Richard Whish Professor of Law King ’ s College London

1. Barbados Fair Trading Commission 9th Annual LectureCompetitive MarketsDo They Exist in Small Economies?Can Consumers Really Expect to Benefit? Richard Whish Professor of Law King’s College London

2. Competitive Markets in Small Economies • Note that this title addresses two distinct, though related, questions; and it includes a third one by implication: • Do competitive markets exist in small economies? • Can consumers really expect to benefit from competitive markets? • Is it worth having competition law in small economies? Fair Trading Commission Barbados

3. Competitive Markets in Small Economies Do competitive markets exist in smalleconomies? • What do we mean by a competitive market? • Market participants are subject to competitive constraints (actual competitors; potential competitors; buyer power) • Market participants do not have individual or collective market power • Because they lack market power they cannot profitably raise prices at the expense of consumers Fair Trading Commission Barbados

4. Competitive Markets in Small Economies Do competitive markets exist in small economies? • Why do we believe that competitive markets are a good thing? • Competition leads to lower prices • Competition leads to the development of better products and services • Competition gives consumers choice Fair Trading Commission Barbados

5. CompetitiveMarkets in Small Economies Do competitive markets exist in small economies? • What do we mean by a small economy? • Population? • Size? • GDP? • Openness to trade? • Economic conditions? Fair Trading Commission Barbados

6. Competitive Markets in Small Economies Do competitive markets exist in small economies? • Michal Gal’s definition of ‘small economies’ • ‘An independent sovereign economy that can support only a small number of competitors in most of its industries when catering to local demand’ • This is influenced by three main factors: population size; population dispersion; and the degree of integration with neighbouring jurisdictions Fair Trading Commission Barbados

7. Competitive Markets in Small Economies Do competitive markets exist in small economies? • For the purposes of competition law and policy, Gal’s definition is a useful one • It focuses on the economic conditions of the market in question • The challenge then is to apply the provisions of competition law to markets having those characteristics Fair Trading Commission Barbados

8. Competitive Markets in Small Economies Do competitive markets exist in small economies? • Yes, in principle • There are many markets which can be competitive at the local level • I will give many illustrations later in this presentation: a paradigm example is telecommunications in countries where the sector has been liberalised Fair Trading Commission Barbados

9. Competitive Markets in Small Economies Do competitive markets exist in small economies? • However there are many reasons why markets may notbe competitive in small economies: • Economic reasons • There may be natural monopoly where competition is not possible; there will often be high levels of concentration where competition is muted • High levels of concentration in a local market are unlikely to be eroded by competitive entry from within the market Fair Trading Commission Barbados

10. Competitive Markets in Small Economies Do competitive markets exist in small economies? • Reasons why markets may not be competitive in small markets: • There are often powerful business elites within small economies which wish to preserve their privileged position • Business may exercise considerable influence over politicians and the local media Fair Trading Commission Barbados

11. Competitive Markets in Small Economies Do competitive markets exist in small economies? • Reasons why markets may not be competitive in small markets: • In many economies, including small ones, there is a lack of a competition culture and a need to educate citizens as to the benefits of competition of of their rights Fair Trading Commission Barbados

12. Competitive Markets in Small Economies Do competitive markets exist in small economies? • Reasons why markets may not be competitive in small markets: • In many economies, including small ones, there are severe Governmental restrictions of competition • Hence the significance – particularly in small economies – of competition advocacy by the local competition authority Fair Trading Commission Barbados

13. Competitive Markets in Small Economies Do competitive markets exist in small economies? • Reasons why markets may not be competitive in small markets: • Markets may not be competitive because of the existence of cartels or abusive behaviour • A particular problem may arise where suppliers and distributors enter into vertical relationships and where there is market power at both levels of the market: this can foreclose market access Fair Trading Commission Barbados

14. CompetitiveMarkets in Small Economies Can consumers really expect to benefit from competitive markets? • What benefits should consumers expect to derive from competition: a reminder! • Lower prices • Better products • Choice • Note the extent to which this issue is now debated: OECD, UNCTAD, ‘World Competition day’ on 5th December 2012, the ICN etc. Fair Trading Commission Barbados

15. CompetitiveMarkets in Small Economies Can consumers really expect to benefit from competitive markets? • Consumers in all types of economies can enjoy these benefits: why would they not be felt in a small economy? • Cartels have a particularly pernicious effect on poor people, who spend a disproportionately large amount of their income on staples such as bread and flour; or fuel and candle wax • But are these statements theoretical rather than real? Fair Trading Commission Barbados

16. Competitive Markets in Small Economies Can consumers really expect to benefit from competitive markets? • Consumers in small economies benefit from competition that takes place outside the local market • Smartphones • Laptops • Internationally branded goods • International transport services Fair Trading Commission Barbados

17. Competitive Markets in Small Economies Can consumers really expect to benefit from competitive markets? • Enforcement action against anti-competitive practices that take place outside the local market can therefore benefit the citizens of small economies if it prevents the behaviour in question • Vitamins cartel • Air cargo cartel • Graphite electrodes cartel Fair Trading Commission Barbados

18. Competitive Markets in Small Economies Can consumers really expect to benefit from competitive markets? • Competition from outside the domestic market can benefit competition inside it: this is a way of disrupting the position of the incumbent local monopolist • Hence the importance of an open trading policy: this is the opposite of protecting incumbent local businesses Fair Trading Commission Barbados

19. Competitive Markets in Small Economies Can consumers really expect to benefit from competitive markets? • But can there be competition within the local market? • In principle, why not? • Retail trade • Hotels, bars, restaurants • Building and construction Fair Trading Commission Barbados

20. Competitive Markets in Small Economies Can consumers really expect to benefit from competitive markets? • But can there be competition within the local market? • Services sector generally (banks; professional services, including lawyers; life, health and car insurance; transport) • Telecommunications: competition here brings radical improvements to citizens’ lives Fair Trading Commission Barbados

21. CompetitiveMarkets in Small Economies Can consumers really expect to benefit from competitive markets? • Examples of competition law cases in small economies around the world: • Iceland • 2004:oil cartel (note: the CEO of one of the offending companies was married to the Minister of Justice; the case is ongoing following appeals establishing procedural errors) Fair Trading Commission Barbados

22. Competitive Markets in Small Economies Can consumers really expect to benefit from competitive markets? • Examples from around the world • Iceland (continued) • March 2011: abusive exclusivity in vertical agreements of Coca-Cola bottler, Vililfell hf • November 2012: margin squeeze by dominant Telco, Siminn, in the mobile telephony sector Fair Trading Commission Barbados

23. Competitive Markets in Small Economies Can consumers really expect to benefit from competitive markets? • Examples from around the world: • Mauritius: current investigations • Supply of replacement automatic electronic ignition keys • Possible abuse of dominance in relation to secondary school textbooks • The supply of coolers for retailers of non-alcoholic drinks • Payment cards • Chickens Fair Trading Commission Barbados

24. Competitive Markets in Small Economies Can consumers really expect to benefit from competitive markets? • Examples from small economies around the world: • Singapore • 2008: price-fixing in the pest-control sector • 2009: guidance on recommended scale fees for medical services • 2010: collusive tendering for electrical and building works Fair Trading Commission Barbados

25. Competitive Markets in Small Economies Can consumers really expect to benefit from competitive markets? • Examples from small economies around the world: • Singapore (continued) • 2011: price-fixing by employment agencies of the salaries paid to Indonesian domestic workers • 2011: price-fixing by modelling agencies • 2012: exchange of confidential information by ferry operators Fair Trading Commission Barbados

26. Competitive Markets in Small Economies • Examples from small economies around the world: • Jersey • 2009: Jersey Telecom imposing resale price maintenance in relation to SIM packs in mobile telephony sector • 2009: abusive refusal to allow competitors access to facilities for waste disposal Fair Trading Commission Barbados

27. Competitive Markets in Small Economies • Examples from small economies around the world: • Cyprus • 2008: fixing or retail prices for petrol and diesel (overturned on administrative grounds by the Supreme Court) • 2012: Hermes Airport found to have restricted the availability of parking spaces for private operators of car-parking services • 2012: dominant Telco, CYTA, guilty of abusive pricing practices Fair Trading Commission Barbados

28. Competitive Markets in Small Economies Can consumers really expect to benefit from competitive markets? • How does this apply to Barbados? • Is there, or can there be, competition in any of the local markets? • Telecommunications: perhaps the most obvious example • Reduction in costs over the years as a result of competition • New services being introduced, faster broadband etc. Fair Trading Commission Barbados

29. Competitive Markets in Small Economies Can consumers really expect to benefit from competitive markets? • How does this apply to Barbados? • Sectors that the Fair Trading Commission has investigated: • Resale price maintenance in the distribution sector • Destination photography • Local shipping agents/Local Administration Charges • Lawyers fees • Banking services Fair Trading Commission Barbados

30. Competitive Markets in Small Economies Can consumers really expect to benefit from competitive markets? • How does this apply to Barbados? • Milk • Bread • Note now in the retail sector: Cost-U-Less/Price Smart/Super Centre Fair Trading Commission Barbados

31. Competitive Markets in Small Economies Can consumers really expect to benefit from competitive markets? • How does this apply to Barbados? • Inter-island transport: the case of Liat • Wikipedia: ‘Liat has a very poor reputation among both locals and visitors to and from the Caribbean islands’ • ‘Baggage is often misdirected or not loaded entirely’ • What would the position be if REDjet has successfully remained in the market? Fair Trading Commission Barbados

32. Competitive Markets in Small Economies Is it worth having competition law in small economies? • Basically yes – why not? • My main reservation would be if it is not possible to have independent institutions capable of making non-political decisions or if there is a lack of human or financial resources to establish a viable authority • But the Government must be committed to the competition policy! Fair Trading Commission Barbados

33. Competitive Markets in Small Economies Is it worth having competition law in small economies? • Should competition law be different in a small economy? • In principle I would say no: the basic principles – preventing the abuse of market power – are the same in all markets • However the law may need to be adapted to take into account the specific circumstances of a particular country Fair Trading Commission Barbados

34. Competitive Markets in Small Economies Is it worth having competition law in small economies? • It is only worth having a competition law if there is effective enforcement • Is a leniency policy desirable? • Certainly it can be very difficult to operate such a policy in a small economy • But remember the effectiveness of the leniency regimes in the EU and US • If you are going to have a leniency policy in a small economy it is sensible to make it as simple as possible Fair Trading Commission Barbados

35. Competitive Markets in Small Economies Is it worth having competition law in small economies? • Competition law and policy are still somewhat under-developed in the Caribbean compared with the rest of the world • Competition can and does benefit the citizens of Barbados, and more competition will be a good thing • There are interesting times ahead in this region, and there is a very important rolefor the Fair Trading Commission, CARICOM and the OECS Fair Trading Commission Barbados