Unlocking Competition Law in Malaysia How is my agreement anti-competitive? Part 2 of 3

In this Part 2 of the series, we look at the key points in relation to anti- competitive agreements.

A key concept in competition law is the prohibition against anti- competitive agreements / arrangements (both horizontal and vertical agreements). Essentially, anti-competitive agreements are agreements between enterprises which operates at the same level or at different levels, in the production or distribution chain for goods or services, that has the objective of significantly preventing, restricting or distorting competition in the market.

What are Horizontal agreements? Vertical agreements?

Horizontal agreements are agreements between two businesses that operate on the same level in the business chain. The law provides a few examples of horizontal agreements that are illegal, such as price- fixing agreements and agreements that perform an act of bid-rigging. Horizontal agreements could be between manufacturers, wholesalers, or retailers. For example, two retailers agree to sell a certain product at the same price. This is effectively price-fixing and it deprives consumers a choice, forcing them to buy the product at a rigged price.

Vertical agreements, on the other hand, are agreements between businesses that are at different levels in the business chain. An example would be where a wholesaler and a retailer reach an agreement that the retailer will exclusively sell the wholesaler's products, and the wholesaler agrees not to supply their products to any other retailers in the same area. This exclusive distribution agreement may be viewed as hindering competition since they prevent retailers from competing with one another, thereby limiting the choices available to consumers. Such agreements are only prohibited if they significantly prevent, restrict, or distort competition in the market.

The Competition Act, 2010 however provides for a few exemptions from liability where a party can show that:-

1. there are significant identifiable technological, efficiency or social benefits directly arising from the agreement;
2. the benefits could not reasonably have been provided by the parties to the agreement without the agreement having the effect of preventing, restricting or distorting competition;
3. the detrimental effect of the agreement on competition is proportionate to the benefits provided; and
4. the agreement does not allow the enterprise concerned to eliminate competition completely in respect of a substantial part of the goods or services.

Where agreements are found to be anti-competitive, MyCC may impose a financial penalty of not more than 10% of the worldsie turnover and/or any other direction deemed suitable under the Competition Act, 2010. MyCC is required to publish its reasons for each of its decisions.

Ultimately, it is important to keep in mind that the terms of any agreements or arrangements, made with your competitors or persons within the business chain, do not fall foul of the anti-competitive prohibition.