Do more to curb monopolies

Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid

PETALING JAYA: With the new cabinet under Prime Minister Datuk Seri Anwar Ibrahim ready to go full steam, one of the measures experts hope the government would undertake soonest is to curtail monopolistic practices that will impact the economy amid anticipation of a slower growth next year.

Some of the country’s economic sectors are still in the hands of companies that have a strong grip and they dictate policies to ensure higher prices to reap bigger profits and reduce competition.

However, curbing monopolies should be done in a well-thought and planned manner so as not to disrupt the market and affect consumers, they noted.

The government has done away with monopolies in some cases. For example, when highway operators were directed to allow road users to pay toll through other means besides Touch ‘n Go.

Another example was the Transport Ministry’s decision to open up vehicle inspection services to other providers once the concession with Puspakom expires next year.

It was also reported that the country would adopt a dual-network model for its 5G rollout next year following widespread concerns about pricing and competition over a single state-run network.

UCSI University Malaysia assistant professor of finance Liew Chee YoongUCSI University Malaysia assistant professor of finance Liew Chee Yoong

UCSI University Malaysia assistant professor of finance Liew Chee Yoong told StarBiz the government needs to do more to curb monopolies.

Malaysia still has many monopolies in various sectors such as agriculture, transportation, pharmaceutical, energy and utility, he said.

He said monopolies can lead to reduction in competition, higher prices of goods and services, less innovation and a decrease in the quality of goods and services that can be detrimental to consumers and the overall economy.

Liew, who is also a research fellow at the Centre for Market Education (CME), said the government needs to intervene to reduce or eliminate the monopoly of those firms that dominate their respective markets in order to preserve market competition and protect consumer interests.

“Perhaps Malaysia could learn from the US government in terms of how they break up or restrict monopolies in their markets, such as the break up of Standard Oil Company in 1911 for violation of antitrust laws; the break up of AT&T in 1982 for its dominance in the telecommunications sector; and the regulatory constraints imposed on Microsoft in the late 1990s and early 2000s for monopolising the software market.

“Malaysia could also learn from the government of China in terms of how they deal with monopolies, such as the hefty fine imposed on Alibaba Group in 2021 due to its monopolistic practices in the online retail, eCommerce, technology and cloud computing sectors.

“Apart from this, there is also increased regulatory pressure by the Chinese authorities to impose on Tencent Holdings Ltd for its dominance in the tech sector and the legal action taken against Didi Chuxing Technology for unfair competitive practices in the e-hailing market,” he noted.

Liew believed sectors that are important for economic and social welfare such as healthcare, telecommunications, food and beverage (F&B), agriculture, transportation, energy and even utilities should be closely monitored for monopolistic practices.

Additionally, he said technology and digital markets, which are prone to monopolistic tendencies due to their high barriers of entry and network effects, should be thoroughly scrutinised to protect these markets from monopolies.

Centre for Market Education (CME) CEO Carmelo FerlitoCentre for Market Education (CME) CEO Carmelo Ferlito

Economist and CME chief executive officer Carmelo Ferlito said whether to do away with monopolies or oligopolies depends on whether they are good or bad for consumers and the economy.

Oligopoly is where markets are dominated by a small number of suppliers as opposed to a monopoly where a single company produces goods or services with no close substitutes.

He said monopolies and oligopolies can be the result of the market process or the natural evolution of the competition within a certain industry.

“As such, they are usually good. The important thing is that the dominant position remains open for challenge and not protected by favourable treatment by the law. “For example, in Malaysia, the poultry industry was developed toward a high level of concentration (oligopoly) and this has benefited consumers in terms of receiving better products, higher technical progress and self-sufficiency.

“Such a consolidation was not the result of government protection but of competition process. Therefore, it is good and it can be challenged anytime by new players.

“Bad monopolies or oligopolies are those which result from government protection or where the government decides to be the only player,“ he said.

Ferlito believed that the rice industry monopolised by Padiberas Nasional Bhd (Bernas) should be abolished and be opened to more players.

He said the bottom line is as long as there is an open market with no barriers to entry and competition is allowed, then the issue of whether there are monopolies or oligopolies does not arise as it can be challenged.

“This is what happened over the past 40 years in the world of mobile phones, where we have seen the alternance of dominant positions between Motorola, Nokia, Blackberry, Samsung, iOS, etc.” he said. iOS is a mobile operating system developed by Apple Inc.

Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said perfect competition is an ideal state for market economies, as there would be more players in the industries and consumers would have more choices.

However, the abolition or move to curtail monopolies has to be well planned, he said.

He said there must be a clear plan for capacity building so that other players can become effective producers, adding that monopolistic practices should be curtailed in the F&B, telecommunication and energy sectors.

“I am all for competitive markets but it has to be done in a manner that is fair and transparent. There are more reasons that subsidies and price control mechanisms have to be gradually phased out.

“Therefore, the government needs to inform the general public that it is important for market forces to determine the price level.

“The government will need to give assurance that the market will be fair and transparent via its rules and regulation,” Afzanizam said.

On whether a relevant agency should have the powers over monopolies, he said the Malaysia Competition Commission (MyCC) would need to be visible in its role.

“Perhaps there must be strategic positioning so that the public understand and can appreciate the role that they play to promote fair competition.”

Liew, however, believed the MyCC is not effective enough in restricting monopolistic practices in the Malaysian market due to the fact that monopolistic firms are still playing a huge role in the local economy as seen in various sectors.

Hence, there could be other factors which enable such firms to continue dominating their respective markets in the economy, he said.

Malaysia University of Science and Technology economics professor Geoffrey WilliamsMalaysia University of Science and Technology economics professor Geoffrey Williams

Malaysia University of Science and Technology economics professor Geoffrey Williams opined that in most cases, monopolies should be broken up or opened up for competition by removing the barriers to entry.

To curb monopolies, he said the simple policy is to create more licences and concessions to allow companies to enter the market on a commercially viable basis.

“In some instances, it makes sense to have only one company running a business.

“For example, it makes no sense to have two train lines or two highways running between the same places. In these cases the competition can be in management concessions given to the best management team regulated by the MyCC.

“Monopolies on importing medicines for public and private healthcare should be removed. The monopoly on medical testing for foreign workers should be broken up as well.

“In fact, healthcare is a major area of monopoly and anti-competition abuse and this raises costs and encourages procurement abuses. Monopolies on food imports undertaken by Bernas should also be abolished.”

Meanwhile, MARC Ratings Bhd said whether monopolistic practices are harmful depends on whether the company’s position of power is being abused, for example, in cases of predatory pricing.

This can be characterised by excessively high profit margins, which can be benchmarked against a cross-industry and cross-country basis.

More often than not, oligopolies may be necessary where monopolies become ineffective on such accounts, allowing for some degree of healthy competition.

The rating agency said regulatory agencies must effectively detect such abuses at the macro level and provide processes to mediate customer complaints at the micro level.

This is also where anti-trust regulations need to be invoked with sufficient penalties and applied consistently, it said.

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