UNFAIR TRADE PRACTICES –
MALAYSIA
Dr Cheah Chee-Wah
info@jcasiapacific.net
www.jcasiapacific.net
12 September 2012
Competition law and economic regulation are
not the same thing
2
Competition law



Does not intervene in
markets
Deals with matters
“after the fact” (ex post)
Sustains and enhances
competitive process for
benefit of consumers
Economic regulation



Necessitated by on-going
or impending ‘market
failures’
Deals with matters
“before the fact” (ex ante)
Direct intervention
(minimum supply or price
ceiling; or both) – for the
benefit of firms /
industries
Economic regulation
3
Legislation
Regulation
Regulator
Road Transport Act 1997
Tariffs for privatized roads (usually
subject to consultation with and
approval by the Cabinet)
Malaysian Highway Authority
(within Ministry of Works)
Railways Act 1991; Railways
(Successor Company) Act 1991
Train fares
Railways Department (within
Ministry of Transport)
Ministry of Transport (Federal ports)
Ports Authorities Act 1963, and
respective Port Commission in
each State
Port access charges set by Ministry
Port access charges, general charges in consultation with the State-based
for loading/unloading of cargoes
port authorities.
Corporatized or privatized ports
regulated by respective port
commissions
Civil Aviation Act 1969; Landing,
Parking and Housing, Passenger
Services and Air Navigation
Facility Charges (and) Regulations
1992
International passenger service
charge; aircraft landing and parking
charges
Civil Aviation Department (within
Ministry of Transport)
Economic regulation
4
Legislation
Communications and
Multimedia Act 1996
Regulation
Licensing, USO and access
pricing (ex ante)
Service/product market
competition (ex post)
Electricity Supply Act
1990; Electricity Supply
Retail tariffs (ex ante)
(Successor Company) Act
1990
Water Service Industry
Act 2006; and State
legislation
“Independent”
Regulator
Communications and
Multimedia Commission
(SKMM)
Energy Commission (ST)
Privatized water supplier
National Water Service
prices are “regulated” via
Commission (SPAN); and
concession agreements (ex
State-based regulators
ante)
Unfair trade practices (UTP)
5

What and when should a trade practice be considered “unfair”?


Are the economic damages that are actually or potentially caused
upon the competitive process by a firm’s unfair trade practice the
same as those caused by the firm’s abuse of its market power?


A seller charging “too much”; or buyer paying “too little”; or when either party
imposes inequitable trading conditions?
There is little conceptual or practical difference between UTP and any forms of
conduct that are rooted upon abuse (misuse) of market power
Actions taken by a firm to defame the quality of its competitor’s
product, or to deceive consumers through misleading advertising
are typically unrelated to product prices

“Unfair” in the sense that asymmetrical information between producers and
consumers are being exploited by the former
Control of Supplies Act (1961)
6


Ministry of Domestic Trade, Cooperatives and
Consumerism (MDTCC) given the power to control the
price and supply (including the importation, distribution
and marketing) of goods that are considered “essential”
Currently the supply and respective prices of (at least) 21
items are controlled

The Enforcement Division within the Ministry (established in
1972) carries out frequent and on-the-spot checks of the prices
charged by wholesalers and retailers of the controlled items

Market prices for some specific food items are “fixed” by the Ministry
for no more than 15 days over the respective festival periods of Hari
Raya Puasa (Aidilfitri), Chinese New Year and Deepavali.

These food items include local poultry meat and eggs, as well as local and
imported beef, mutton, fish and vegetables.
Consumer Protection Act (1999)
7


Comprising 14 parts and a total of 150 sections
that deal with consumer rights and protective
measures
Part II of Act deals with misleading and deceptive
conduct, false representations, and unfair
practices
 similar
to those of Australia’s Competition and
Consumer Protection Act 2010 and New Zealand’s Fair
Trading Act 1986.
 specific provisions pertaining to misleading indication
of price, bait advertising, gifts, prizes, and free offers
8
Price Control and Anti-Profiteering Act
(2010)

Came into force on 1 April 2011


Illegal for traders or business operators to increase the prices of goods or
services to earn “unreasonably” high profits:





previous Price Control Act (1946) repealed
during festive seasons, or
when there is a shortage of supply of the goods or services, or
when the increase in petrol or commodity prices does not have any tangible impact on the
supply cost of the goods or services
Price Controller (located within Ministry, of Domestic Trade ) determines
the maximum, minimum or fixed price of a good or service ; as well as
different prices for the same good or service that is sold in different
geographical areas
Ministry, together with the Malaysian Institute of Economic Research
(MIER) and Institute of Strategic and International Studies (ISIS) Malaysia,
formulating economic ‘test” and conditions under which the level of
profit is deemed “unreasonable”
Competition Act (2010)
9




Came into force on 1 January 2012, following an 18-month transitional period for
both private businesses and government-linked companies (GLCs)
s4(1) pertains to horizontal and vertical agreements that firms have entered into
with the objective; or which have the effect; of preventing, restricting or distorting
competition
s4(2) prohibits cartel-related (i.e. horizontal) agreements aimed at “filling the
members’ pockets” with a share of higher joint profits through price fixing, market
sharing, limited production or supply and bid-rigging
s5 provides a “relief of liability” (i.e. defence of an anticompetitive agreement) on
the grounds that:




there are significant identifiable technological, efficiency or social benefits arising from the
agreement;
the benefits could not have been realized if not for the effect the agreement has on
preventing, restricting or distorting competition;
these benefits are proportionate to the detrimental effects on competition; and
the agreement does not eliminate competition completely
Competition Act (2010)
10


s10(1) of the Act proscribes conduct which amounts to an abuse of
dominant position in any market
Actions specified in s10(2) include:





limiting output, or refusing to supply, with no objective reason (e.g. market
foreclosure);
applying different conditions to equivalent transactions with other trading
partners (e.g. price discrimination and margin squeeze);
concluding a contract on the basis of supplementary conditions that are totally
unrelated to the subject matter of the contract (e.g. tying); and
responding to market entry by others by selling at a price that is lower than
the product’s cost of production (e.g. predatory pricing).
No legal reference to any specific UTP

technically, UTP could be defined or conceptualized as a subset of (instead of
being distinctively different from) practices rooted upon market power
Case 1
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Revenue earned by Principal directly from end-users
Supply of service X
Principal
(producer and
supplier of service X)
Appointed agent
Commissions paid to agent


Supply
of VAS
End – users
(customers)
Revenue earned by agent directly
from end-users
A firm engages in pure bundling by selling two products together with no option for consumers to
buy either product individually (s139)
Under the agency contract between L and an appointed agent, it was the latter who have to
impose the bundling condition on customers to buy VAS in order to receive L’s supply of service X.


the VAS provider was not a communications licensee and therefore not subject to s139
however, to the extent that L’s supply of service X was legally bound to the bundling actions of its agents, a
case could have been made of L’s contravention of s136 indirectly through the appointed agents
Case 2
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Revenue- or
profit-sharing
Interline
Reciprocal
frequent
flyer
Code-sharing,
“block-space”
arrangements
Joint market
operations
Yes
Possible
No
No
No
No
Tactical – expanded
cooperation and
joint network
Possible
Often
Yes
Yes
No
No
Strategic – mergerlike actions
Possible
Very
often
Very often
Very often
Yes
Yes
Relationship
Simple (and
possibly limited
cooperation on
specific routes)
Equity
transfer
Case 2 – Domestic market HHI
13
Airline (Airport)
Passenger-traffic (million
persons)
Market share (%)
Year
2008
2009
2010
2008
2009
2010
MAS (MTB)
4.30
4.41
4.36
55.1
39.8
40.3
AirAsia (LCCT)
3.20
6.00
5.59
41.0
54.2
51.7
Firefly (Subang)
0.30
0.67
0.86
3.9
6.1
7.9
TOTAL
7.80
11.08
10.81
100
100
100
4737
4553
4364
HHI

The exit of Firefly is likely to have the effect of reverting the current oligopolistic
but increasingly competitive domestic market back into a duopoly, or even a
monopoly if the allied airlines operate like a merged business


the allied partners may and can dissipate any “residual” competitive tension by reducing the
number of flights in selected domestic routes
even if the allied partners were to continue with the provision of overlapping flights in
selected domestic routes, they may be able to charge airfares that are no less than those that
were charged before the alliance.
Looking ahead …
14

The need for on-going competition reforms
and coordinated legal system with
appropriate rules and instruments that could
be applied in a transparent manner


facilitate optimal regulation and constrain
interest group influence which often subvert
legal processes and regulatory institutions
MyCC has the power to conduct “market
review” that will invariably involve empirical
studies of industries and competition issues

MyCC should promote such studies in higher
degree curricula
Dr Cheah Chee-Wah
info@jcasiapacific.net
www.jcasiapacific.net
+60 16 946 2851 (Malaysia)
+61 405 147 297 (Australia)
Thank you