Transcript Deunden Nikomborirak

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
Presentation Outline
1. The Idea and Principle of Economic
Competition
2. Definition of Competition Policy
and Law
3. The Need to have Competition
Policy
4. The Need for competition Law
5. Conclusion
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 limited i.e.
“market failure”. Hence, this requires
economics of regulation and competition.
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
2. Definition of Competition Policy
Policy to promote free and fair
competition in the market.
Competition Policy & Law
Competition policy
Trade &
investment policy
Competition Advocacy
Privatization
Policy
Regulatory
policy
Competition
law
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.
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
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
3. Why developing countries need competition
law and policy the most?
Corruption implies proliferation of “rentseeking” 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.
4. Conclude: The Link between
Competition Policy and Development
Competition Law and Policy serve to
ensure fair 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