Everyone is aware that the current times are difficult and unprecedented. The COVID-19 pandemic has caused various challenges to businesses with some of them (in unfortunate circumstances) potentially resorting to exit the market. Despite the array of measures and financial reliefs introduced by the Government, businesses regardless of their size and form struggle to survive.
Economic studies have shown that any disruption in the market will have a domino effect. Once the stock markets plunge, investors will stop investing and this eventually hinders the economic growth. A slowdown in any market will definitely cause adverse effects to the adjacent markets.
Businesses worldwide need to find ways to overcome these challenges, the long-lasting effect of which will have to be endured in the coming months or probably years. One of the solutions which could be carried out is by working together with the competitors who are facing similar problems. Such cooperation between competing businesses will allow for costs to be reduced, risks to be shared and any potential surplus of products or overcapacity to be managed accordingly.
Furthermore, certain forms of cooperation between competitors may be crucial or even necessary to ensure the continuity of supplies for essential items which are in high demand. To this end, an industry-wide collaboration may be used to facilitate a platform to discuss the implications of COVID-19 and the way forward for the industry to address those implications.
Whilst competition law may not be at the top standing item on the agenda for most, if not all companies’ today, it is important to note the application of the competition law still remains. Given that competition law prevents any anti-competitive conduct which restricts competition in the market, it is crucial for businesses to be cautious of their conduct in the market.
Any collaborations between competitors need to be looked into properly to ensure that such collaborations do not infringe competition law. It is worth noting that whilst competition law provides for efficiency defences, these defences may only be invoked if competition is not eliminated completely.
In addition, there is also a possibility of an abuse of dominance, particularly when the dominant business is producing a product which is essential and highly sought by many. An excessive price increase for essential products or services may be regarded as an abuse of dominance. Further, any unnecessary merger between business which would substantially lessen competition and fail to get clearance from the authorities are prohibited. Essentially, from a competition law viewpoint, competition rules should be used to ensure a level playing field for all businesses, especially during this crisis.
In light of the COVID-19 outbreak, other competition regulators around the world have issued statements concerning the application of competition law in their respective jurisdictions. The Hong Kong Competition Commission has stated that whilst it will continue its operations to enforce the Competition Commission Ordinance which remains in effect during the COVID-19 outbreak, the Commission also recognized that there could be a need for additional cooperation between businesses in certain industries on a temporary basis.
The UK Competition and Markets Authority has also relaxed some elements of competition law to help supermarkets to work together to ensure security of supplies of essential products and services, such as groceries. However, it has also warned that it “will not tolerate unscrupulous business exploiting the crisis as a “cover” for non-essential collusion”. Excessive pricing investigations have also been initiated in jurisdictions such as Italy or China with regard to supplies that relate to the COVID-19 outbreak.
In Malaysia, the Malaysian Aviation Commission (“MAVCOM”) for example, recognizes the possibility of industry consolidation via mergers during this COVID-19 pandemic. In its Commentary on Government Assistance to the Aviation Industry Amidst the COVID-19 Pandemic, it has clearly stated that “any merger that may substantially lessen competition in any aviation market – such as air passenger services and ground-handling-is prohibited by law” and any merger transactions within the aviation industry are still subject to merger control laws as provided for under the Malaysian Aviation Commission Act 2015.
The same publication further elaborates that the merging parties nonetheless may appeal to the “failing firm defence” in justifying their proposed merger transaction and MAVCOM will strictly assess the merits of any such claim to ensure that parties are not abusing the law.
Apart from MAVCOM, the Malaysia Competition Commission and the other sector regulators which govern competition laws in Malaysia, thus far have not made any statements relating to the enforcement of competition law during this outbreak. Nevertheless, competition law remains in effect notwithstanding an economic crisis such as the current crisis caused by the COVID-19 outbreak. Thus, the key is that businesses should not ignore competition law as the law is here to stay and businesses are subject to its application, regardless of the current challenges.
If you have any queries or would like to know how the Firm may be able to assist you in respect of competition law, please do not hesitate to get in touch with us.