The ethical risks of market dominance
By Benito L. Teehankee
Tuesday, June 07, 2011
ALL eyes are on PLDT’s aggressive move to acquire control of Digitel. The deal would effectively give PLDT control of 70 percent of the mobile phone market, leaving the rest to Globe. Government agencies and legislators are scrutinizing the deal to see if the benefits to consumers of the current market setup will be protected.
PLDT has assured the public that it will keep Digitel separate as a corporation and that the low-priced offerings of Digitel’s Sun Cellular service will be retained. The telecommunications giant has explained further that the acquisition will help it deliver broadband services around the country at a faster pace. This is an ostensibly good goal. But is it worth allowing such large market control to fall into one corporate hand?
Clearly, PLDT and Digitel shareholders stand to benefit from the deal. But as always, it helps to bear in mind a key principle governing Philippine corporate business. The Constitution insists that all economic entities, including corporations, contribute to the common good even as the rights of shareholders are respected. Should consumers worry about this deal? Does the deal promote the common good? Should government step in? The issue boils down to a key question: When is a business entity’s control of a market too much?
An ethical analysis of markets gives us some guidance in evaluating the deal and answering the above questions. We can ask ourselves what would happen to the market for mobile phone services if the deal was consummated. In general, markets can be said to be ethical if they have certain features, which respect the rights of market participants, on the one hand, and promote efficiency, on the other.
Let’s consider participants’ rights. The right of consumers to choose among market offerings based on quality and affordability is important. Can PLDT be trusted to retain Sun Cellular offerings at their current affordable levels? Will it continue to improve the quality of its own Smart services even if it has dominant market control?
The right of current competitors to stay in the market and those of new competitors to move into the market must be respected. Can PLDT be trusted not to use its sizable control of the telecommunications infrastructure to block competitors? Can PLDT be trusted not to use its dominant market position to use predatory pricing and, thus, squeeze out competitors?
What about market efficiency in pursuit of the common good? In their book, Ties That Bind, Donaldson and Dunfee explain that an efficient market “contributes towards the provision of necessary social goods sufficient to sustain the least well-off”. Access to telecommunications is now widely recognized as a basic human right. In fact, the government has adopted telephone and cell phone subscription levels as indicators of the country’s pursuit of the Millennium Development Goals. Will this deal lead to more subscriptions, especially for those most in need? Or will it lead to furthering the so-called “digital divide”, with the haves getting ever better broadband services while the have-nots struggle to gain access to the kind of communication services now essential for social and political participation?
The difficulty with evaluating the ethics of the PLDT-Digitel deal is that a lot of it depends on how PLDT itself will choose to behave. PLDT has every incentive to deliver more returns to its shareholders by being a pure profit maximizer and taking advantage of its market dominance even at the cost of the common good. But it can also exercise prudence by honoring the rights of market participants and the goal of market efficiency.
It is now government’s call to make whether the benefits claimed by PLDT from the deal are worth the threat to the common good that a dominant market player poses.
Dr. Benito Teehankee is the Chairman of the Management and Organization Department of the Ramon V. del Rosario, Sr. College of Business, De La Salle University. He may be e-mailed at benito.teehankee@dlsu.edu.ph. The views expressed above are the author’s and do not necessarily reflect the official position of De La Salle University, its faculty and administrators.
Source: http://www.manilatimes.net/business/the-ethical-risks-of-market-dominance/
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