Freeman Cebu Business

Grab and Uber merger: A monopoly exists

FULL DISCLOSURE - Fidel O. Abalos - The Freeman

Never in the history of the country’s air transport industry that we get to enjoy promotional fares as low as or even lower than what shipping companies pegged for the same route. Thanks to the Philippine government’s deregulation initiatives, we are enjoying the fruits of the honest-to-goodness airline industry competition. Honestly, this is just one of the many benefits when true competition exists.

However, while deregulation is supposed to encourage competition, it may also be susceptible to cartelization. A cartel simply means an agreement among firms or companies, mostly manufacturers and distributors. Basically, these are firms that agree to coordinate production for the primary purpose of controlling prices.

Cartels normally happen when there are too few players in the market for a particular product or service. Members in a cartel may agree on concerns like production output, allocations, price fixing, sharing of profits, bid rigging or a combination of these. Obviously, therefore, by mere definition, cartel is simply the glamorized jargon for collusion.

The principal motive for such collusion is to increase individual member's profits by reducing or eliminating competition. Competition laws in highly developed countries forbid cartels. Identifying and breaking up cartels has been an integral part of their competition laws. However, despite their sophistications, they still encountered difficulties in proving the existence of a cartel as firms are usually too careful in not documenting their agreements to collude on paper.

On the other hand, the same can be said when duopoly exists. A duopoly (as Wikipedia defines it) “is a form of oligopoly where only two sellers exist in one market. In practice, the term is also used where two firms have dominant control over a market.”

A typical example of the existence of duopoly is in the telecommunications industry. That of Globe and PLDT. Remember, there used to be three but the Gokongwei-owned Sun was merged with PLDT several years ago. Consequently, for a hefty price we pay for, allegedly, the same service in Singapore, we get a quality several times inferior.

To break this duopoly, President Duterte made the right move by trying to bring in a third player.     While having three may not be enough for real competition to exist, still, three is better than just having two.

Today, we are faced with another disturbing development. This time, in the transport industry, particularly, the Transport Network Vehicle Services (TNVS) segment. Simply put, the TNVS is taking care of the ride-hailing market. Obviously, a growing market with just one player with the merger of Uber and Grab.

To recall, on March 6, Uber (a San Francisco, California-based company) disclosed that “it had agreed to sell its entire Southeast Asian operations to its competitor in the region, the Singapore-based Grab for an undisclosed amount.  In return, Grab gave them a 27.5 percent equity stake.  Consequently, “Grab will take over Uber’s business in the Philippines, Singapore, Malaysia, Thailand, Indonesia, Myanmar, Vietnam and Cambodia, including the food delivery business Uber Eats.”

Definitely, the Philippine Competition Commission (PCC) will look into this. However, in its website, PCC chairman Arsenio Balisacan in a statement said: “No notification has been filed at the PCC by Grab or Uber to date. If the parties meet the new threshold, now set at ?2 billion for size of transaction and ?5 billion for size of party, they should notify at the PCC within 30 days after signing their definitive agreement.”

Palpably, with this merger, a monopoly now exists. Well, this is even worse than the telecommunications industry’s duopoly. The only difference is that the market size is so little compared to that of the telecommunications industry. Still, the vulnerability of the ride-hailing market to manipulation and malpractices exists.

So that, following Uber’s decision to sell its operations to rival Grab, Makati City Rep. Luis Campos Jr. now wants Go-Jek, Indonesia’s top technology firm that offers ride-hailing and logistics services, to come in and compete with surviving giant Grab.

True enough, Go-Jek, recently announced, it is expanding in other Indonesian cities and has said it plans to start operations in the Philippines this year, followed by other Southeast Asian countries.

Indeed, in monopoly, we stagnate and shall pay dearly for it. On the other hand, competition brings about the best. For one, it urges providers to always do research and come up with innovative ideas in improving quality of their products or services. Consequently, customers or consumers benefit and industries as well as the economy move forward.

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