Competition for a better economy

Fine slapped on Sistic for abusing its dominant position in the ticket services market a wake-up call for companies

By R. Ian Mcewin, Published The Straits Times, 31 Jul 2012

IN THE first example of using competition law to ensure Singapore's long-term economic interests, the Competition Appeals Board (CAB) upheld a 2010 decision by the Competition Commission of Singapore (CCS) to fine Sistic for abusing its dominance of Singapore's ticket services market. The CAB however lowered the fine from $989,000 to $769,000.

The abuse arose from Sistic requiring venues like the Esplanade and the Singapore Indoor Stadium to use its ticketing services exclusively. Between 2006 and 2009, Sistic's market share was over 90 per cent. Sistic lodged an appeal against CCS' decision to the CAB, which was heard last September and October.

The CCS decision, supported by the CAB, was correct. It was also particularly important in Singapore where, due to its small size, many markets have dominant players. Sistic's insistence that the venues buy only its ticketing services effectively stopped other companies from competing - even if they were more efficient. The CAB found Sistic's "exclusivity restrictions contained in the Exclusive Agreements make no economic sense other than having the effect of foreclosing competition".

The 2006 Competition Act was set up with the main aim of improving the Singapore economy. The CCS and CAB decisions are consistent with promoting Singapore's long-term economic interest. The CAB decision was not made purely on legal grounds. The board reviewed all the evidence and made its decision after a careful, meticulous study. It was set up as a tribunal comprising not only judges but also economists and businessmen. Experience in other countries (Australia, New Zealand and Britain) show this is the best way to deal with difficult competition law cases.

Competition law should be all about ensuring that only business conduct with an adverse impact on economic outcomes in Singapore is stopped. While drawing the line between acceptable and unacceptable conduct may not be straightforward, economists can help determine the likely effects of conduct, given all the circumstances. However, this may not be enough, so practical, commercial experience and common sense is also needed in an area where it is usually not possible to be certain whether conduct is good or bad and where mistakes can inhibit efficient business conduct.

What is unusual about the case is that Sistic, a ticketing agency owned by two government bodies, imposed exclusive ticketing restrictions on two major venues owned by its own two shareholders. A sensible question is why two government bodies owning two major venues, through a solely owned company, essentially foreclose competition by other ticketing companies?

The initial establishment of Sistic is understandable. Before the introduction of competition law, the Singapore Sports Council likely saw a deficiency in the market that needed to be filled. This has been a common feature of the Singapore economy - Government stepping into the market where existing services were inadequate. Perhaps the restrictions were necessary, initially, for the new investments to be profitable.

But, as with infant industries, the assistance should stop once it has "grown up". But the "assistance" via exclusivity continued, ensuring good profits for Sistic and a lack of opportunity for new players to compete with better and cheaper ticketing services. If Sistic was efficient, it would not need exclusivity arrangements. The only rational economic explanation for such arrangements would be to increase profits above the competitive level for these two government bodies. This is not normally a government function, nor one I would expect most Singaporeans would agree with.

On the issue of dominance, companies with persistently high market share should now be put on notice following the Sistic case. The CAB agreed with the CCS that a persistently high market share is indicative of dominance. This is important in Singapore's context, given high market concentration in many sectors. An important distinction was made between the finding that Sistic and its two shareholders were not a single economic entity under the Act (which would have excluded the agreement from the Act) and the issue of whether the Esplanade or the Singapore Indoor Stadium would be likely to seek other ticketing agencies. The CAB found that they were separate issues - which again provides a clear signal to other government-linked corporations.

Long-term contracts can exclude others from the market of a dominant player for a long time. Economists view this as creating a barrier to entry which is an important determinant of likely competition (a monopolist with 100 per cent of the market will fear raising prices much above competitive levels if new entrants are waiting in the wings). Dominant firms will often try to strategically create entry barriers.

Once dominance is established, the next question is whether Sistic abused its dominant position by imposing exclusivity terms in its contracts. Abuse had to be determined by examining the effects of a dominant firm's conduct. Sistic relied on the second reading speech for the competition Bill in 2004 by Dr Vivian Balakrishnan, then Senior Minister of State for Trade and Industry, to argue that the CCS should look at the direct impact on efficiency. However, Dr Balakrishnan's speech continually stressed that competition was the focus, not efficiency. Promoting competition is a means to an end, which if effective indirectly promotes economic efficiency.

The CAB agreed with the CCS that European Union and British decisions are highly persuasive and found that proving abuse only requires showing an "adverse effect on the process of competition". This is not a surprising decision - as the Act is not only called the Competition Act but also provides some illustrative examples of abuse including predatory behaviour and limiting production.

The significance of this is that dominant players need to be careful in placing restrictions on other parties in their commercial relationships. If they do, they must be able to justify it in terms of providing good economic outcomes.

In my six years of working with the Government, it became obvious that, over time, it intervened directly in markets by creating bodies to supply goods and services where existing markets had failed. Or it encouraged self-regulation as a more effective way of dealing with market failures rather than doing so through direct regulation. For instance, doctors were initially encouraged to fix reasonable prices as a substitute for direct price control. These arrangements were later challenged in the Singapore Medical Association case with the advent of competition law.

Similarly, the Sistic case illustrates "market-related" intervention by government bodies to raise ticketing standards initially but failing to get out of the way once the market was internationally efficient. There are likely to be other instances where Government created new bodies or promoted self-regulation but did not monitor subsequent developments, leading to fewer competitive pressures within Singaporean markets.

This is not a situation Singapore can allow to persist. Competition law can help raise the productivity level in Singapore, particularly in those markets not subject to international competition or entry by international firms. The Sistic case is a portent of the future. Dominant firms (including government-linked ones) need to quickly adapt. There seems to be a sense of denial by much of the business community to competition law in Singapore - the Sistic case is a wake-up call.

The writer is managing partner of Competition Consulting Asia and visiting professor of law at Chulalongkorn University, Bangkok. He advised Singapore's Ministry of Trade and Industry on the policy, design, drafting and implementation of Singapore's new competition law and was the CCS' first chief economist.