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PCC warns against unchecked price controls
By Jenina P. Ibañez
THE Philippine Competition Commission (PCC) warned against unchecked price controls and “rescue mergers,” as it flagged a possible lessening of competition among companies during the coronavirus disease 2019 (COVID-19) pandemic.
PCC Chairperson Arsenio M. Balisacan said on Wednesday that price controls could deter the supply of essential goods and could be used as a reference point for collusion.
“In the short term, we may see firms exhibiting pricing behavior different from that in normal times. When profits are down, collusive and other forms of anti-competitive behavior that attempt to exploit crisis conditions to raise prices are more likely,” he said in a webinar hosted by the Management Association of the Philippines (MAP).
“Some jurisdictions have already imposed price caps and price ranges. However, the government should use price controls with caution. Imposing price ceilings may be counterproductive since they may deter the entry of other firms to produce more goods, especially essential goods.”
While temporary cooperation among firms could be beneficial in improving efficiency in producing essential goods, Mr. Balisacan said there is a possibility this may lead to price fixing.
“However, there is a significant risk that cooperation might spill over to hardcore restrictions like price fixing since competitors may then regularly obtain information on the other firms’ inventories and pricing strategies. Price fixing or output fixing is welfare reducing because it artificially sets the prices higher or output lower,” he added, noting that this cartel-like behavior may continue after the crisis.
Mr. Balisacan described the effects of the crisis due to the pandemic, noting the market exit of smaller firms due to losses and the increased appetite for “rescue mergers” among larger firms.
He said that there is pressure to approve mergers quickly as some firms are failing due to losses amid the pandemic.
“Our take on that is that if the acquisition involves efficiency, involves improvement that benefits not only the firms but everyone else, then that should not be prohibited. But if the big firm swallows the small firm because it doesn’t want a potential rival or competitor… then surely makes a lot of difference for us in the way we look at the issue,” Mr. Balisacan said.
PCC’s proposed solution is to expedite merger and acquisition evaluation for medical solutions, and review the “failing firm” defense on a case-by-case basis.
Mr. Balisacan added that government’s policy measures, including subsidies and bailouts, come with risks in distorting the business playing field.
He said subsidies should be based on objective criteria and transparent rules and should be applicable to all businesses within an industry to avoid selective policy that distorts the playing field.