Is it fair to criticise competition watchdog for Grab-Uber decision?

Critics of Competition and Consumer Commission of Singapore’s (CCCS) recent provisional infringement decision against Grab and Uber, which concludes that the merger between these competitors has resulted in a “substantial lessening of competition”, have argued that the watchdog’s proposed remedial measures are “over-reaching” and inconsistent with Singapore’s pro-innovation regulatory environment.

Others have also criticised the CCCS’ assertion that it will “unwind the merger” if the remedial measures taken by Grab are deemed insufficient to address its competition concerns as empty threats which cannot be carried out in practice since Uber’s operations in Singapore have already ceased.

While there’s no point in closing the stable door once the horse has bolted, might it be worthwhile for the competition watchdog to hit the “reset” button in the private-vehicle-for-hire transportation ride-hailing service sector in Singapore months after the Grab-Uber “merger”?

CCCS probably arrived at its provisional infringement decision after an economic analysis of the private vehicle ride-hailing market was carried out.

Taxis and other modes of transportation were probably found to be insufficiently close substitutes for the services offered by Grab and Uber – such that they should not be included within the same market – leading it to the conclusion that the merger led to a “substantial” reduction in competition in this market.

Grab has since emerged as a dominant player in the market. It no longer needs to dangle as many promotions to attract passengers or drivers to its network. 

Notably, CCCS found that Grab had raised fares and commission rates that it charges drivers in Singapore following its acquisition of Uber.

Grab and Uber were not under any legal obligation, under Singapore’s competition law framework, to notify and seek approval from the CCCS before concluding its merger.

However, they were fully aware that there was a real risk of their merger violating section 54 of the Competition Act, thereby exposing them to liability for financial penalties and remedial measures that the CCCS might consider “appropriate” and “necessary” to “mitigate or eliminate any adverse effects” of the merger.

In light of these circumstances, is it fair to criticise the CCCS for proposing the flurry of remedial measures it has put forward for public consultation?

Yes, on the face of it, these proposed measures significantly curtail the commercial freedom of Grab, by prohibiting the use of exclusivity arrangements, requiring the use of pre-merger pricing algorithms and the reinstatement of pre-merger driver commission rates and so forth.

While the exact scope and duration of these behavioural restrictions are not known at this point in time, they are almost certainly going to be burdensome for Grab’s current business operations.

What does all this achieve?

One way of looking at these remedial measures is to think of them as akin to a “reset” button for the market.

Uber cannot be compelled to re-enter the market, but these measures may go some way in recreating some of the pre-merger market conditions – as if Uber were still in the market – and making it a little easier for rival undertakings to enter and expand their operations in the market and pose competitive constraints on Grab as if they were Uber.

To be clear, it is impossible to turn back the clock and restore the market to the pre-merger position.

All that the CCCS can do at this stage is to compel the “merged” entity to take steps that might facilitate market conditions favourable to the re-establishment of competition from the remaining (and new) market players.

Is this overreaching?

Perhaps, but does anyone seriously believe that anything less would be enough to restore competition to the market?

This is not to say that that the cut-throat levels of competition between Grab and Uber in the pre-merger market should be regarded as some sort of baseline norm in the industry.

It was clearly unsustainable and economically irrational. 

It would have been entirely unobjectionable if the two firms had dialed down their discounts and promotions, or for one firm to call it a day and exit the market and the remaining firm to adjust its prices upwards.

What competition law objects to is the fact that these competitors have, by merging with each other, entered into a permanent arrangement to cease rivalry between them and, in the process, taken a short cut towards acquiring a significant degree of market power overnight by way of combination (rather than through successful competition).

As a result of this combination, the structure of the market is impaired, resulting in a weaker state of competition in the post-merger market compared to the pre-merger market.

Is this inconsistent with Singapore’s business-friendly and “pro-innovation” regulatory environment?  This is debatable.

By its very nature, regulatory intervention will always set limits to enterprise freedom and innovation.

But there are always going to be competing interests and policies that must be factored into the calculus - including the impact of the merging firm’s conduct on prices, the availability of choice and the contestability of the market.

Similar debates, with no obvious answers, have arisen in numerous other contemporary contexts involving disruptive technologies – shared bicycle services, short-term leases of private-dwellings, cryptocurrencies and so forth.

Finally, let’s be clear about what “unwinding” the Grab-Uber merger actually entails.

The Uber ship has sailed.

But the CCCS could still annul the transaction between Grab and Uber, compelling Uber to surrender the stake it has acquired in Grab and for Grab to return whatever it received from Uber in exchange for that stake.

The clear winner in such a scenario would be Grab – it will continue to enjoy the benefits of Uber’s absence from the market without having to pay dividends to its erstwhile competitor.

Perhaps the prospect of being tossed overboard might incentivise Uber to encourage Grab, of which it currently owns a sizeable chunk, to navigate itself into calmer waters with the CCCS.

ABOUT THE AUTHOR:

Burton Ong is an Associate Professor at the Faculty of Law, National University of Singapore.