Was Singapore correct to exclude vertical restraints from the section 34 prohibition?
The Competition Act in Singapore is a relatively young piece of legislation. Substantive provisions prohibiting anti-competitive acts and conduct, in the form of sections 34 and 47, only came into effect as recent as 1st January 2006. The Competition Act was “largely modelled on the UK's Competition Act 1998 ” , which was in turn modelled after European competition law contained in the Treaty establishing the European Community . Several amendments have however been made to take into account Singapore’s “specific economic characteristics and requirements, in particular, the fact that we are ...view middle of the document...
Vertical agreements involving a dominant player remain covered by the prohibition against abuse of dominance.
The EU Block Exemption
Although, the European Union uses an identical definition for “vertical agreement” , it does not have a blanket exemption on vertical agreements. Instead the European Commission (“EC”) has adopted a block exemption on vertical agreement and concerted practices (“EU Block Exemption”), in the form of Regulation 330/2010. Amongst the various requirements that must be met to fall under the EU Block Exemption, two key requirements in particular are that the market share of both parties must not exceed 30 percent , and the agreement must not contain any hardcore restrictions, such as fixed or minimum resale prices .
This essay will first examine the benefits and detriments vertical agreements may have on competition. The reasons for and against adopting a blanket exclusion of vertical agreements from the section 34 prohibition will then be examined to show why such a blanket exemption should not be adopted in Singapore.
Vertical agreements: Possible benefits and detriments
Both the Competition Commission of Singapore (“CCS”) and the EC recognise that vertical restraints can have pro-competitive effects , “especially if there is effective competition at both the upstream and downstream levels.” Benefits include the promotion of efficiencies, non-price competition, investment and innovation, and the development of new markets.
The EC has identified several ways in which vertical restraints can achieve efficiencies or help to develop new markets. Amongst other benefits, vertical restraints can be used to solve the free-rider problem, when a retailer or distributor free rides on the investment of another. For example a distributor may invest in a particular brand to create a demand for it, or make investments to enter a new geographic market. Some form of protection may then be required for the distributor to recoup its investments. Secondly, vertical restraints help solve the hold-up problem, where suppliers or buyers will not commit to making client-specific investments, such as special equipment or training, until supply arrangements are fixed. Thirdly, vertical restraints can be used to achieve economies of scale in distribution, leading to lower retail prices. Fourthly, vertical restraints can be used to create brand image and increase the attractiveness of the product by imposing uniformity and quality standardisation. The Supreme Court of the United States has also recognised that reduction of intra-brand competition (ie, competition between retailers selling the same brand) caused by vertical restraints can promote inter-brand competition (ie, competition between manufacturers selling different brands of similar products) . The promotion of inter-brand competition is important as it is the “primary purpose” of competition law , and it accords with Singapore’s competition policy of...