Agreements between Undertakings

Undertakings refer to any person, being an individual, a body corporate, an unincorporated body of persons or any other entity, capable of carrying on commercial or economic activities relating to goods or services, as the context demands. This includes individuals operating as sole proprietorships, companies, firms, businesses, partnerships, co-operatives, societies, business chambers, trade associations and non profit-making organisations.

Section 34 of the Act prohibits agreements between undertakings, decisions by associations of undertakings or concerted practices, which have as their object or effect, the prevention, restriction or distortion of competition in Singapore. 

Price-fixing, bid-rigging, sharing markets and limiting or controlling production or investment will almost always infringe the Act as they are, by their very nature, regarded as restrictive of competition to an appreciable extent. However, these are not the only examples of anti-competitive agreements. Other examples include price recommendations, and sharing of commercially sensitive information.

An agreement will generally not raise competition concerns unless it has an appreciable adverse effect on competition. CCCS generally considers that an agreement will have no appreciable adverse effect on competition if: 

• in a case where the agreement is made between competing businesses, the aggregate market share of the parties to the agreement does not exceed 20% in any of the relevant markets affected by the agreement. 

• in a case where the agreement is made between non-competing businesses, the market share of each of the parties to the agreement does not exceed 25% in any of the relevant markets affected by the agreement.

However, it must be emphasised that these market share thresholds are indicative. There may be an appreciable adverse effect on competition even if the total market share of the businesses involved is below the indicated thresholds. For example, for certain cartel agreements with competitors, such as price fixing, bid rigging and sharing of markets, will always be held to have an appreciable effect on competition regardless of the market shares of the parties. As such, even if parties have small market shares, they should not engage in such cartel agreements.

More information can be found at the CCCS Guidelines on the Section 34 Prohibition.

In assessing whether an activity or conduct has appreciable anti-competitive effects, CCCS will consider the facts and circumstances of each case - for example, the nature of the conduct under investigation, the relevant market share of the business, the nature and structure of the market or industry, etc. It is recognised that there are differences between industries, including the way in which businesses in a particular industry compete, and the relative importance of economies of scale and innovation. 

In some cases, although an arrangement may seem to be anti-competitive under section 34 as it involves competitors coming to collaborate or work together, the particular arrangement may have net economic benefits and hence will not run afoul of the Competition Act.

SMEs^[1] are characterised by their relatively smaller scale of operations. In most cases, the total market share of SME parties to an agreement is not likely to be significant enough to create an appreciable adverse effect on competition in a market. By the same reasoning, it is unlikely that an SME will have a dominant position in a market. However, CCCS reserves the right to investigate alleged anti-competitive conduct on the part of an SME if it is warranted. 

If SMEs are involved in agreements involving price fixing, rigging of tender bids, market sharing or limitation of output, which are, by their very nature regarded as restrictive of competition to an appreciable extent, the onus is on the SMEs to demonstrate net economic benefit, so that their agreement will not be regarded as an infringement of the section 34 prohibition.

¹ A SME is defined to be an undertaking having an annual sales turnover of not more than S$ 100 million or having not more than 200 employees.

Net economic benefit refers to a situation where an agreement brings about economic benefits that outweigh the harmful effects on competition. For example, these agreements may improve production or distribution, or promote technical or economic progress. The agreement should only include restrictions that are absolutely necessary to achieving these benefits and should not substantially eliminate competition in the relevant markets. 

These could include cases where competitors agree to work together, for example, to conduct research and development of a new product, or to share their distribution networks in order to reach more customers. 

Such arrangements may generate longer term efficiencies and productivity. If their economic benefits outweigh the negative competitive effects, and the terms of the arrangement are not unnecessarily restrictive with no substantial limitation of competition, these arrangements will not run afoul of the Competition Act.

Price-fixing agreements ensure a certain level of profits for participants by eliminating price competition between them. This distorts competition and reduces choice for those who are buying the goods or services concerned. Rigging of tender bids undermines the fundamental basis of a competitive tenders system aimed at securing the best possible price for the provision of goods or services. Market sharing agreements are essentially 'turf' arrangements to limit and reduce competition in certain aspects or areas to benefit participants. Agreements to limit output or production are 'disguised' price-fixing mechanisms to reduce supply and thereby enhance participants' ability to raise prices. Such agreements and practices are universally recognised as "cancers on the open market economy".