On March 28 Uber announced it had sold its operations in South-East Asia to rival Grab in return for a 27% stake in Grab. This has been followed by an announcement this week that the deal is being reviewed by the competition authorities in a number of countries including Singapore.

According to an article published by state media company CNA on 30 March, the Competition and Consumer Commission of Singapore (CCS) said it started looking at the deal on 27 March, the day after it was announced. CCS said that the companies did not pre-notify them of the merger.

However on 28 March I tweeted that the merger should be stopped on the grounds that it will lead to a substantial lessening of competition:

It was only on 30 March that CCS reached the same conclusion and made a public statement, parts of which were carried by state media CNA.

CCS also issued a list of interim measures, effectively stopping the merger from going into effect by preventing the companies from delisting the Uber app or sharing information. This is the first time CCS has exercised its powers and also the first time as far as I am aware that it has actually investigated a merger.  I suspect though obviously cannot prove that the only reason CCS have taken such a tough line is that they or the Government saw my call for the merger to be stopped and decided that they had to act or concede that I am doing a better job of policing competition than the CCS, which is run by civil servants and like everything else in Singapore effectively controlled by the PAP Government.

I have in the past been extremely critical of the CCS. In my article “Another Round of Monopoly Anyone?“, published in 2011, I said “At the same time the Competition Commission of Singapore (which is ever eager to come down hard on Indonesian maid agencies but displays a strange reluctance to investigate government monopolies) needs to be strengthened.  Its workings should be more transparent. A start would be more hearings on matters of public interest to which consumer organisations would be invited to make submissions.”

CCS’s website states that:

Generally, competition concerns are unlikely to arise in a merger situation unless: 

• The merged entity has/will have a market share of 40% or more; or 
• The merged entity has/will have a market share of between 20% to 40% and the post-merger combined market share of the three largest firms is 70% or more

Clearly the Uber-Grab  merger fulfills these criteria and it is difficult to see how there can be effective remedies unless there are new competitors.

I have seen some comments that there should be no competition concerns because ride hailing apps are just part of a wider transport market that includes regular taxis and public transport. If the merged Uber-Grab ride-hailing service raises prices then people can switch to the old-fashioned taxis that you can hail in the street or take the MRT.

However this ignores the reality of the situation. Prior to Uber’s entry, the taxi market in Singapore was close to a monopoly. 60% of the market was controlled by Comfort and City Cab, part of ComfortDelgro, which has close ties to NTUC, which is to all intents and purposes a branch of the PAP. Another 15% was held by SMRT’s taxi operation. Public transport is of course itself controlled by the same companies. (Please see my 2011 article, “Comfort and City Cab. Two more pies with fingers in them“ written in response to a pre-Uber round of fare hikes imposed on consumers). 

So the apparent presence of competition was an illusion. And this was not only a monopoly but a monopsony since all the taxi drivers had to belong to one of the taxi companies which set vehicle hire rates and working conditions. Monopoly profits accrued to the Government and under the Competition Act the CCS is barred from investigating the public transport monopoly (as well as mail and water supply and wastewater disposal). CCS has also been strangely silent on the many other Government-linked cartels and monopolies that keep prices higher than they otherwise would be, including in the supply of housing.

Uber threatened the profits made by the Comfort-SMRT duopoly. Like it has done in most of the global markets it has entered, Uber introduced greater competition and vastly improved customer service.  Competition got even fiercer when Grab entered the market. Grab is secretive about its funding but Temasek was one of the early investors and is probably a major shareholder through its venture-capital arm, Vertex Holdings. GIC has invested in Uber and both GIC and/or Temasek may have invested in Softbank’s $100 billion Vision Fund, that has bought stakes in most of the major ride-hailing apps (including becoming the biggest shareholder in Uber) in the apparent hope that it can create a monopoly by stealth. With Softbank’s encouragement Uber has accelerated the process of withdrawing from major markets like China in return for minority stakes in its competitors in those markets. It has also sold out in Russia and likely also to be withdrawing from India in the near future to cede the market to Olla, which Softbank and probably Temasek have also invested in.

Selling to Grab in South-East Asia is part of this process of reducing competition and maximising profits, according to the standard economics textbook on monopoly behaviour. A few months before selling out to Grab, Uber also tied up with Comfort mirroring Grab’s tie-up with the other taxi companies. So the Uber-Grab merger will lead to an effective monopoly over all taxi and private hire-car services in Singapore, to the detriment of consumers who face the same Government-linked monopoly in public transport.

As if on cue with the Uber-Grab merger announcement came news of the launch of a new ride-hailing app, RydeX (basically an extension of a carpooling app run by a company called Ryde). However the network effects of Uber-Grab’s dominance will make it hard for them to attract drivers. They are unlikely to offer any real competition and may even be funded by Temasek or GIC to create the illusion of pluralism in the ride-hailing market since Ryde is cagey about who its investors are.

If CCS have any pretensions about being an effective and independent competition regulator they should stop this merger. It is likely to lead both to higher prices for consumers and lower earnings and more unfavourable contracts for drivers. However given that CCS is run by civil servants dependent on the Government for promotions the likelihood is that there will be a face-saving fudge allowing the reimposition of an effective monopoly to go unchecked.

Published by kjeyaretnam

I'm a Singaporean economist who became an opposition activist. I blog to provide an alternative to the porkies that the Pinkies tell. It just so happens that my alternative is the truth. That's why I've never been sued in any civil or criminal court no matter how hard hitting my criticism. I'm quoted and interviewed and asked to speak across the world but largely censored in Singapore in an effort to silence my political opinions. The left hate me because they think I split their vote and because I eschew their outmoded economic models. Models that don't work. The Right and the Conservatives hate me because I'm a liberal. I'm not sure what the middle think of me. I don't think there are more than a handful of people in the middle, here in Singapore. I'm a Singaporean born and bred, dual heritage, my parents Singaporean established here before the State of Singapore was created. I'm not Eurasian. I read economics at Cambridge and could be broadly described as from the Keynesian school but I believe in interventions. I was formerly a successful hedge fund manager. After economics and politics my greatest interests are history, film and Makan. I run but I run so I can eat like a Singaporean. View all posts by kjeyaretnam