Tuesday, April 26, 2011

Competition Act: Monopolies Everywhere

From this weekend’s news:

The Competition Act and Anti-Profiteering Act to change the way business is conducted

THE Competition Act 2010 and the Price Control and Anti-Profiteering Acts 2010 will completely change the way business is conducted in Malaysia if fully implemented as expected by next year as they help pave the way for greater innovation and service to consumers at competitive prices.

The Competition Act 2010 took over 15 years to be implemented in Malaysia due to legacy issues such as industrial policies and protectionism given to selected industries such as the construction and transportation.

The main thrust of the Competition Act is to promote a competitive market environment and provide a level playing field for all players in the market, which in the process will squash anti-competitive practices such as cartels and collusions.

The urgency to implement such an Act, albeit later than neighbouring countries such as Singapore, Indonesia and Thailand, finally came when it was clear that foreign direct investments into the country had dwindled as a result of previous industrial policies providing protectionism over selected sectors and giving rise to anti-competitive behaviour.

There’s the open question of implementation, A Competition Commission will be charged with overseeing potential cases, but there’s obviously a need to test the legislation in court to ensure that it meets the objectives. I’m generally for this type of legislation, but allow me to take a jaundiced view of the proceedings.

There' appears to be a rather naive faith in the power of markets and regulations to restrict anti-competitive behaviour. That isn’t an obvious conclusion, especially for those who’ve watched the financial crisis unfold in the past three years.

But there’s further irony in this. The sad truth is that nearly all modern business practices are monopolistic in nature. The Competition Act and similar legislation overseas only aims at reducing or constraining monopolies in the classical sense – a company or a small set of companies (oligopolies) that have inappropriate or excessive market power.

But monopolistic competition goes far deeper and is more pervasive than that. Nearly every company, small or large, has some degree of monopoly power. Consider this: If your company follows a branding strategy and its effective enough to create brand loyalty, you’re actually gaining monopoly power because you’ve differentiated your product, no matter how physically closely it resembles your competitors.

Branding is the most egregious example of modern monopolistic behaviour, but any departure from the classical perfect competition conditions (identical goods, large number of price takers, complete markets) implies some measure of loss of consumer surplus. Whether that’s necessarily good or bad depends on your philosophical bent, but you can imagine the impact on the increasingly brand-conscious, consumerist society we are turning into.

I won’t even go into things like the Blue Ocean Strategy, which a close reading reveals to be specifically designed to create monopolistic power.

So the Competition Act is just one step towards raising business competition in Malaysia. Let’s not consider it as all that’s necessary.


  1. completely idiotic.

  2. Hi Hishsm, I'm a layman with no econs and law knowledge. Care to explain how this new act will affect the retail sector?

  3. Honestly? I don't know - it depends on how seriously the government wants to enforce this. And we need test cases, for the lawyers and judges to figure out if it actually works.

    Plus the exclusions effectively means the government can choose rather arbitrarily whether to prosecute or not - which obviously isn't ideal for fair treatment.

  4. Do you know of any competition economists in Malaysia?

  5. These acts aim to reduce the _negative_ side of monopoly i.e. price fixing (even Mamak has an association to collude in fixing price in Malaysia) at the expense of consumers and other competitors, artificial barrier to entry, dumping etc.

    If implemented correctly, it helps small business owner to gain a foothold in the market.

    For example, we all already know the price of a teh tarik is nowhere near 50cents. But Mamak priced it at RM1.50 and we have no choice but to pay. I remember a friend opening up a cafe near a Mamak restaurant who charged only RM1 for teh tarik. You know what happen next? The Mamak association sent him a letter of complaint and threat. Nak bakar kedai pun ada.

    In Malaysia it is serious enough having to contend to bullies like this. Hopefully the Act goes somewhere.

  6. Hi there.

    I'm a university student studying law who's going to do a research paper on Competition Act.

    I am new to all this economic school of thought so I'm still trying to grasp how far reaching/ how effective this act would be in our country. Is it really practical?

    I'd appreciate it if anyone can give comments to the matter. thank you.

  7. @anon,

    It really, really, really, depends on implementation and enforcement. So far there's to my knowledge no test cases under this act, so we don't really know what effect it might actually have.

  8. For economic effects of the new law, see my presentation (if I can be so immodest):

    1. Hi Bryane,

      Nice one. Will there be a paper forthcoming?