PCA Notes

Merger review guidelines are NOT BINDING

Competition = Rivalry between business entities and firms

Sales - Market share
Consumer patronage
Resources - raw materials, labor

Dominating = 50% Share of the market (This is PRESUMED)

Scarcity of the resources

Regional hub - Local subsidiaries are attached

Vertical agreements these are agreements entered in the supply chain

How competitors collaborate

1. Competitive on the merits -> Strength of your product
2. Collaboration
● Corporate social responsibility
● Joint R&D
● Joint Procurement
● Joint Production / Market for promotion
“Horizontal agreements”
“Must not contain anti-competitive dealings”

3. Monopoly - 1 seller
Oligopoly few sellers

Cartel - Collude, connive. Artificially increase the price or withhold production

Cartel behavior - Price fixing

Per se - by itself - inherently illegal, inherently wrong

Competition law wants to ensure that as long as the pro competitive effects outweigh the anti-
competitive effects

Trade Sanction
Example: A, B, C have agreed to boycott SM is there SLC? YES

In a meeting 8 said to fix the price, 2 didn't say anything, is there SLC? YES, Objections MUST
be RAISED
6 Ps of Retailing - “Marketing Mix”
Products
Price
Packaging
Placement
Promotions
People

Competition law is facts specific

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Example - Company 1 20% market share
Exclusive deal
Retailer for ice cream
5 suppliers for ice cream

Exclusive deal Supp 1 to Company 1 Only

C1 must only procure ice cream from supplier 1

Does the exclusivity amount to SLC? No, because C1 has 20% market share. The 80% is still
available for the other suppliers.
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Competition law does not protect competitors
CL - protects competition. The process of rivalry. To compete with each other for common
welfare.

Pre-PCA, CL was scattered competition related provisions prohibited

MERGER
Two factors
1.) Size of a party
2.) Size of the transaction
A.) Party exceeds 5 billion
B.) Transaction exceeds 2 billion

Notify commission
PCC can review a merger? Yes, they can motu proprio if they get information that the merger
would be anti-competitive

2 Phases merger
Phase 1
PCC determines CL issues or concerns which would require a more detailed review
Phase 2
Require more information to the other customers or other organization

After review the PCC may allow or deny for subject the parties to make commitments to the
PCC

RELEVANT MARKET
Merger
1st step PCC - identify relevant product market, relevant geographic market

RPM
Product A price increase?

RGM
Physical location
Increases price “
“Snip price”
Small but significant increase 5-10%
Increase is permanent

Example M Manila
SNIP will consume
Will they go to batangas

Substitutable products
Consider what the consumer considers substitutable

24 A example
Cement product
Sells in MM and Batangas
If bulk cement in a mixer
Is subject to SNIP price
Will they go to MM or Batangas if MM snips

24 D

“Market Power”
Dominant firm
Rule 7 IRR
Rule 8 relevant market

Merger review guidelines of the PCC

RPM
When are the conditions of the competition homogeneous
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Example
C1 C2
Manuf in Cavite Manuf in Bulacan

C3
Manuf in Pasid

Tawi-tawi
Culture- halal
You could have a regional competitor
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Factors to be considered
Cost of living
Culture
Prices of raw materials
Transportation
Taxes

Can cigarette vendors be subject to PCA? Yes, Sec 3 provides that

Cigarette vendors come together to divide markets. Sec 14 B (2) No, there are still other
competitors

When are entities held liable in their capacity

What if Nissin or Quickchow they fixed a price for the noodles?

NFL case
Independent centers of decision making

NFL case
Separate entities conspiring - concerted

Sec 14 C
1.) The contract join together separated
“Bawal ung collective decision”
2.) Is the conspiracy between separate economic activity pursuing separate economic interests
3.) Do the parties have distinct potentially competing interests
4.) Are the entities separate profit making entities

Example
C1 - C2
Pharma sup -> Mere Drug _> <- P su

Hub and spoke cartel

Retailer becomes a conduit
Price alignment, Price fixing happens

Gokongwei case
“Shared information”

When is Dominance

Legal - Legitimate means

1.) Does not SLC
2.) Superior skills
3.) Sup svc
4.) Distributing quality
5.) Business acumen
6.) Use of IPR

Illegal - Sec 15

Barrier to entry
Example
US case

3M - Scotch tape - target purchase volume

Home care
Retail automotive
Home improvement

3m offered growth bonuses to retailers

“Grant of growth benefit was used to favor 3m, there was no exclusivity however it HAD the
effect of exclusivity”
Intrabrand competition - between retailers, same brand

14 A other terms of trade may refer to discounts

Cover bidding 3, 4 or 5 bidders they will agree to submit unacceptable bids so that the last
bidder will win

Bid suppression - They agree not to bid

Bid rotation - They take turns

Bid rigging
1.) Check the quotations
2.) Bid amount
3.) Scope of the work

EXAMPLE
Resale price maintenance
Manufacture
Ret 1, 2, 3 ,4

Goal of CL is to protect interbrand competition NOT INTRA

What are the pro competitive effects

Free- riding - one branch to another

Eg - clothes

RPM = rule of reason analysis

Leegin Case

Anti competitive Effects Pro-competitive effects

1.) Manuf cartel 1.) Promotes interbrand competition by reducing interbrand
2.) Retailers cartel 2.) More options
3.) Higher market share
4.) New manuf
Mergers
Article 1352 - Cost
Cause production
No effect

Corp code 59
Section 14
1.) Competition
2.) Agreement
3.) Object or
Effect
1.) Price increase
2.) Lessen or restrict output
3.) Reduce independent decision making
4.) Who are the parties? Their market share
5.) Are they capable of SLC? Do they have Market Power

Vertical integration
A.) Forward Integration
B.) Backward Integration

Example of FORWARD INTEGRATION

Supply of new mats onion, salt, herbs

I
I
I
Interm product -> Soup base
l
l
l
Ready to eat soup -> Company by goes downwards
l
l
Dist
l
l
Rit
l
l
Consumer

The reverse is called backward integration

1.) Non-reliance it serves as a shield from labor risks

2.) Overcome market power by acquiring
3.) Economies of scale -> Lower costs - lower product price
4.) Relaiters - Special K

Competitive market

1.) Consumers -> Wide range of products

2.) Supplies - economic concentration
PCC looks at RPM

SSNIP
Tool to substitute products

RPM EXAMPLE

Bacon

Hm - Company 1
Sells for 100-> 125

C2 Sells and produces Salami

105 pesos

C3 Sells bologne
110 pesos

C4

C5 More expensive product

160

This is the RPM

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RGM EXAMPLE

Area AB
Area A
Area C
Area BC
Area ABC

Sells in the area

IF there was a SSNIP would A lose sales?
Will they go to other areas if the product you need is bulk cement? (life expectancy of 2 hours)
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PCC Merger

Will the merger amount to SLC?

Which market will be affected

1.) Is the firm capable

2.) Existing assets that can switch quickly
3.) Incentivised
4.) Will the sales be profitable

Supply side
1. Likely
2. Timely
3. Sufficient in scope and scale

Cross Price Elasticity

Product A ----------------------------- Product VB
Positive = substitute
Coke/Pepsi
Beef/Pork

Another tool sunken cost

HHi is a tool to measure market concentration

RULE 6 Section 1 control

Effects of a merger
1. Const corp ceases to exist
 2. Surviving entity will have all the rights, interests, assets and liabilities
3. Rights of creditors

Why merge?
1. Synergy
- Combined IT, Supply chain efficiency, cost savings
- HR Talent pool
Tech - patent, brands - goodwill
Distribution of products, customers
2. Expansion
Geography and market
3. Eliminate competition
4. Cross sell - sell another product to an existing customer
Better quality product
New product
5. Cost savings

Anti-competitive effects
1. Reduces innovation
2. Eliminates competition

PCC will check pre merger and post merger

PCC will check the tendency to collude

Tacit coordination

What are the prohibited mergers under the PCA

SLC is your basis

Diagram of Merger Analysis/review -> Merger control

Relevant Market ---------------------A. SSNIP, Cross price elas, Diversion ration

RPM - RGM
I
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Market share --->
l
l
l
Market concentrate
l
l
l
Competitive analysis (Theories of harm) ---------- Entry and Expansion
l
l
l
Coordinated effect--------------Merger specific efficiencies-------------- Unilateral effect of mergers

THREE types of MERGERS

1.) Horizontal
2.) Non-Horizontal
3.) Conglomerate