Competition Policy and Its Relation to Development: An Overview of the Linkages

1. Competition Policy and Its Relation to Development: An Overview of the Linkages 7-UP II Projcct Final Meeting Landmark Hotel, Bangkok, Thailand June 27, 2006 Deunden Nikomborirak Thailand Development Research Institute

2. Presentation Outline • The Idea and Principle of Economic Competition • Definition of Competition Policy and Law • The Need to have Competition Policy • The Need for competition Law • Conclusion

3. 1.Idea and Principles of Economic Competition • Economics: Perfect competition will yield most efficient allocation of resources and outcome • Business: Michael Porter– A Firm’s Competitiveness depends on the level of Competition in the market. But competition in the market may be limitedi.e. “market failure”. Hence, this requires economics of regulation and competition.

4. Economic Competition “Whoever claims that economic competition represents 'survival of the fittest' in the sense of the law of the jungle, provides the clearest possible evidence of his lack of knowledge of economics” George Reisman

5. 2. Definition of Competition Policy Policy to promote free and fair competition in the market.

6. Competition Policy & Law Competition policy Privatization Policy Trade & investment policy Competition law Regulatory policy Competition Advocacy

7. Competition Advocacy • Ensuring that state laws and regulations -- i.e., investment incentives, industrial standards, quota allocations, exclusive concessions etc. -- do not restrict or distort competition (create “rents”) in the market that are often source of inefficiency and corruption.

8. Competition Law • Ensuring that businesses – foreign or local, private or state owned, small or large – compete fairly in a market to ensure that most efficient businesses will prosper and least efficient will exit the market. • The law prohibits • Abuse of monopoly or market power • Collusive practices • Mergers that lead to market power • Unfair trade practices resulting from unequal bargaining power between buyer and seller of a product or service

9. 3. Why developing countries need competition law and policy the most? • High risk of monopolization and collusion because 4.1 Limited size of domestic market implies potentially concentrated markets. 4.2 Lack of transport infrastructure implies that markets are geographically “segmented” 4.3 proliferation of “exclusive” private concessions in order to mobilize private investment 4.4 A large agricultural sector where farmers will be exposed to competition from vertically integrated food MNCs. 4.5 Foreign acquisition of local businesses or business consolidation (mergers) may lead to monopolies/duopolies

10. 3. Why developing countries need competition law and policy the most? • Corruption implies proliferation of “rent-seeking” activities and hence, rent-generating state rules and regulations such as exclusive concessions, rigged state procurement, overly restrictive licensing requirement, etc. In all cases, competition that serves to dissipate rents, can reduce corruption.

11. 4. Conclude: The Link between Competition Policy and Development • Competition Law and Policy serve to • ensurefair competition among businesses and hence, efficiency and competitiveness of the industry • ensure that government rules and regulations do not generate “rents” that lead to corruption, increased concentration of wealth and perhaps, consequently, polarization of political power that undermine democracy