Competition Law and the Consumer

There are two critical laws that impact consumer protection – The Consumer Protection Act, 1999 and the Competition Act, 2010. While the Consumer Protection Act protects individual consumer rights such as unfair trade practices, deceptive advertising and shoddy goods and services as well as provides a framework for consumer redress for their complaints, the Competition Act has a broader economic objective.

According to the Competition Act, the goal of the Act is to “promote economic development by promoting and protecting the process of competition”. The Act also specifically states that by doing so it aims to protect the interests of the consumer.

According to the World Bank, 90 countries covering 86% of world trade have some kind of competition (or sometimes refereed as anti-trust) legislation. Thus the legislation is not new and is seen as a critical legislation to protect consumers in a modern economy.

How does competition law affect the consumer?

Let us look at an example. Say in a village there is only one provision shop. Without any competition, the seller can charge whatever price he wants and sell at whatever quality he chooses. The consumers are forced to buy, as they have no alternative. Say, another shop opens, to attract consumers from the earlier shop. The new seller may sell at a cheaper price, provide better quality and/or sell a more variety of goods. The consumer benefits because he can now compare and get better value for his money. Say a third shop opens; with more competition the consumer benefits through more choice, better prices and better quality. This is the benefit of a “free market”. There is one assumption here however, that is the three shops do their business independently, that is they do not collude (meet and discuss how to work together for example to manipulate prices).

On the other hand, if instead of selling independently, the three shop owners discuss and decide to manipulate prices – for example for 5 essential items, the first shop sells at a higher price and the other two shops do not sell those items, for another 5 items the second shop does the same and for another 5 items the third shop does the same – that is for 5 items they decide one seller makes exorbitant profits while the other two sellers do not sell the same items, while for another 5 items each, the other two make exorbitant prices.  This collusion causes harm to the consumer because for these 15 essential items the consumer will be paying excessively due to price manipulation.

On a wider scale this can happen to any products or services, all along the supply chain. For example, vegetables may move from the farmer, to the middleman, to the wholesaler to the retailer to the consumer. Anywhere along the food supply chain, where there is no free competition and there is some form of market manipulation, consumers suffer through higher prices and sellers benefit through excessive profits.

The recent report on the market review of key food items by the Malaysian Competition Commission confirms that one of the key reasons for high food prices is distortions and manipulations in the food supply chain.

For example the price of ikan kembong has increased by six times between the price received by the fisherman and the price paid by the consumer. Another example of substantial price increase is the price of cabbage; price at the farm is RM 1.60 while consumer pay a retail price of RM 3.90, and increase of 143%.

Malaysia Competition Commission (MyCC) in their report have identified multiple causes of the exorbitant food price in the market. The reasons include market manipulation by middlemen, multiple intermediaries and manipulation of Approved Permits causing unreasonable increase in food prices.

For example in the fish supply chain, middle man are known to hoard fish when prices are low, thus restricting supplying and forcing the prices of fish to increase. There is also opaqueness in price determination along the supply chain. Thus through greater transparency and market competition through the removal of market inefficiencies, consumers will benefit.

While food is illustrated here, the same principle of free competition encompasses every product and service we consumer. Thus in summary, through better competition, consumers benefit through:

• Lower prices
• Higher quality
• Wider products and services

Small businesses also benefit, as with open competition, they can innovate and enter the market thus giving consumers more choice.

Some of the ways companies manipulate the market are:

1. Price fixing. Fix the selling price for example a major manufacturer forces the retailer to sell at the price they fix; meaning that at the retail end retailers cannot reduce prices to attract consumers;
2. Cartel. Few or several suppliers control supply and fix prices to optimise profits.
3. Focus on specific geographic areas. For example major pharmaceuticals may decide to focus on certain geographical areas for example Company A sells in Northern States, Company B sells in the Western states and Company C sells in the Southern States, Thus in each geographic area they do not compete and thus can manipulate prices.
4. Limit production. For example when prices of chicken went down there were reports of farmers killing the chicks to reduce supply and thus increase prices.
5. Bid-rigging. Several companies bidding for contracts when in actual fact they are all owned by the same owner.
6. Predatory behaviour against competitors. For example if a new shop opens in an area, the earlier seller purposely sells his items at a very much lower price. Consumers may benefit in the short term. But once the new business shuts down due to loses as they cannot get customers, the earlier seller who has killed his completion, raises his prices again.

Competition can be considered effective when no one seller can “control” the market. Rival sellers can keep him in check by offering better prices or better quality.

The Malaysian Competition Commission (MyCC) is tasked with implementing the Competition Act. Some of its actions include:

1. Action against Malaysia Airlines, AirAsia and AirAsiaX for entering into an agreement on sharing markets in the air transport sector. RM 10 million was fined for each carrier.
2. MyEG Services Sdn Bhd, an online foreign workers permits renewals platform, was fined RM 9.4 million for abusing its dominant position.
3. The biggest penalty was against the General Insurance Association of Malaysia (PIAM) and its 22 members for entering into an agreement on the application of trade discounts on parts prices and hourly rates for motor vehicle repairs by workshops under the PIAM scheme. The 22 members of PIAM have been imposed a fine of RM 130 million.
4. MyCC has also fined Dagang NeXchange Bhd unit, Dagang Net Technologies Sdn. Bhd RM 10.3 million for alleged abuse of its dominant position by engaging in exclusive dealing.
5. MyCC has also acted against Grab Holdings Inc for abusing its dominant position by imposing restrictive clauses on its drivers.
6. MyCC is now looking into bid-rigging into government contracts.

Clearly, competition in the market has a direct impact on the welfare of consumers affecting prices, quality and choice of goods.

Consumers should always support the Competition Law.