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Growing a business

Understanding the Philippine Competition Act

Competition between businesses is good for consumers. It can even make you a better business owner by pushing you to improve your products or services in ways that give you an advantage over your biggest competitors. The Philippine Competition Act works to stop unfair business practices related to competition to protect consumers. As a small business owner, understanding the statues within the Act helps ensure your business remains competitive so you succeed.

Basics of the Philippine Competition Act

The Philippine Competition Act establishes antitrust laws in the country to protect consumers from monopolies, inflated prices, and other predatory practices. Its basic purpose is to stop entities from crushing competition or monopolizing a specific market, because these situations eventually cause small businesses to close, drive an increase in prices, and leave consumers without choices. For example, if one large company decided it wanted to dominate the market, it could lower prices enough to drive out its competition, and then, increase the price on its goods or services once the company is the only choice available to consumers – the Act stops this from happening.

The Philippine Competition Act has four main purposes:

  • Creating the Philippine Competition Commission to enforce the Act
  • Prohibiting certain business practices that are considered harmful
  • Defining the requirements for compulsory notification of mergers and acquisitions
  • Establishing fines and penalties for violations

Duties of the commission include handling inquiries, investigations, and decisions on cases where violations are suspected, but as long as you follow normal business practices with an understanding of the Competition Act, you shouldn’t have any problems.

How The Philippine Competition Act Affects Small Businesses

The main actions prohibited by the Philippine Competition Act fall into one of three main categories – anti-competitive agreements, abuse of dominant position, and anti-competition mergers and acquisitions. It’s important that you’re aware of what each category means and how it affects your business so you remain competitive in your market.

Anti-competitive agreements are those that try to stop competition to control prices of products or a specific market. As a small business owner, the Act preventing anti-competitive agreements protects your business. It makes it illegal for large companies to enter into anti-competitive agreements that let them control prices in specific markets to drive out competitors. For example, the Act makes it illegal for companies from entering into agreements that require them to sell specific products at a predetermined price – usually one that’s lower than all of their competition, making it easier for small businesses are able to remain competitive with their market.

Abusing a dominant position doesn’t mean that having a dominant position within your market is illegal. It simply means that you can’t use your market position to significantly control the price level on specific products or gain an unfair advantage over your competitors. Some examples of abusing a dominant position include:

  • Refusing to supply businesses in the downstream market with needed supplies
  • Entering into an agreement to sell a specific product to consumers only if they purchase another specific product along with it
  • Entering into an agreement that gives your company the sole right to sell a product in a specific area

When it comes to mergers and acquisitions, the Philippine Competition Act requires outlines proper notification processes for businesses to follow when completing certain transactions based on revenue, assets, and transaction value. It also keeps companies from merging when the merger would cause a monopoly in the market. So if you plan to go through a merger or acquisition, just make sure you take the Hypothetical Monopolist Test included in the Merger and Acquisitions Guidelines and abide by all of the outlines rules, including the notification requirements.

Mergers, acquisitions, and antitrust laws may sound like things only large businesses need to worry about, but they aren’t. It’s important that you’re aware of the Act’s guidelines to avoid potential violations. For example, understanding the type of transactions that violate the Act could keep you from entering into an agreement with a supplier to take control of sales in a specific geographical territory, which may sound like a great deal but actually creates a monopoly in the area, violating the Act.

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Possible Penalties and Avoiding Violations

The fines and penalties for a violation of this act vary depending on the violation and its severity. Potential penalties may be administrative, civil, or criminal. Anti-trust laws are strict, but entering companies into an anti-competition agreement face the harshest consequences – violations that involve entering into anti-competition agreements are the only violations that could potentially result in jail time. Also, fines for entering into these agreements range between one and five percent of the transaction’s value. Abuse of dominant position and merger violations typically result in administrative and civil penalties. Violators can expect to pay to be fined, and the amount of the fine depends of the specifics of the violation. The good news is, violations are simple to avoid. Stay compliant with the Act and other business laws by securing a business attorney to help you make important business decisions. Also, make sure you review the Act and any changes to it frequently to keep the guidelines fresh in your mind.

Any time you make a business decision, make it with your customers in mind. This helps ensure you’re making ethical business decisions and operating your business fairly, which also helps you make business decisions compliant with the Philippine Competition Act.

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