Abuse of market power

Abuse of market power

The democratization process in Indonesia, which has
accelerated after the fall of former authoritarian president,
Soeharto, in May 1998, has now entered the economic sector with
the enforcement last Tuesday of the Antimonopoly Law. While the
political democratization process and the resultant reform
movement seek to prevent absolute power through checks, balances
and free elections, the Antimonopoly Law, through free market
competition, will discipline the holders of economic power and
prevent them from abusing their market dominance.

Democracy on one side and market economy and fair competition
on the other are indeed, as most economists say, the two sides of
the same coin. While democracy distributes, decentralizes and
checks political power through free elections, economic power is
controlled through fair market competition.

The Antimonopoly Law, enforced after 18 months of preparation,
will strive to make the domestic market, which was previously a
jungle without clear rules of the game, a level-playing field. It
will, at the very least, serve initially as a deterrent to big
business groups from abusing their market power. The big market
players will no longer be able to trample the smaller ones.

The Business Competition Supervisory Commission, which started
working with the introduction of the law, will see to it that
companies which hold more than 50 percent of the national market
through restrictive business practices, will either lose their
business licenses, be fined between Rp 25 billion and Rp 100
billion, or the directors or owners could be jailed for six
months.

The law rules against a broad range of anticompetitive
practices such as cartels, oligopolies, trusts, merger controls,
vertical restraints of competition and abuse of market dominance.
Two or three companies which between them hold more than 75
percent of the market for the same product would run afoul of the
law. Likewise, a dominant market position gained through the
ownership of majority shares in several companies, operating in
the same line of business, also violates the law.

It is only natural if the law doesn't yet apply to state-owned
companies, small-scale businessmen or cooperatives whose
businesses such as telecommunications and other basic utilities
are aimed for the benefit of the public.

One should not, however, see the law as an antibig businesses
drive. Big conglomerates are here to stay as long as they uphold
fair competition. In fact, the law allows a company to hold more
than 50 percent of the market as long as the market dominance was
gained through healthy competition.

But the task of the commission will be quite challenging. The
rapidly developing business practices, the broad definition of
what is considered restrictive or dishonest business practice and
the vast grey areas between them will make complaints on abuse of
market power or monopoly a very complex case to handle. What will
make the job even more formidable is the fact that the commission
will deal mostly with big businesses, including international
ones, which are often skilled in finding loopholes in laws to
maximize profits and can afford to hire high-caliber lawyers.

Fortunately, though, the commission has been designed from the
outset as an independent body. Moreover, integrity and technical
competence have been stipulated as the most important criteria
for the commission members so as to be less susceptible to
collusion and bribes offered by big businesses.

The effectiveness of the law will indeed depend largely on the
commission as its decision is legally binding and also on the
Supreme Court which handles appeals. Given the widely-criticized
performance of the Commercial Court which enforced the
Bankruptcy Law -- another important commercial legislation -- the
government should see to it that the commission is adequately
funded and staffed with highly competent investigators.

Being an entirely new body in charge of enforcing completely
new legislation against 'powerful' big conglomerates, the
commission should naturally be allowed to grow on the job. But
given the low public trust in law enforcement, the commission
does not have the luxury of a long learning process by trial and
error. Its top priority therefore is to establish credibility in
its handling of the first few cases of complaints. The commission
also should have a clear sense of priority, zeroing in on cases
that adversely affect the public's interests and the efficiency
of the economy.