Competition law up for love

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Cambodia’s Ministry of Commerce. The Law on Competition was endorsed by the King for immediate promulgation on October 5 after the Senate reviewed and approved in on September 20. Heng Chivoan

Happy are those who love to go to court. If the pre-existing standards on unfair competition have been unable to do the job, the newly adopted Law on Competition will and must do the job. But what kind of job?

Fundamentally speaking, this law seeks to ensure that businesses play by the rules and strive to make money in the most decent manner possible. You may ask, is it wrong to want the biggest market power possible? Is it wrong to drive competitors out of business? More bluntly, didn’t people go into business to make money in the first place?

Before even trying to answer to any of these questions, it may be worth remembering that “it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest”. Can’t quite argue with Adam Smith there. What he famously called the invisible hand, we now simply call market.

Many entrepreneurs would have to endure numerous painful lessons before they learn to price their product/service correctly. The ongoing art of finetuning the price may inevitably move the market upside down and around. In other words, the market is moved by what we routinely call competition.

As it now stands, our fresh Law on Competition is well aligned with the global trend as it prohibits four known types of agreements which would restrain trade, namely, horizontal agreements, vertical agreements, dominant market power, and mergers which could cause a major adverse competitive effect.

The limited length of this article does not permit explanations of these agreements but rest assured that if none of these exists, it is fair to assume that consumers would be best served thanks to two noble attributes – equality and honesty – which shall dictate the way corporations do business. At least that is what the law says.

Since our short law (only 41 short articles) has just been enacted, only broad principles and standards have been expounded, leaving all the juicy details to be later determined by the powerful Competition Commission of Cambodia.

If experience elsewhere is of any guide, such detailed rules could take years to come by before we can fully grasp the true meaning and impact of this new law. Such a long time? Yes, and you may quit reading right here and go back to whatever you were doing. But before you go, here is what you might want to know.

Competition isn’t necessarily a bad thing. It pushes people to think creatively, to innovate, to be more efficient. We can all agree on that. Good competition on the merits, theoretically, shall drive the prices down to the competitive price. Bad things may happen when major companies make agreements, often secretly, to diminish competition among themselves (collusion) or when one tries so hard to eliminate its competitor from the market completely (exclusion) or when two major competitors agree to permanently combine (merger) in order to become one awesome single economic entity, almost a monopolist.

Our law provides some exceptions. But we would only know what is permissible and what is not when this law starts to receive interpretations through court decisions as well as rules and reasonings of the Commission in the future.

Since the Law on Competition uses a lot of economic jargons, we can first expect to go through a fairly high number of cases before we can hope to have some clarity to help us argue whether a particular or relevant market exists or whether the defendant (the bad guy) has that sort of market power that is troublesome … et cetera.

For starters, definitions given in the law are sure to call for intense debates that will perhaps never end. Thus, competition refers to “actions by persons doing business in the market, aimed at getting many customers to use their product/service, gaining a big market share, and a dominant market position.” Competitors refer to “those currently competing in a particular market or those with a potential to enter into such market”, while market itself is defined as “market of products or services that are in the competition.”

If you ever find these definitions not entirely clear, you are not alone. They (like many others) seem to require more elaborated definitions of their own. Market share, market power, big, dominant, particular market are all such concepts and adjectives which, to become clearer, would require years and years of implementing this law through many more detailed rules and interpretations.

Just before you go, if you love clarity, note finally that for two products to be legally competing with one another, they would, at least as far as theory can tell us, need to be interchangeable, ones which customers perceive as substitutable. One may, therefore, perhaps say that the best Ferragamo shoes are substitutes for Gucci shoes, a broad all-shoes market. But then, there can also be three relevant submarkets – men’s, women’s, and children’s shoes.

Defining a relevant market is hard enough, plus, many things that you and I know today will certainly evolve as new economic activities emerge. The only thing that won’t change is the fact that this law will inevitably bring about claims and lawsuits. So, in order for this law to do its job, you must practice it often enough whether you love it or not.

Virak Prum, LLB, LLM, PhD (2006 Nagoya University) teaches law at CamEd Business School. The views expressed are solely his own.