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Temasek and The Right Prescription

20 Nov

Risk and profit. They go hand in hand. The higher the risks one entity shall take, the more profitable she shall get. The hype of reality shows in TV are still on demand. Even Kinaryosih and her love Brett Money coupled to join AXN Amazing Race, a globespotters’ challenge TV show. Everyone loves higher risk challenge.

As a big entity, Temasek had calculated all risks before entering Indonesian market, a big fat profitable but lousy market. Lousy? Not so fast…

If the KPPU decision is made this week on Temasek of her monopoly power or abuse of dominant position, it is actually all about consumer welfare and other entities’ welfare (read: total welfare). This “consumer welfare prescription” has been implemented in many countries around the globe. Judge Robert Bork coined this term, and the concept is quoted in many decisions by other countries’ competition authorities.

In Indonesia, unfornately, Consumers’ Protection Law is outlined separately from Competition Law. For this reason, KPPU could only decide on monopoly power, not at the very thoughts of consumer welfare. Both laws must have been regarded under one umbrella for KPPU to make decision. For comparison, please comprehend Judge Bork’s “total welfare” interventionist actions.

Let me put it this way. For consumer welfare: a firm’s market power will depend on the buyers’ sensitivity to price (the firm’s elasticity of demand) therefore buyers or consumers shall be protected from any suspectedly-artificial pricing that a firm like Telkomsel or Indosat could conduct.

For competition’s sake, we shall look at a wider angle. Both firms’ elasticity, and therefore their market power, will depend on the elasticity of market demand, the number of firms, degree of product differentiation and the interaction between firms. When fringe players enter the arena, and the only strategy that both firms have conducted is advertising campaign. Theory has it that reducing price or dominant players to consumers would be the last strategy.

I have observed when one campaign conducted by Telkomsel took place, Indosat would place only itsy-bitsy ads (not campaign). The other way round happened. I have clipped all their Kompas ads for the last semester for proof.

On the other hand, Temasek, again, with her calculation to enter Indonesia, anticipated investments via dividing enterprises to handle both Telkomsel and Indosat: Singtel 35% of Telkomsel, and Singapore Technologies Telemedia Pte. Ltd. 41,94% of Indosat. Both Singtel and STT is under Temasek. But then again, KPPU has outsmarted this.

Even a campaign statement of “not healthy to invest in Indonesia” is broken if we see the due process of law is taken place. Please compare this with decision process taken by other countries’ competition authorities. There are consumer welfare and rule of reason to consider.

A public complain was sent to KPPU about pricing strategy that was harmonized by both Telkomsel and Indosat at the time many fringe players entered the arena, then KPPU conducted investigation and calculation. When the decision is made, and Temasek shall appeal to district court, then there is no way Indonesia is a risky country. Please, the system is progressing. Let it flow and work accordingly.

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Ditulis oleh pada November 20, 2007 in Indosat, KPPU, risk country, Telkomsel, Temasek

 

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