Measuring the Impact of Competition Laws and Policies in Developing Countries

1. CREWProject Rationale & Objectives Presentation by R. Shyam Khemani Principal, MiCRA Washington DC, USA & Advisor CUTS Jaipur, India 14 March 2013

2. THEBACKDROP • Past two decades increasing number of countries have adopted pro-competition laws & policies. • In early 1990s approximately 35 countries, now 120+ countries have enacted specific competition(antitrust/antimonopoly) laws. • Endogenous (internal) and/or exogenous (external) ‘drivers’: --Government deficits, shortfalls in public investment, privatization, de- regulation… created ‘market space’…..need for safeguards through framework/ oversight laws & policies. --World Bank, IMF, ‘Free Trade Agreements’ conditionality's..… • Uneven record of policy implementation. • Widespread skepticism of ‘competition/competition policies’ especially effectiveness and benefits of ‘competition law’.

3. THE CREW PROJECT Objectives: Measure—quantitatively and qualitatively—the benefits to consumers, producers and more broadly in social-economic terms arising from competition and competition law and policy(CLP). Rationale:Increase policy effectiveness, inform public policy decision-making and formulation, document tangible benefits of competition and build broad based support for CLP. • Competition process of rivalry between economic agents to profitably maintain, win and retain customers (consumers & producers). Multidimensional. Multiple policy instruments impacting on competition. • Competitiveness Magnitude and rate of growth in value-added economic activities. Outcome of the process of competition. • Different perceptions between consumers, business and government of competition and competitiveness. --Consumers: Lower prices, greater output, choice and quality of products and services. --Business: Higher market shares, profitability….. Alignment of consumer-business interests often a challenge

4. ‘Determinants’ of Competition • Economic ‘theory’ quite clear on factors determining competition—though some differences in ‘schools’ of thought (Neoclassical vs. Schumpeter). • Real world experience varied and different. • Core factors: Inter-firm rivalry & actual/threat of entry • ICT, airlines…. • Competition policy broadly defined vs. competition law • Competition w/o competition law; competition law ≠≠>> competition or consumer, producer welfare. • CLP multiple instruments : Question re: sequencing, hierarchy of instruments? Free trade, de-regulation vs. competition law enforcement? • Residual vs. primary role for CL as ‘general law of general application’? CL effective if in conjunction with other policies.

5. FOCUS OF ANALYSIS Analysis of sectors (markets) for selected products and services that have broad based impact on consumers and the economy in/across selected developing countries. Two sectors—four countries • Sector specific focus sheds light on impediments/distortions to competition in provision of the selected products and services. BUT can also provide window on ‘systemic’ or economy wide distortions. • At sector /market level: factors facilitating ‘exercise of market power’  higher prices, reduced output, supra-competitive profits, high costs, lower productivity, lack of innovation…. • At systemic/economy wide level: impact on several sectors, distortions in efficient resource allocation, undermining competitiveness…..

6. MEASURING QUANTITATIVELY (& QUALITATIVELY) IMPACT OF COMPETITION Various approaches in empirical studies (see ‘background Paper by Nathan Associates): • Time series variation comparing outcomes before/after policy reforms. • Spatial variation  comparing outcomes between regulated/unregulated markets or between more/less competitive markets (yardstick competition). • Structural estimation/simulation models. • Cost-benefit analysis. • Surveys. Common challenge/issue is to quantify tangibly the direct benefits accruing from competition to consumers.

7. SUGGESTED APPROACH? • Sector/market specific analysis • Review of existing studies, statistics, etc. • Porter’s 5-forces approach useful  identifying public-private impediments to competition (competition assessment framework), complemented with: • Surveys (perception measures) vs. exact data • Focus on (in order of importance?) prices, output, entry, investment, employment, other (technolgy, innovation, productivity) • ‘Effects’ approach rather than focus on structural characteristics • Domestic markets: defining ‘relevant market’ not always critical: may get ‘caught up in the trees and lose sight of the forest’. • Examples of approaches used in background papers: Global Development Prospects Report (2003); World Economic Reform/Competitiveness Reports. • Can lead to both quantifiable as well as qualitative measures of state of/changes in competition, and impact of policies, regulations, etc.