The Legal Janitor

Update: I would like to thank and acknowledge Gabriel/Agagooga for his help in this post. My economics is rusty so I have to depend on the young ‘uns like him.

Reply to comments will be in the next post… got to dash off for class now… ugh

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SG Commentator recently posted an interesting snippet from The Straits Times. Apparently, the report suggests that 3 cinema operators raising movie ticket prices together could fall foul of Competition Act prohibitions.

The nub of the problem is that three cinema operators…agreed to raise prices together. The three, which form the Cinematograph Film Exhibitors Association (CEFA), announced on Monday that they will raise weekday prices of tickets by 50 cents and weekend prices by $1 from next month. It said the hike was to cover the increase in GST and higher utility costs. The three account for 80 per cent of total box office sales here.

s 34(2) states:

…agreements, decisions or concerted practices may, in particular, have the object or effect of preventing, restricting or distorting competition within Singapore if they ?

(a) directly or indirectly fix purchase or selling prices or any other trading conditions;

(b) limit or control production, markets, technical development or investment;

If I remember my economics (it’s been a long time…), 3 operators accounting for 80% of total box-office sales certainly does make it sound highly concentrated industry. To make things worse, agreeing to raise prices in concert won’t make it easy for them to escape charges of oligopolistic rent-seeking.

Upon further consideration though, I also remembered something else I learnt. In determining concentration ratios of any given market, how broadly or narrowly the market is defined is crucial to arrive at an accurate result.

For example, if we were to analyse the fast-food market in Singapore, we’d say the dominant players are Yum! Brands (owner of KFC, Long John Silvers, Pizzahut and Taco Bell) and McDonalds (I’m sorta lovin’ it). I don’t have any facts and figures about the fast-food industry in Singapore, but I’d certainly say these 2 are way ahead in terms of market dominance.

Hang on a second! What if, as opposed to the ‘fast-food’ industry, we consider the ‘eat-out’ industry instead? Suddenly, Yum! and McDonald’s don’t look so threatening anymore! Think of the thousands of kopitiams, restaurants, specialty foods, ethnic cuisines… etc etc… Imagine what would happen of McDonald’s, KFC, Long John Silvers, Pizzahut and Taco Bell conspired to raise the prices of their food by a dollar? While there may be some who would gladly pay the higher price, you’d think that most would just eat less, or not eat at all, and put their money into competing food products.

In the same way, we must also be careful when defining the cinema operator industry. Shouldn’t we first consider competing and substitute products to watching movies at the cinema? For example, other entertainment products like CDs? DVD rentals/purchase? VCDs? MP3s? Electronic goods? Internet? Computer games? etc…

There are many entertainment options that compete for the time and money of Singaporeans, and the cinema operators would certainly shoot themselve in the foot if they really do implement the price increase. Government intervention in this scenario would certainly be unwarranted. In fact, I would argue that this current state of affairs is a direct result of government intervention in the market.

Look at it this way. Copyrights are artificial monopolies created by government statute. Ideas and expression of ideas are inherently non-rival and non-excludable. While physical items such as CDs or DVDs are actually capable of being scarce, information and data can essentially be replicated infinitely. Would cinema operators raise the price of their tickets if VCD pirates were still openly selling their wares? I think not.

The problem of ‘price-fixing’ is really a problem of unintended consequences as a result of the government intervention in the market to increase the number of years works remain copyrighted, and the creation of criminal penalties for copyright infringement. Even worse, the re-casting copyright infringement as a criminal offence becomes an implicit subsidy to the copyright cartel.

My policy suggestion to the government?

Apply competition policy with a very light touch, but remove any government laws which would in any way hinder competition, such as those which raise barriers of entry for new market players. Strong copyright ‘protections’ are one such barrier, and should be weakened. Also, government subsidies are inherently anti-competitive and especially so when the beneficiaries are copyright cartels.

Hat tip to The Singapore Commentator - Cinemas and the Competition Act

Singapore Statutes Online - Competition Act 2004

*light reading - simplified explanations
Wikipedia - Antitrust
Wikipedia - Price fixing
Wikipedia - Cartel

*heavy reading - detailed explanations
The Library of Economics and Liberty - Competition
The Library of Economics and Liberty - Industrial Concentration
The Library of Economics and Liberty - Antitrust
The Library of Economics and Liberty - Monopoly