Putting people before profits

December 29, 2012 - 2:54:17 am

Qatar has enacted many laws to promote private businesses and diversify its predominantly energy-based economy. But when it comes to curbing monopolistic trade practices, it has miles to go. To achieve the ambitious goal of transforming Qatar into a knowledge-based economy, the country will have to enact competition laws to ensure equitable business opportunities for all. 

 

BY MOHAMMAD SHOEB

In Qatar there are many goods and services that have a single supplier. Either they have no competitors or have weak business rivals with limited market share, qualifying them to be called monopolies or duopoly businesses. Car dealerships, telecommunications, public transport and many Fast-moving Consumer Goods items fall in this category. 

Worldwide, countries have competition laws or antitrust bodies in place to curb monopolies and ensure free market conditions. But none of the GCC countries, including Qatar, have taken any initiative to ensure healthy competition to attract domestic and foreign investment.

In the absence of relevant laws and antitrust bodies, abuse of their position by monopolies goes unpunished, encouraging them to further exploit a captive market. Consumer protection bodies are often not strong enough to bring heavyweight market violators to book.

Recently some cases of monopolistic abuses have come to light where the victims approached public forums and the authorities concerned to register their protest against the offenders.

On December 26, Hamid, a Qatari national, aired his grievances against the exclusive Toyota dealer in Qatar on Qatar Radio’s popular programme, “Watani Al Habeeb Sabah Al Khair” (Good morning, my beloved country).

Hamid, who gave only his first name, told the Qatar Radio presenter: “I bought a brand new Toyota car from Abdullah Abdul Ghani at a price of QR302,000. After driving about 800 kilometres, I discovered that the car had manufacturing defects in its brakes, electric connection as well as in the body. When I contacted the dealer, I was given a date to go to Sanaiya to check the car. Then the given date was extended by a few days. When the company confirmed the defects, I was told that they were normal defects. Subsequently, instead of replacing the car with a new one, I was given two options by the car dealer: either to get the problems fixed on company expense or re-estimate the value of the faulty car and sell it back to the dealer. Obviously, neither of the options suited me as I wanted the faulty car replaced or my money back.”

Hamid said that despite registering complaints with the mother company in Japan, and the Ministry of Business and Trade in Qatar, he did not get his due.

The presenter of the programme, Abeer, said a similar case had been brought to light by an expatriate sometime ago, and as in Hamid’s case, his problem was not addressed satisfactorily by the company.

She added that this was due to the monopoly enjoyed by the company, which is the sole supplier of Toyota and Lexus cars in Qatar. She said since there was no other company selling these brands of cars here, buyers were left with no option but to buy from them.

The presenter also suggested that since the Ministry of Business and Trade had not responded to Hamid’s complaint, he and other consumers should contact the Consumer Protection Department (CPD), perhaps unaware that the CPD comes under the same ministry. 

Abeer’s co-presenter said: “Monopolies create conditions for consumer exploitation, and they don’t care about consumers’ interests”. 

Another victim of market dominance by one firm was a customer of Qatar’s leading telecoms service provider. She said: “During my stay in Sweden, I didn’t use my mobile phone at all. But when I returned to Qatar after a month, the bill was QR3,000. I contacted more than three officials at three different outlets, but it was no use. 

“This is a sheer case of consumer exploitation as there are not many providers of such services.”   

Historically, monopolies have been discouraged by market regulators and governments as they can harm consumers’ interests. Monopolists influence prices in two ways: they keep them so low that it drives other, smaller players out of business; or they push prices so high that products and services go beyond the reach of most consumers. Obviously, neither situation is good for consumers.

It is also not good for the economy, given that in the absence of competition, monopolists become ‘price makers’ instead of ‘price takers’, virtually eliminating free trade.

In addition, monopolies may be tempted to provide low-quality goods or sub-standard services without fear of losing business. At times, this can put the health and lives of consumers at risk.

On the contrary, a free market with perfect competition (also called pure competition) has a large number of buyers and sellers where every seller is a ‘price taker’ as no single seller is big enough to influence the market price.

Keeping in view empirical evidence about market abuse, collusion and unethical practices by monopolists and in duopolies, most economies of the world, including many emerging economies, have enacted antitrust or competition laws and set up institutions to protect the interests of consumers as well as producers. These antitrust bodies are tasked with ensuring healthy competition in markets and protecting the interests of consumers as well as small and medium businesses.

Competition commissions/bureaus and antitrust bodies also act as nodal agencies for business alliances such as mergers and acquisitions involving large companies, and are equipped with executive powers to impose penalties on market abusers. Their aim is to ensure an equitable opportunity for small and medium businesses to participate fairly in the market, and to make the economy attractive to investors.

Recently, the European Commission imposed its biggest ever antitrust fine, of €1.47bn ($1.94bn, QR7.07bn), on seven electronics firms for fixing the market for television and computer monitor tubes.

The Commission ruled that for a decade ending in 2006, the companies — including Philips, LG Electronics and Panasonic — artificially set prices, shared markets and restricted their output at the expense of millions of consumers.

Another example is that of New York-based pharmaceutical giant Pfizer, the creator of the Viagra pill. Because there was no other pill like Viagra available, Pfizer became a monopoly for a product that was in high demand. The company was able to dictate the price of the product and buyers had no choice but to pay it. This was what is called an incidental monopoly. Eventually, similar pills from other companies became available, ending Pfizer’s monopoly.

Another well-known antitrust case of the past decades is the US Department of Justice’s (DoJ) case against AT&T, which resulted in the old American Telephone & Telegraph being broken up into seven regional companies and a much smaller AT&T. 

One of the best known antitrust cases is that brought by the DoJ and 20 US states against Microsoft Corporation in 1998. The central issue was whether Microsoft could bundle its Internet Explorer web browser software with its Windows operating system. Bundling the two together is alleged to have given Microsoft victory in the browser wars and restricted the market for competing web browsers. The DoJ and Microsoft settled the case in 2001, requiring the company to share its application programming interfaces with third-party companies, but not preventing it from tying other software with Windows.

Competition bureaus of many economies have recently cracked the whip on airline companies with big market shares, who were ordered to split into smaller companies to ensure fair competition. 

Pioneering free-market economies such as the United States and Britain have had competition laws in some form for centuries. In medieval Britain, with concern for fair prices, an act was passed in 1266 to fix bread and ale prices in correspondence with corn prices laid down by the assizes. Penalties for breach included fines and pillory (being exposed to public abuse with one’s head and hands fixed in a wooden framework).

Formal laws followed much later. The US enacted the Sherman Antitrust Act in 1890, making monopolies illegal. In Britain, formal legislation arrived in the form of the Competition Act 1998 and Enterprise Act 2002.

Competition laws prohibit anti-competitive practices such as horizontal and vertical agreements between enterprises that significantly prevent, restrict or distort competition for goods or services.

Horizontal agreements including price-fixing; market sharing; limit or control of production, marketing outlets or market access; and bid rigging are deemed anti-competitive. Restrictive vertical agreements include tie-in arrangements and exclusive deals aimed at putting up barriers against new entrants in an industry.

Globally, most public utilities, which supply electricity and water, are allowed to have monopolies because of the difficulty and necessity of supplying these services to all customers. Such monopolies are called natural monopolies and are characterized by a small market size, meaning the market cannot support more than one firm of an optimum size due to the high capital cost.  

Generally, monopolies are known to have a negative impact on the economy by way of high prices and inefficiency. However, a well-regulated monopoly such as a public utility can have a impact on the economy. A monopoly can create jobs with relatively high salaries, can afford a big budget for research and development, and achieve full economies of scale due to the large scale of production or market share. But the question is can monopolies be efficient? Can government agencies be less bureaucratic and more businesslike?

THE PENINSULA

 
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