Understanding Competition Policy

1. Understanding Competition Policy Erlinda M. Medalla April 27-28, 2006 Hanoi

2. Enhancing efficiency and optimizing welfare • In general, market discipline (where there is effective competition) leads to efficiency and welfare optimization • In certain cases, there is need to discipline the market– where there are deviations from competition due to errant firm behavior • Cases of inherent market imperfection– where there is need for government regulation to achieve competitive-like outcomes

3. What is competition policy for? • Promoting (effective) competition • Making markets contestable • Discipline errant firm behavior (restrictive business practices) • And where market fails (natural monopolies) enforcing competition rules (regulation) to produce competitive-like outcomes Objective: eliminate rents and maximize overall welfare

4. Major areas of competition policy • Anti-trust law governing firm behavior to ensure fair competition • Abuse of dominant position, restrictive agreements, M&A • Consumer protection (from unfair competition practices) • Regulation of natural monopolies • Review of government policies impinging on competition

5. Competition and Regulation Competition law to govern: • Restrictive trade practices arising from: • Abuse of dominant position • Agreements • Mergers and acquisition • Consumer protection- unfair trade practices Regulation of natural monopolies

6. Types of Restrictive Business Practices • Exclusionary abuse • Deliberate act of the firm (or group of firms) to exclude potential firms from entering the market by means other than becoming more efficient. • Exploitative abuse • Abuse of market power where firms would limit outputs thru some deliberate means in order to increase prices and extract monopoly rents.

7. Examples of Restrictive Business Practices Exploitative abuse; • Cartel Agreements to fix prices, outputs • Agreement to divide markets • Collusive tendering (bid rigging) • Predatory pricing Exclusionary abuse: • Resale price maintenance, • Exclusive dealing, tying sales, designed to limit competition from rival firms

8. What needs to be done? • Creating a “competition culture” • Belief in markets and willingness to be subject to market discipline • Awareness of rights and knowledge about anti-competitive acts • “Profit with honor” • Capacity building • Crafting a “good” competition law • a “living” law conducive to developing national competition authority which is respected and credible.

9. No one unique model • US- Strong anti-trust law enforcement and sector regulation • Europe- the mandate driven division of labor between sector regulators and competition authorities • Korea- coordination between KFTC and sector regulator– same competition principles • Australia- integration of regulation and antitrust

10. Key elements of competition law • Clear definitions • Clear rules to identify prohibited actions (e. g. per se prohibitions),& appropriate remedies and/or penalties • Rules on mergers & acquisitions • Research function and Investigative powers • Independent competition authority?

11. Key elements of competition law • Mechanism for reviewing existing (and proposed) government policies & regulations as they impact on competition • Provisions for transition– • Capability building • Start small • Relationship between competition authority and sector regulators • Education, information and advocacy functions

12. Some major concerns at early stages • Ensuring that it would not be just another regulatory layer • Provisions on prohibited acts— • How to be crafted to lessen ambiguity • On implementing body— • How to create a credible, respected authority • Need for learning period and capability building • Need for information, education & advocacy

13. Thank you for your attention.