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The Malaysia Competition Commission (MyCC) recently fined both Malaysia Airlines (MAS) and AirAsia for having engaged in anti-competitive behaviour, which was reported to have manifested in the form of a market sharing agreement.
This is a blatantly obvious violation of basic competition law provisions. As a general rule, a firm should compete fairly with its competitors and not engage in behaviour wherein it instead enters into agreements with them as this has the obvious impact of distorting free competition.
The current prevailing discussion in the Malaysian media, however, focuses primarily on fines and the need to prevent the formation of agreements between competitors. In my personal opinion, very little attention is focused upon the fact of deciding about the ultimate goals for the regulation and its significance to all businesses, not just the airline sector.
Why would a business be focused upon studying goals in the interest of regulation? This quite obviously appears to be an ‘exercise in futility or redundancy’ in view of the fact that the Competition Act is already in existence.
By definition, Competition Law aims at regulating competition. This must naturally be a challenging task. It is attributed to the fact that the act of competing in business activities in a free market economy is by its very nature, complex. Further, the very notion of Competition Law may be perceived as aiming to result in an equal playing field for all entrepreneurs. This desire is somewhat paradoxical as it naturally conflicts with the fact that different sectors operate by different rules. Hence, it may be clearly demonstrated that it is virtually impossible to create common legal standards. What then is the solution to the problem?
The issue boils down to political decision. In general, Competition Law aims at ensuring the existence of a free market system, which allows for the efficient allocation of scarce economic resources. This, however, is in theory. In practice, the question which needs to be addressed is – whose interest is to be protected by the law or what does society value the most and decide to protect and promote by allowing public institutions to supervise the rules of the game in the private sector?
Essentially, there are two main options for this strategic choice: consumer welfare and the process of competition. In the case of consumer welfare, the legality or illegality of certain business behaviour would be assessed by the final outcome that this would have on the consuming public. If, for instance, a particular strategy adopted by a particular firm leads to improvement in service or product quality or results in lower prices, then, in principle, this practice should be legal. However, when the process of competition is seen as a goal to be regulated, then that very same practice might become illegal because from this perspective, it limits the potential to compete on a market accessible to other firms. At the end of the day, taking into consideration the complexity of economic analysis of a particular market strategy, it is always the ultimate goal of a particular law itself that determines the legality or otherwise of market behavior. Yet again, the goal is seen to be a political decision.
Hence, in light of the cases concerning AirAsia and MAS, a very pertinent and relevant question to pose would be, what is the desired objective for the regulation of competition in Malaysia? The nature of the market and the state’s strategy for the development of competition should definitely be taken into account. Perhaps, some additional inspiration might be found in the West.
In general, Europe is seen to be in favor of the process of competition and the US seems to be more concerned about protecting consumer welfare. America, a nation that pioneered competition regulation (having had a history spanning more than a hundred years with competition regulation wherein it is referred to as Antitrust Law in the American context) had envisaged as the outcome, the delivery of economic efficiency to the consumer. The conviction of this goal is seen to be supported by a strong incentive for private parties to file lawsuits – triple damages are awarded to successful plaintiffs in cases concerning antitrust offences.
However, most of these cases never reach the stage of litigation due to the general prevalence of out-of-court settlements. As a result, the market regulates itself – competitors who are active on the market are seen to be key whistleblowers for any illegal activity as this action would aid them in removing the troublemaking firm from the business scenario and hence would consequently result in their securing of greater profits.
Europe, on the other hand, relies heavily on public enforcement agencies and does not provide strong incentives for private enforcers, hence, the bulk of cases involve governmental agencies and their investigation efforts. The obvious conclusion from this model is that the number of private actions is lower when compared to the US and further, private businesses are seen to be more reliant on notifying the agency rather than managing the problem on their own.
This is just the tip of the iceberg. It is propounded that it is merely a matter of time before the MyCC encounters the problem of the coherency of enforcement of the Act and before the Malaysian courts feel the pressure or compulsion to apply Competition Law in a more coherent manner. After all, international investors keenly desire to invest in an economy where the rules are firmly entrenched appropriately and where there is a certainty of their enforcement along with very clear guidelines so that the investment is shielded from possible legal uncertainties.
The airline industry is predominantly the ‘competition sensitive’ sector and it can be predicted with a high degree of certainty that more cases will involve this particular line of business, especially with regards to pricing practices. The need to properly define the market when citing anticompetitive behavior will be ever present and the burden of proof would ultimately be saddled upon the enforcer.
However, I would suggest to lawyers, public enforcement agencies and business people alike to be more aware of the goals envisaged by the legislator, described in the guideline and its interpretation by the courts in active scenarios. In the long run, studying this particular and often neglected aspect of Competition Law may yield great dividends especially when establishing a formidable line of defense in matters concerning a lawsuit. It is predicted that private businesses investing time and money into studying the details of legal terrain will fare better in the future as the number of investigations into matters pertaining to competition and claims in relation to the same will increase as a natural consequence of economic growth.
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Marcin Rogowski is the Associate Dean of Postgraduate, Research and Innovation at the Taylor’s University Law School.
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