct relationship between a competitive
economy and its prosperity, and given the relative smallness of the Philippine
economy, what seems to be “big” corporations domestically can be small or
medium-size compared to the corporations in our East Asian neighbors.
The PCC checks and prohibits three major acts and
behavior: (1) Anti-competitive agreements like price fixing/collusion, bid
rigging, output limitations, and market sharing; (2) Abuse of dominant position
and market power like predatory pricing, discriminatory pricing, exploitative
behavior towards consumers and competitors, and limiting production, markets or
technological development; and (3) Mergers and acquisitions (M&A) that
restrict or lessen competition in the market.
These point to two important issues.
One, the PCC is concerned only with behaviors of existing
competing players but does not cover behaviors of state-created monopolies.
And two, many of those behaviors rendered
“anti-competitive” are generally short-term and never long-term, so the imposition
of penalties may be a question mark.
Take price discrimination or “price differentiation” and
“market segmentation” in economics. This is perfectly normal in market
competition as the supplier is optimizing revenues from customers with
different needs and different budget or resources. Thus, higher prices are set
for those deemed wealthy and lower prices for those financially struggling.
In price fixing/collusion, players here may be digging
their own graves as they antagonize customers and invite new players that can
quickly provide the goods and services at lower prices. If this happens, the
collusion can quickly break up and the old players would try to secure their
previous market share eaten by the new player/s.
Competition requires innovation, lots of it in terms of
product and service quality, variety, marketing and pricing. Player X’s prices
compared to its competitors would look “predatory” yesterday, “collusive”
today, and “excessive” tomorrow and these are all fine. Those prices can roller
coaster at temporary and short-term durations. New players would tend to give
low introductory prices to attract many new customers while innovators would
tend to give high prices to recoup their high investments in product R&D,
consumers survey, and marketing/promotions.
According to the WEF Executive Opinion Survey 2017, the
“Most problematic factors for doing business” in the Philippines are: (1)
Inefficient government bureaucracy, (2) Inadequate supply of infrastructure,
(3) Corruption, (4) Tax regulations, (5) Tax rates, and (6) Policy instability.
So, is the PCC a facilitator or hindrance to overall
business competition in the Philippines?
For me, it’s a tie.
The PCC can be a potential hindrance because its long
list of prohibitive acts can be additional deterrent to potential players that
are already wary of the corrupt bureaucracy, government-created monopolies,
poor infrastructure, high tax rates, and policy instabilities.
But it also has two important functions that can
facilitate competition.
One, it gives information to potential and incoming
players on how they will be treated in case existing players, foreign and
local, will charge and accuse them of “anti-competitive” behavior. And two, it
can coordinate with other sectoral regulatory agencies and temper their
itchiness to regulate, restrict and prohibit as PCC has the overall view of the
degree of competition in the country.
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See also:
BWorld 206, Intellectual property rights in East Asia, May 09, 2018
BWorld 207, Fare control and surge cap are wrong, May 10, 2018
