21 Jul 2023
KPPU Responds to Technological Change Through New Rules on Determination of Relevant Markets

In response to rapid technological change, the chair of the Indonesian Competition Commission (KPPU) has issued a new set of rules on the determination of relevant markets (KPPU Chairman’s Regulation No. 4 of 2022 / Reg. 4/2022[1]).

The previous regulation on the issue, KPPU Regulation No. 3 of 2009, was revoked by KPPU Regulation No. 9 of 2022 (effective 28 December 2022).

Whilst broadly retaining the KPPU’s existing approach, three major analytical fields of inquiry are included in the new regulation: (i) temporal dimension analysis; (ii) dual- and multi-sided market analyses; and (iii) the digital economy market analysis.

1. Temporal dimension analysis

This concerns the time at which a particular competition state of affairs exists in a particular market, and how it changes over time. A temporal dimension analysis (from both the demand and supply perspectives) takes into account: (i) fluctuations in market demand and supply, related to specific points in time (day, month, or year); (ii) innovation across successive product generations; and/or (iii) variations based on geographic distance and product delivery time.

It appears that the KPPU intends to define changes in the order or rank of business undertakings in a relevant market over time, using assessment criteria. However, the regulation fails to set out detailed assessment criteria, or explain whether businesses will be permitted to set their own criteria.

2. Dual- and multi-sided markets

The KPPU has long recognized the need to accommodate dual- and multi-sided market analyses, especially in the digital economy. As explained by Mr. Ukay Karyadi (a former KPPU Commissioner) during a KPPU webinar on algorithms vs competition in the digital economy[2], many markets are ‘stacked’, meaning that competition not only exists between sellers but between platforms that provide services to sellers and buyers: It may therefore no longer be appropriate to determine a relevant market using the conventional approach.

Online platforms, synonymous with the digital economy, generally operate in dual- or multi-sided markets via the internet to enable interaction between two or more different, but dependent, customer groups to generate value for at least one group. Simply put, an online platform is the ‘third party’ or ‘intermediary’ in a transaction, and therefore reconciles the needs of two or more customer groups. This connectivity and interdependence results in a network effect, where users would rate one product as having higher added value if it, or its substitutes, are used by many other users.

The regulation sets out five indicators of a multi-sided market:

1. the existence of two or more inter-related markets;
2. the existence of two or more customer groups, that exhibit interdependencies in demand;
3. the existence of a platform that acts as an intermediary between two or more customer groups;
4. the platform controls the relative prices charged to the customer groups;
5. the existence of a network effect.

3. Digital economy market

The regulation is clear that in competition cases relating to digital/online platforms (or other business models using technology, such as online trading), the KPPU will carry out a multi-sided markets analysis. Thus, instead of defining separate markets for each customer group, the KPPU will define a single market comprising all customer groups.

The regulation allows the KPPU to use additional analytical approaches such as:

1. demand substitution, which considers platform functions, business models, customer groups, and the existence of online sales and offline transactions;
2. supply substitution, which considers barriers to market entry, technical barriers, network effects, lock-in effects, and switching costs payable by consumers;
3. product market, which may also consider competition between platforms, level of differentiation, economies of scale, innovation, and technological developments;
4. geographical market, which may consider the nature of goods or services offered on the platform (durable/non-durable, has a delivery/service period), platform user information, laws and regulations, and online and offline integration; and/or
5. “casuistic” geographic market, if the competition event involves global business undertakings operating in Indonesia that do not have representative offices here.

In a relevant market analysis, the KPPU is authorized to request information from business undertakings, government agencies, public bodies that are not government agencies, business associations, consumers, experts, or other parties. Information may also be obtained from secondary data analysis, such as sales, price movements or data, and costs and other relevant data.

ABNR Commentary:

Reg. 4/2022 undoubtedly represents a quantum leap for competition analysis in Indonesia, and may be considered as a first step by the KPPU towards more proactive recognition of technological developments. Although warmly to be welcomed, unfortunately, several administrative and substantive issues remain unresolved:

1. The legal standing of the regulation

As indicated above, Reg. 4/2022 is not a KPPU regulation per se, but a KPPU Chairman’s regulation. This unusual approach also involved the same-day revocation of an older regulation on relevant markets (and may indicate that KPPU had both internal and external organizational spring cleaning in mind).

The regulation’s status within the Indonesian legal hierarchy, and whether it is binding on external parties, is also unclear, as the relevant legal instruments[3] do not cover regulations issued by commission chairs.

However, it might still be interpreted as having the same effect as a conventional KPPU regulation (and would therefore be binding upon external parties), as the said legal instruments require regulations issued by commission chairs to adhere to issuance norms or formats specified within.

2. Implementing guidelines

The regulation sets out only a conceptual background and legal basis, and lacks more detailed implementing guidelines that would be crucial for all business undertakings. Unlike in conventional business fields, competition analysis in the digital economy is a much tougher challenge due to the myriad complexities associated with digital platforms as intermediaries, and the existence of network effects.

Detailed implementing regulations will be required before Reg. 4/2022 can be fully applied. However, there may be some delay in their issuance, given that the term of the current KPPU Commissioners is due to expire. Consequently, there is no guarantee that the implementing regulations will be issued as promptly as they should.

3. Personal data and data sources

The regulation states that the KPPU may request data or information from relevant stakeholders, without elucidating the scope of this information. Nevertheless, should any of the requested data/information constitute personal data, the KPPU would need to take into account their compliance with Law No. 27 of 2022 on Personal Data Protection.

Further, the KPPU has previously carried out six studies on digital economy, including the 2020 Research on Business Undertakings and Market Structure in the Digital Economy Sector (accessible here). In that study, the KPPU acknowledged that the possession of data and network presence was paramount in establishing market power.

The study also states that market power analysis in the digital economy may utilize both primary (online survey, focus group discussion) and secondary data (number of site visits, or social media followers, etc.). Although the new regulation refers to secondary data analysis, it does not specifically address the type and empirical use of such data in the digital economy, despite its importance in the analysis of relevant markets and market power.

As briefly touched upon in our recent newsletter on changes to merger control regime change (accessible here), Reg. 4/2022, together with 6 other KPPU regulations, was published just a few weeks before the terms of the then KPPU commissioners were due to expire. However, there terms have since been extended to 27 July 2023, or until the election of new commissioners, whichever is earlier.

Although at least some are expected to be re-appointed, there is no certainty that the new elected officials will endorse the new regulations. Consequently, businesses should anticipate possible further changes to relevant market analysis techniques under the new leadership.

By partner Mr.Agus Ahadi Deradjat (aderadjat@abnrlaw.com),foreign counsel Gustaaf Reerink (greerink@abnrlaw.com); and senior associate Nina Cornelia Santoso (nsantoso@abnrlaw.com)

This ABNRNewsand its contents are intended solely to provide a general overview, for informational purposes, of selected recent developments in Indonesian law. They do not constitute legal advice and should not be relied upon as such. Accordingly, ABNR accepts no liability of any kind in respect of any statement, opinion, view, error, or omission that may be contained in this legal update. In all circumstances, you are strongly advised to consult a licensed Indonesian legal practitioner before taking any action that could adversely affect your rights and obligations under Indonesian law.

[1] Peraturan Ketua Komisi Pengawas Persaingan Usaha No. 4 Tahun 2022 tentang Penentuan Pasar Bersangkutan. The regulation was issued on 28 December 2022, but only recently published on the KPPU’s website. It was issued by the KPPU Chairman (not the KPPU as an entity, as is usual for regulations that should have external effect). The KPPU Chairman also issued Regulation No. 1 of 2023 on Guidelines for Approval of the Commission for Relief from the Payment of Fines in Graduates or in a Certain Period, effective as of 4 January 2023. (The Regulation is not discussed in this legal update.)

[2] KPPU online webinar “Algoritma vs Persaingan Usaha”, 2 March 2021, accessible at https://www.youtube.com/watch?v=4-DIq5HnRk0

[3] Law No. 12 of 2011 on Formation of Laws and Regulations, amended several times, last by Law No. 13 of 2022.