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Understanding Business Competition: Business Competition Law, the Commission, and Example

business competition_

In the business world, competition is a common thing. According to the Great Dictionary of Indonesian Language or Kamus Besar Bahasa Indonesia (“KBBI”), competition involves concerted efforts made by individuals, companies, or countries in diverse domains such as trade, production, armament, and other activities. These efforts encompass the deployment of energy, intellect, or resources to achieve specific purposes, which signifies a determined pursuit, characterized by actions, initiatives, attempts, and exertions, aimed at the realization of defined goals. 

Business competition, as per the above definition, refers to activities undertaken to showcase the distinct strengths and advantages one party has over the others. Instances of business competition manifest in various forms, including but not limited to price competition, product competition, marketing strategy competition, customer service competition, and other related forms of competition.

Competition plays a pivotal role in enhancing a country’s economic landscape. It has the power to shape policies, foster industrial growth, create a business-conducive environment, boost entrepreneurial prospects, enhance efficiency, promote public interest, and improve people’s welfare. According to economists, a competitive market not only encourages businesses to innovate and produce a variety of products at competitive prices, but also benefits both producers and consumers. The primary aim of business competition is to allocate resources effectively based on their purposes and enhance the overall well-being of the society. 1

In 1989, there had been intensive discussion in Indonesia concerning the need for anti-monopoly legislation. This discussion emerged as a result of unrest regarding the extensive economic reforms and regulatory policies that had resulted in a tipping point for a fair and healthy business competition only within 10 years after being implemented in the 1980s. During this period, conglomerates, controlled by certain families or parties,  emerged and implemented aggressive business tactics that appeared to stifle small and medium-sized enterprises. Furthermore, these conglomerates sought to exert influence over the formulation of laws and the financial market. In particular, these conglomerates enjoyed legal protection as evidenced by instances such as cartels in the cement, glass, wood, and paper industries; exclusive licenses granted for products like cloves and wheat flour; and strategic privileges related to taxation, customs, and credit arrangements made in the aviation and automotive industry sectors. These practices created an unfavorable business environment that hindered fair and healthy competition, and placed smaller market players at a disadvantage. 2

To address this, the enactment of anti-monopoly legislation was seen as an important step to promote a more competitive and equitable business landscape in Indonesia. The aim was to foster a market that allows businesses, regardless of their size, to compete fairly and contribute to the nation’s overall economic growth and welfare.

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Read more: Civil Law in Indonesia

A. Legal Basis for Business Competition

To ensure compliance and minimize violations, a set of rules is needed to become the legal basis for business competition. The following are the legal bases for business competition in Indonesia:

  1. Law Number 5 of 1999 concerning the Prohibition of Monopolistic Practices and Unfair Business Competition, as amended by Law Number 11 of 2020 on Job Creation (“Law 5/1999”).
  2. Presidential Decree Number 75 of 1999 concerning the Indonesian Competition Commission/Komisi Pengawas Persaingan Usaha or KPPU as amended by Presidential Decree Number 80 of 2008 concerning Amendment To Presidential Decree Number 75 of 1999

B. Types of Unhealthy Business Competition

  1. Monopoly
    As defined in The Law Dictionary, monopoly pertains to an exclusive privilege or isolated advantage granted to one or more individuals or companies. This confers them with exclusive rights or authority in a particular business activity or trade, or to produce a certain product.
  2. Oligopoly
    Oligopoly is a market structure in which only a few companies sell the same goods or standardized products. According to KBBI, oligopoly is a market condition where a limited number of producers or sellers dominate the market so that they, or one of them, can exert influence over pricing.
  3. Cartel
    The concept of a cartel, as elucidated by William J, Alan Blinder, and Edward Wolff in the book “Economics: Principles and Policy”, involves either formal or informal agreement among competing companies. Their objective is to achieve common goals i.e., price control, production control, or market dominance to generate higher profits.
  4. Dumping
    Dumping transpires when a business exports products to foreign markets at prices significantly lower than those in the domestic market. This practice often involves selling goods even below production costs.
  5. Intellectual Property Theft
    In Intellectual Property Theft, a business steals and uses a competitor’s intellectual property without authorization, which includes unauthorized uses of a registered trademark belonging to another entity.

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Read more: Get to Know: Joint Venture

C. The Business Competition Supervisory Commission

The establishment of the Business Competition Supervisory Commission or Komisi Pengawas Persaingan Usaha (“KPPU”) marks a significant step in overseeing the implementation of Law 5/1999. The following outlines the duties and authorities of the KPPU:

  1. Assessment of Agreements: Assessing whether an agreement has the potential to foster monopolistic practices and/or unfair business competition3;
  2. Evaluation of Business Activities: Monitoring business activities and/or actions of business actors that may lead to monopolistic practices and/or unfair business competition;
  3. Assessments of Abuse Dominant Positions: Conducting assessments whether there is an abuse of dominant positions that may lead to monopolistic practices and/or unfair business competition;
  4. Appropriate Actions: Taking necessary actions within the framework delineated in  Article 36  through Article 16 of Law 5/1999 
  5. Government Policies Guidance: Issuing recommendations on government policies related to monopolistic practices and/or unfair business competition;
  6. Guideline formulation: Formulating guidelines and/or publications that are aligned with the provisions of Article 35 through Article 16 of Law 5/1999;
  7. Periodic Reporting: Submits comprehensive reports on the results of KPPU’s work to the President and the House of Representatives.

Meanwhile, to carry out the duties above, the KPPU is granted the following authorities4:

  1. To receive reports from the public and/or businesses regarding alleged monopolistic practices and/or unfair business competition;
  2. To conduct research on alleged business activities and/or actions of business actors that could potentially result in  monopolistic practices and/or unfair business competition;
  3. To conduct thorough investigations and/or examinations of reported cases of alleged monopolistic practices and/or unfair business competition, or of those discovered by the KPPU as a result of its research;
  4. To summarize the results of investigations and/or examinations to determine whether there are monopolistic practices and/or unfair business competition;
  5. To summon business actors suspected of having violated the provisions of Law 5/1999;
  6. To summon and present witnesses, expert witnesses, and individuals considered to have knowledge of violations of the provisions of Law 5/1999;
  7. To request assistance from investigators to bring business actors, witnesses, expert witnesses, or individuals mentioned in points 5 and 6 who refuse to comply with the KPPU’s summons;
  8. To request information from government agencies regarding investigations and/or examinations of businesses that violate the provisions of Law 5/1999;
  9. To obtain, examine, and/or assess letters, documents, or other evidence for the purpose of investigations and/or examinations;
  10. To decide and determine whether or not there is any loss incurred by other business actors or the public due to the alleged actions;
  11. To inform the KPPU’s decision to business actors suspected of engaging in monopolistic practices and/or unfair business competition;
  12. To impose administrative sanctions on business actors who are found to violate the provisions of Law 5/1999.

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Read more: Get to Know Visum et Repertum

D. Example of Unfair Business Practice Disputes

An example of an unfair business practice dispute that has been settled by the KPPU is the Dispute of Automotive Price-Fixing (2004). The 2004 dispute regarding automotive price-fixing serves as a testament to the KPPU’s commitment to ensuring fair business practices and competition within Indonesia’s market landscape. In this case, the KPPU identified instances where certain car manufacturers and automotive distributors committed price-fixing for specific car models. Consequently, the KPPU took decisive action by imposing sanctions on several companies, which included fines, and mandated an end to collusive price-fixing practices, which were deemed detrimental to consumers.

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Disclaimer: This article has been prepared for scientific reading and marketing purposes only from ADCO Law. Accordingly, all the writings contained herein do not constitute the formal legal opinion of ADCO Law. Therefore, ADCO Law should be held harmless of and/or cannot be held responsible for anything performed by entities who use this writing outside the purposes of ADCO Law.