Addressing Competition Issues in ASEAN’s Rapidly-Growing Digital Economy

AAYLF delegate from Australia Tilini Rajapaksa addresses the importance of anti-competitive frameworks to combat market concentration and monopolistic practices in the digital economy.

In March 2018, Uber announced it was selling its Southeast Asian operations to Singapore-based regional rival Grab, merging the two ride-hailing businesses. What followed was Grab’s domination of the ride-sharing market in every single ASEAN nation.

While the Competition and Consumer Commission of Singapore (CCCS) ultimately levied a fine of US $9.5 million in total on the companies for anti-competitive conduct, and the Philippines, Malaysia, Indonesia and Vietnam followed with their own investigations [1], no ASEAN authority unwound the merger – a legal outcome which would have been extremely challenging if not impossible to enforce due to how rapidly the companies carried out the merger and the intangible nature of assets transferred.

Southeast Asia is home to one of the world’s fastest growing regional populations of internet users. ASEAN’s digital economy hit a milestone of $100 billion this year and is predicted to triple its annual size to US $300 billion by 2025 [2]. Southeast Asians are also some of the most prolific mobile internet users in the world, making the region a fast-growing market for e-commerce and ride-hailing [3].

Issues to do with the digital economy are no longer peripheral. The digital economy does not refer to a separate economic ecosystem; it refers to an integral shift in the way the economy operates as a whole. As the OECD noted in 2014 “the digital economy is increasingly becoming the economy itself.” [4]

The region’s staggered response to the Grab-Uber merger highlights the inadequacies in Southeast Asia’s anti-competitive frameworks in the era of the digital economy, which has transformed commerce and heightened the complexity of competition issues [5].

A key feature of the digital economy is the rise of digital platforms, such as Uber or Grab, which thrive on positive network effects [6] that allow businesses to develop a competitive advantage and market power at a very rapid rate. Without a strong competition policy framework, this environment can facilitate market concentration and monopolistic practices [7].

Robust competition is at the heart of an effective market, protecting consumer choice and the innovation that lead to the creation of Grab and Uber. If Southeast Asia fails to protect an even playing field for businesses with the shift towards a digital economy, the region will see its hard-earned regional integration and reputation as an attractive region for business being undermined by anti-competitive practices [8]. Though Southeast Asian nations are adapting, commerce is evolving even faster.

Renewing the ASEAN Secretariat’s guidelines on competition policy published in 2010 to address the immense differences in the commercial landscape today would be a step forward in supporting ASEAN nations to adapt. The ASEAN Competition Enforcers’ Network (ACEN) created in 2018 to further cooperation and handle cross-border cases is also a visible move towards greater regional coordination in Southeast Asia.

Australia and ASEAN have also increasingly taken up opportunities to collaborate on competition issues. The Australian Competition and Consumer Commission (ACCC) and the New Zealand Commerce Commission have provided capacity building and technical assistance to ASEAN states to help the region develop sustainable competition policy and implementation frameworks since 2014 through the AANZFTA Competition Law Implementation Program (CLIP) [9].

However, it is necessary that Australia and ASEAN put greater emphasis on the nuances the digital economy brings to competition issues. The era of the digital economy requires a more multi-faceted competition policy approach, one which may require changes to contract law, consumer protection law and data protection law [10].

Through CLIP, ASEAN and Australia have a foundation to focus on the sharing of expertise with greater focus on the digital economy. New integrated competition guidelines to address these evolving issues could be developed to facilitate greater consistency in competition regulation and implementation across Southeast Asia. Both Australia and ASEAN, having had varied experiences when it comes to the digital economy, are in a positive place to benefit from greater dialogue to address these evolving challenges.

References

  1. UNCTAD Intergovernmental Group of Experts on Competition Law and Policy 2019, Note by the Secretariat: Competition Issues in the Digital Economy, Geneva. Available from: https://unctad.org/meetings/en/SessionalDocuments/ciclpd54_en.pdf . [Accessed on 10 November 2019].
  2. Google, Temasek and Bain & Company, “e-Conomy Southeast SEA 2019”, October 2019 <https://www.blog.google/documents/47/SEA_Internet_Economy_Report_2019.pdf>.
  3. Google et al., 2019, e-Conomy Southeast SEA 2019. Available from:
    https://www.blog.google/documents/47/SEA_Internet_Economy_Report_2019.pdf. [Accessed on 11 November 2019]
  4. OECD 2014 “Chapter 4: The Digital Economy, New Business Models and Key Features” in Addressing the Tax Challenges of the Digital Economy. Available from: https://www.oecd.org/tax/addressing-the-tax-challenges-of-the-digital-economy-9789264218789-en.htm. [Accessed on 11 November 2019]
  5. Angayar K. Ramaiah, Ningrum N. Sirait and Nucharee N. Smith, “Competition in Digital Economy: The State of Merger Control on Consumer Transportation in ASEAN”, April 2019, International Journal of Modern Trends in Business Research Volume 2, Issue 7.
  6. Positive network effects mean usage volume of a product or service increases the value of it to other existing or potential users. For example, if more drivers and customers join a digital ride-sharing platform, the brand strengthens its foothold as the key platform for ride-sharing and consequently grows its market value. See UNCTAD Intergovernmental Group of Experts on Competition Law and Policy 2019, Note by the Secretariat: Competition Issues in the Digital Economy, Geneva, available from: https://unctad.org/meetings/en/SessionalDocuments/ciclpd54_en.pdf [accessed on 10 November 2019] and Paul Belleflamme and Martin Peitz, University of Mannheim Department of Economics, 2016 Platforms and Network Effects, available from: https://madoc.bib.uni-mannheim.de/41306/1/16-14_Belleflamme%20Peitz.pdf [accessed on 10 November 2019].
  7. See German Commission ‘Competition Law 4.0’, “A New Competition Framework for the Digital Economy” 9 September 2019, available from https://www.bmwi.de/Redaktion/EN/Downloads/a/a-new-competition-framework.pdf?__blob=publicationFile&v=2, [accessed on 9 November 2019] and United Nations Conference on Trade and Development, 2019 Digital Economy Report 2019: Value Creation and Capture: Implications for Developing Countries, available from: https://unctad.org/en/PublicationsLibrary/der2019_overview_en.pdf, [accessed on 10 November 2019].
  8. Kentaro Iwamoto, CK Tan and Cliff Venzon, 6 November 2018, “Southeast Asia Awakes to the Power of Corporate Competition”, Nikkei Asian Review. Available from: https://asia.nikkei.com/Spotlight/Asia-Insight/Southeast-Asia-awakens-to-the-power-of-corporate-competition. [Accessed on 9 November 2019]
  9. See Australian Consumer and Competition Commission’s Competition Law Implementation Program, available from https://www.accc.gov.au/about-us/international-relations/competition-law-implementation-program-clip. [Accessed on 11 November 2019]
  10. German Commission ‘Competition Law 4.0’, 2019, English Summary of “A New Competition Framework for the Digital Economy”. Available from: https://www.bmwi.de/Redaktion/EN/Downloads/a/a-new-competition-framework.pdf?__blob=publicationFile&v=2. [Accessed on 10 November 2019]

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