Determining & Applying Appropriate Remedies
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MAKING MARKETS WORK WELL Determining & Applying Appropriate Remedies Ng Jia Le (Senior Competition Analyst, Business & Economics) Competition and Consumer Commission of Singapore Use of Commitments and Remedies (1) The objectives and types of remedies • Overarching objective – to maintain or restore competition otherwise lost due to a merger, while permitting (if possible) the realisation of efficiencies and other benefits • The objective(s) of a remedy hinges on the facts of each case and the underlying Theory of Harm (TOH) » Price caps? Ensuring availability of parts, etc.? » Creating a competitor to replace the competitive constraint imposed by the acquired firm? » Encouraging or enabling the entry of new firm(s)? » Enabling the expansion by a small existing competitor? • In assessing the appropriate remedies, CCCS will also consider the effectiveness, costs and proportionality of the different remedies • However, there are cases where an effective remedy may be unavailable and a competition authority may seek to prohibit the merger in its entirety Use of Commitments and Remedies (2) Types of remedies and their purpose • Structural Remedies » Preferred as they address the market structure issues that give rise to competition problems » Once implemented, they require little on-going monitoring by CCCS — though monitoring trustee may still be needed to oversee the operation of the business pending disposal and/or to handle sale if the owner has not completed the divestiture within the specified period. » Examples include: — Divestment of the buyer’s existing business (or part of it) — Amendment to intellectual property licences • Behavioural Remedies » Relevant in situations where divestment will be impractical, or disproportionate, to the nature of the concerns identified » Require more monitoring efforts » May require an external monitoring trustee » Complementary to structural divestments at times • A combination of structural and behavioural remedies may be necessary in ensuring full and effective relief Use of Commitments and Remedies (3) Remedy Negotiation • Remedies may be implemented by: » directions issued by CCCS upon an infringement finding (negotiation does not apply); or » CCCS’s acceptance of commitments which are offered by merging parties (negotiation applies) • Merging parties are encouraged to take the initiative to propose remedies, which they think can appropriately address competition concerns that they foresee arising from the merger situation • Merging parties can do so anytime during the review process as Section 60A of the Competition Act provides that CCCS may accept remedies at any time before making a decision on a merger • CCCS may also remind merging parties that they have the opportunity to offer commitments, if the merging parties have not done so and there are clear potential competition concerns • CCCS will not accept the proposed commitments without conducting a public consultation » To ensure that we do not miss out any perspective that might be of relevance in tailoring the set of proposed commitments to the competition concerns in a particular market of interest Use of Commitments and Remedies (4) Relevant considerations in selecting remedies • Types of remedies and their impact on competition concerns and resulting adverse effects » Structural vs. behavioural remedies?; possible market distortions? • Appropriate duration and timing » remedies that act quickly in addressing competitive concerns are preferred; though effect of the remedy should be sustained for the likely duration of the competition concern • Practicality » A practical remedy should be capable of effective implementation, monitoring and enforcement » Operation and implications of the remedy need to be clear to the merging parties and other affected parties • Acceptable risk profile » When evaluating the effectiveness of a remedy, one should seek remedies that have a high degree of certainty of achieving their intended effect Use of Commitments and Remedies (5) The role of monitoring trustees • Effective monitoring is crucial in ensuring the effectiveness of a remedy and should be conducted proactively » Firm’s incentives to comply with a remedy are related to the risks and costs of non-compliance • Main role of a Monitoring Trustee (MT): to assist in the monitoring and implementation of remedies that require regular checks » May also include (but not limited to) interpreting the application of commitments, providing non-binding views concerning implementation or effectiveness of the remedy and presenting periodic reports on the progress of the remedy’s implementation • Practical considerations in appointing a MT: » Independent of the merging parties? » Appropriate qualifications and experience? » Resource available to conduct the necessary audit? Commitments and Remedies Unit (CRU) • Formed as a functional unit to: » Support case teams to assess, design and negotiate commitments » Build library of case examples, best practices and toolkits » Monitor compliance of commitments • Assessment and negotiation of proposed commitments » Assist in assessing and negotiation of proposed commitments » Upon acceptance, commitments will be monitored » Further follow up in the event of complaints or any request for variation or lifting of commitments Use of Commitments and Remedies Case Study #1: Times Publishing/Penguin Group Merger (2017) Background • Acquirer » Times Publishing Limited » Wholly owned subsidiary of Fraser and Neave » Provides publishing, printing, distribution and retail services worldwide • Target » Penguin Group Companies —Penguin Random House Pte. Ltd. —Penguin Books Malaysia Sdn. Bhd. » Wholly owned subsidiaries of Penguin Random House Limited that provide sales and marketing services for the international lists they represent Use of Commitments and Remedies Case Study #1: Times Publishing/Penguin Group Merger (2017) Assessment (Horizontal effects) • Marketing and distribution of English-language print trade books » Proposed merger will create a leading book distributor that has a market share of [40 – 50%] » Twice the market share of its closest competitor Use of Commitments and Remedies Case Study #1: Times Publishing/Penguin Group Merger (2017) Assessment (Vertical effects) • Merged entity will have exclusive supply of book titles by a few publishers (Penguin Books Limited, The Random House Group Limited, Penguin Random House LLC, and Dorling Kindersley Limited)(the “Publishers”) pursuant to the Distribution Agreement • Merged entity is also affiliated to a downstream book retailer, Times Bookstores • Proposed merger will allow the merged entity to achieve substantial market power at the distribution level for it to discriminate or restrict supply to 3rd party book retailers, particularly titles belonging to the Publishers Use of Commitments and Remedies Case Study #1: Times Publishing/Penguin Group Merger (2017) Commitments offered by Times Publishing Limited • Times Publishing Limited has committed: » To supply 3rd party retailers the full range of books by the Publishers on a fair, reasonable and non-discriminatory (FRAND) basis during the period of exclusive distribution » To apply the same Distributor Recommended Retail Price to all retailers, and will apply objective discounts to retailers in a FRAND manner, based on a set of objective criteria » An independent auditor will be appointed by TPL to monitor compliance with the commitments • 25 September 2017 – CCS granted conditional approval of Times Publishing Limited’s proposed acquisition of Penguin Group Companies from Penguin Random House Limited after accepting commitments from TPL Use of Commitments and Remedies Case Study #2: Grab/Uber Merger (2018) Background • Acquirer » Grab Inc., and its subsidiaries and any other related entities • Target » Uber Technologies Inc., and its subsidiaries and any other related entities • Acquisition » Grab acquired all of Uber’s Southeast Asian assets, properties, privileges, claims and rights except for certain excluded assets and liabilities — Excludes the Uber App technologies and algorithms. Use of Commitments and Remedies Case Study #2: Grab/Uber Merger (2018) 9 Mar: 27 Mar: CCCS sent letter CCCS 13 April to Grab and commenced Issuance of 24 Sep: Uber (“Parties”) investigations IMD ID Issuance 26 Mar: 30 Mar: Parties CCCS issued 5 Jul: announce the Proposed Interim PID Transaction Measures Issued Directions (“IMD”) Use of Commitments and Remedies Case Study #2: Grab/Uber Merger (2018) Assessment • Removal of Grab’s closest competitor through Transaction Pre-Transaction Post-Transaction Others <20% Uber Grab >30% >50% Grab >80% Others <20% Use of Commitments and Remedies Case Study #2: Grab/Uber Merger (2018) Assessment • Uber would have continued its operations in Singapore, while exploring other strategic commercial options, such as a potential collaboration with another market player or sale to an alternative buyer. » CCCS has examined Grab and Uber’s internal documents. » Uber had entered into an agreement to collaborate with ComfortDelGro; Uberflash launched on 18 January 2018 to compete with Grab. » Ubercommute launched on 14 March 2018. Use of Commitments and Remedies Case Study #2: Grab/Uber Merger (2018) Assessment • Effective fares increased between 10-15% post-Transaction. • Grab announced changes to GrabReward Scheme in July 2018. • CCCS received numerous complaints from drivers and riders. Use of Commitments and Remedies Case Study #2: Grab/Uber Merger (2018) Assessment • Potential competitors