Private Sector Development Competition and Anti Monopoly The World Bank Mission February-March, 2004

Private Sector Development Competition and Anti Monopoly Why is Competition Important How Can Competition be Ensured How Can the World Bank can Help

Private Sector Development Competition and Anti Monopoly Why is Competition Important ? Creates Increased Choice for Consumers Expands the Business Environment by Allowing New Entrants Increases Economic Efficiency Improves Allocation of Resources Leads to Improved Labor Market Performance and Increased Employment Improves Productivity Increases Economic Welfare Ultimately Higher Economic Growth

Private Sector Development Competition and Anti Monopoly Why is Competition Important ? A Closer Look It Helps Firms Improve Productivity by Forcing Them To: Be Innovative Acquire Technology and Know How Bring Their Operating Practices Closer to Best Practice It Is a Key Diffusion Mechanism for Best Practice Improvement in Productivity Helps Create: Global Competitiveness Wealth and Growth

Private Sector Development Competition and Anti Monopoly Why is Competition Important ?

The Counter factual Without Competition: Innovative More Productive Entrepreneurs With Technical and Commercial Skills Will Be Dissuaded or Prevented From Entry or Forced to Exit, Only the Politically or Otherwise Entrenched Would Maintain Market Share Despite Substandard Productivity Performance. This Would Lead to Lower Productivity and Thus Lower Incomes and Growth Monopolies would reduce Economic Welfare

Private Sector Development Competition and Anti Monopoly Why is Competition Important ?

Private Sector Development Competition and Anti Monopoly How Can Competition be Ensured ? Competition Policy Competition Law Institutional Arrangements Enforcement

Competition and Anti Monopoly How Can Competition be Ensured ? Competition Policy Competition Can Be Promoted by: -Better Designed Government Policies & More Selective Regulations, and -By Curbing Private Restrictive Business Practices. An Effective Competition Policy Needs to Address Both Areas

Competition and Anti Monopoly How Can Competition be Ensured ? Competition Policy – The Challenges High Industry and Ownership Concentration. Entrenched Family and Other Interest Groups — Lobbying, Rent-Seeking Behavior. Corruption & Bribery. Underdeveloped Capital and Financial Markets. Inadequate Institutional Capacity and Resource Constraints In Many Countries Lack of Political Commitment.

Competition and Anti Monopoly How Can Competition be Ensured ? Competition Policy – The Criteria Set Principle Objectives: Economic Efficiency Consumer Welfare Multiple Objectives to Balance Social, Political and Economic Concerns ? Not advised Because they: Invite Lobbying by Stakeholders Create Conflicts between Objectives Undermines the competitive Process

Competition and Anti Monopoly How Can Competition be Ensured ? Competition Law – Why Needed Deregulation and Liberalization are Necessary but not sufficient A Law is Also Needed to prevent Abuse Price Fixing Geographic Market Sharing Agreements Inter-firm Contracts to tie up raw materials or distribution Channels Manipulating Supply Logistics Government Regulations on Product safety, Consumer Protection, technical Standards restrict Competition

Competition and Anti Monopoly How Can Competition be Ensured ? Competition Law – Why Needed (Cont’d) Trade off Between Competition and cost: more competition in financial markets may be inimical to financial stability; Sudden removal of trade barriers may disrupt domestic production, employment and result in social unrest; Universal provisions of infrastructure services may require cross-subsidization and discriminatory pricing. Need to Balance Intervention with cost

Competition and Anti Monopoly How Can Competition be Ensured ? Competition Law – How it Helps Lowers Costs and prices Increases Consumer welfare Fosters Business discipline, Culture and Ethics Preserves International Competitiveness Minimizes Government Involvement in Business

Competition and Anti Monopoly How Can Competition be Ensured ? Competition Law – Two Pillars I.Structural:  Focus on Market share and Industry Concentration  More Suitable For Large Economies II.Behavioral:  Focus on Anti- competitive Business practice and Pricing policy  Applies to both for Smaller Economies and also larger Economies

Competition and Anti Monopoly How Can Competition be Ensured ? Institutional Arrangements An Impartial, Independent Competition Policy Agency Independent Insulated From Political Interference Transparent, Well Designed Administrative Mechanisms, Regulations and Procedures Separate Investigation, Prosecution and Adjudication Functions Subject to Checks and Balances Including Rights of Appeal, Reviews of Decisions, Access to Legal and Economic Interpretation Expeditious and Transparent Proceedings That Safeguard Sensitive Business Information Provisions for Imposing Significant Penalties

Competition and Anti Monopoly How Can Competition be Ensured ? Enforcement Mix of Structural and Behavioral criteria to trigger Investigation Clear criteria Needed to reduce business Uncertainty Too Lax can create Monopolies and reduce economic Welfare Too vigorous may arrest development and growth Strict Prohibition( e.g., Price Fixing) and Case by Case Rule of reason Approach (e.g., Exclusive dealings and Mergers)

Competition and Anti Monopoly How Can Competition be Ensured ? Enforcement ( Cont’d) Redress Mechanisms for the Impaired Separate Investigation and Prosecution Functions from Adjudication Include Negotiated Settlements e.g, Divest assets in a merger Alternative resolution Mechanisms Allow Private Legal Actions

Private Sector Development Competition and Anti Monopoly How Can DEA Help ? Competition and Competitive Assessments of economy and Sectors Analyses of Export Potential and Impediments to Export Performance Design and Formulation of competition Policy and laws Design and Implementation of Institutional Arrangements including capacity Building through training and development e.g., Handling Case Priorities How to Conduct and Investigation How to institute Confidentiality safeguards

Private Sector Development Competition and Anti Monopoly How Can DEA Help ? ( Cont’d) Design of Alternative remedies and case Resolution Methods, e.g., fines, consent orders, sanctions Assist in engaging Competition Advocacy and Public Dissemination Programs to build support for Competition Law and policy Support to achieve consistency with WTO, UNCTAD, OECD