Competition Policy: Definition and Scope Presented by Dr. M. A. Razzaque

We are going to have discussions on: What is Competition? What is Competition Policy? What it Covers? What is the need for Competition Policy?

What is competition? Competition Literary meaning: a contestable situation where people fight for superiority. In market economy, competition is a process whereby firms fight against each other for securing consumers for their products

Fair and Unfair Competition Producing quality goods Becoming cost-efficient Optimizing the use of resources Adopting the best available technology Investing in research and development, etc. Fixing prices with the rivals Setting a price which is lower than cost in order to throw out competitors from the market Advertising that belittles others’ product, etc.

Non-price Competition Price Competition Types of competition Non-price Competition Price Competition Competition among suppliers to win customers by offering lower price. May not be an appropriate strategy for those loyal to a particular brand. Competition to win customers not by lowering price but by advertising, offering after-sales-service, using sales-promotion tools, etc.

Forms of Market Competition Models of Competition Number of buyers sellers Nature of products Barriers to entry and exit Perfect competition Very large Identical None Monopoly One Single product Monopolistic Large Minimum differences Oligopoly Very few

For detailed information please consult Competition Policy and Law Made Easy: Monographs on Investment and Competition Policy, #8 ;CUTS (Pages 1-4)

Oligopoly Market : Competition Among the Few Key Features: Interdependence between firms in performance and strategy Aggressive action followed by defensive reaction Price competition and price war (Recent packages offered by Mobile Phone companies) Intense non-price (promotional publicity) competition, which may result in wasteful expenditures.

Detail on Oligopolistic market structure Making Sense of Competition Policy, by Frank Fishwick (1993) (Pages 47-62)

Competition Policy /Law Competition policy => government measures directly affecting both Firm Behavior and Industrial structure. A competition policy should include both: i) Economic policies adopted by Government, that enhance competition in local and national markets, and ii) Competition law designed to stop anti-competitive business practices.

Components of competition policy Competition Law Government Policies Private Actions Deregulation and Privatization Industrial Policy Consumer Policy Trade Policy Regulations Governing Capital and FDI Other Policies

Competition Law (National) Anti-Competitive Agreements Between Firms ( Collusion) Regulation of Mergers to Prevent Tactics to Gain Excessive Dominance in a Market Abuse of a Dominant Market Position Applies to: Import cartels Price fixing Market sharing Bid rigging Limiting production Refusal to buy or supply Tie-in arrangements Exclusive-dealing Resale price maintenance Territorial allocation Predatory pricing Price discrimination Excessive pricing Abuse of intellectual property monopoly Total unification of the companies involved Buying of sufficient shares in a company so as to have a say in policy formulation

The three stages of provisions that a competition law constitutes are: The behavior and structure of firms in the market Institutional and enforcement design with a competition authority, and Competition advocacy.

For details on competition policy and law: Competition Policy and Law Made Easy: Monographs on Investment and Competition Policy, #8 ;CUTS (Pages 23-26) UNTCAD: Trade and development Board: Intergovernmental Group of Experts on Competition Law and Policy; sixth session, Geneva, 8-10 November 2004 : Communication Submitted by the People’s Republic of Bangladesh (Pages 2-4)

Need for a Competition Policy Benefits to Consumers A fair deal in the market place with: The best possible choice of quality The lowest possible prices, and Adequate supplies of commodities.

Benefits to Efficient Producers A safeguard against practices that could drive companies out of business. Lower entry barriers to promote entrepreneurship and growth of SMEs. Efficient allocation and utilization of resources ensures more output and employment. Control of international unfair competition and restrictive business practices, such as international cartels

On the whole, a competition policy maintains and promotes the competitive spirit and culture in the market.

Globalization and the need for Competition Policy Globalization and Competition Outcome of threat to Concentration of Market Power Therefore, we need competition policy to monitor, prevent and control anti-competitive practices.

For details on globalization and competition: UNTCAD: Trade and development Board: Intergovernmental Group of Experts on Competition Law and Policy; forth session, Geneva, 3-5 July 2002 : The relationship between competition, competitiveness and development. (Pages 3-6)

Arguments Against Competition Preventing formation of large firms may reduce efficiency. The situation arises when there exists significant economies of scale: Examples : Natural Monopolies, like, Infrastructure, Power and Railway . An obsession with competition might be counterproductive leading to inefficiency especially when goods and services tend to be homogenous. Policy actions against highly profitable firms could work against the development of dynamic and thriving firms. Over-regulation could increase firms’ cost of operations and generates inefficiencies.

Thank you.