A case Study from Fiji- LPG Market

Overview
Following concerns by the members of the public regarding rising prices for LPG in Fiji, the Commission conducted an extensive investigation in 2012 to establish if the market was competitive and if there were elements of anti-competitive conduct.

Findings
The Commission established that the Fijian LPG market is made up of two players (X and Y) – a market structure described a duopoly (2 players). The investigations by the Commission concluded with the following:
1. Company A having a dominant position, enjoying a substantial amount of market share.
2. Discriminatory pricing practices- Gas used for Residential, bulk and vehicle are made of same input i.e. butane gas. Although the method of dispensing gas is different, the principle remains the same, that is, only gas is sold. However, different prices were charged for different final product.
3. Price Leader-Follower relationship. The dominant player, Company A became the market leader in setting prices and the other player with lower market share become a follower. This resulted in price matching rather than price competition… anti-competitive conduct. Table 1 summarises this relationship.
4. Failure of domestic prices to respond to Interntaional price movement. Due to lack of competition in the market, local prices were not falling with falling international prices. Fijian customers were deprived benefits of reductions in international prices.

What Did the Commission Do?
Based on the findings, the Commission declared that LPG market in Fiji was not competitive and recommended to the Minister for the issuance of the Price Control Order to regulate LPG prices in Fiji. The recommendation was accepted and the Commerce (Control of Prices for the Supply of LPG in Fiji) Order 2012.
The Commission has been determining and authorising the prices for LPG in Fiji from 2012 and the Fijians have continued to enjoy price reductions.

Let’s begin this week looking at what Is competition Law?
The law seeks to prohibit anti-competitive activities that unduly prevent, restrict or distort competition.
The principle aim of Competition Law is to eliminate or remove obstacles to competition in markets to ensure a competitive, efficient, fair and informed marketplace.

Competition Law History
The inclusion of consumer, and to a limited extent competition, issues in Fiji gained recognition with the enactment and implementation of the Fair Trading Decree 1992.
This was amended in 1998, when a complimentary Commerce Act was introduced to regulate access to services. The Commerce Act 1998, was introduced as a result of economic policy changes in Fiji in the late 1980s to early 1990s.
This was to promote effective competition and informed markets, encourage fair trading, protect consumers and businesses from restrictive practices and controls prices of regulated industries and other markets where competition is lessened or limited.
In 2005, minor amendments to the Commerce Act 1998 enabled more effective enforcement.
A Cabinet decision in 2010 resulted in the merger, and repeal, of three pieces of legislations (Fair Trading Decree 1992, Counter Inflation Act 1973 and Commerce Act 1998) into a single piece of legislation, Commerce Commission Decree 2010.

Benefits of Competition Law
Competition is a basic mechanism of the market economy and encourages companies to provide consumers products that consumers want at the most competitive prices.
It encourages innovation, and pushes down prices. In order to be effective, competition needs suppliers who are independent of each other, each subject to the competitive pressure exerted by the others.
There is already substantial evidence of the benefits of competition regime in Fiji vis-á-vis economic development, greater efficiency in international trade and consumer welfare.
The common benefits resulting from the enforcement of Competition Law are:

Greater production, allocative and dynamic efficiency, welfare and growth.
Rewards good performance,
Encourages entrepreneurial activity;
Catalyses entry of new firms;
Promotes greater efficiency on the part of enterprises,
Reduces cost of production,
Improves competitiveness of enterprises ,
Sanctions poor performance by producers,
Enhances competitiveness in international trade; and
Ensures product quality, cheaper prices and passing on of cost savings to consumers.

What are Anti-Competitive
Agreements?
These are agreements, understanding or a plan of action between two or more people/traders that has the effect of lessening competition in a market.
Such agreements by traders can distort competition by cooperating with competitors, fixing prices or dividing the market up so that each one has a monopoly in part of the market. Anti-competitive agreements can be open or secret (e.g. cartels).
They may be written down (either as an “agreement between companies” or in the decisions or rules of professional associations) or be less formal arrangements.

What is abuse of Dominant
Position?
A dominant position is a situation in which one or more enterprises possess such significant market power/share to adjust prices, outputs or trading terms without effective constraint from competitors
A dominant position is not in itself anti-competitive, but if the company exploits this position to eliminate competition, it is considered to have abused it.
If such is the case, then it is deemed to be anti-competitive and becomes a restricted conduct under Commerce Commission Decree 2010.
Examples include:
Charging unreasonably high prices
Depriving smaller competitors of customers by selling at artificially low prices they can’t compete with.
Obstructing competitors in the market (or in another related market) by forcing consumers to buy a product which is artificially related to a more popular, in-demand product
Refusing to deal with certain customers or offering special discounts to customers who buy all or most of their supplies from the dominant company
Making the sale of one product conditional on the sale of another product.

Bobby Maharaj is the chief executive of the Fiji Commerce Commission. This is a regular column from the Commission in the Fiji Sun.