CONDUCTING INDUSTRY/MARKET SPECIFIC COMPETITION ASSESSMENTS PRESENTATION BY R.SHYAM KHEMANI, PHD (LSE-UK) CONSULTANT-COMPETITION, REGULATORY & INVESTMENT POLICIES The World Bank Group Washington DC Email: rskhemani@gmail.com; September 23, 2015
Organization of the Presentation The presentation/discussion will broadly cover: The concepts and multi-dimensional aspects of competition and competitiveness. The role and importance of fostering competition to achieve social-economic objectives. ‘What’ are and ‘Why’ conduct ‘Competition Assessments’ Key analytical tools and approaches to conducting competition assessments. Principles entailed in identifying/selecting sectors/markets The nature and type of impediments to promoting competition and regulatory reform. Measuring, monitoring and evaluating impact and results. Charting a ‘road map’ for the future…..
Dimensions of Competition & Competitiveness Competition: The process by which enterprises/economic agents engage in rivalry to win and retain customers by offering goods and services at the lowest price, highest quality, and greatest choice. Competitiveness: The process by which enterprises/economic agents produce goods and services by employing most efficient production and organizational methods-technology, and innovation. Competition Competitiveness Competition & Competitiveness embody price and non- price dimensions .
Empirical Research on Competition & Competitiveness Economies with intensive competition in domestic markets tend to higher levels and rates of growth in per capita GDP Economies with intensive competition in domestic markets tend to higher rates of entry of firms (investment) Economies with intensive competition in domestic markets tend to have less dominance by large firms Economies with intensive competition in domestic markets tend to higher rankings in Global Competitiveness Index anti-monopoly Effective competition policy law, regulatory and administrative reforms play important roles .
Domestic Competition & International Competitiveness Michael Porter in The Competitive Advantage of Nations (1990) has observed that : “Few roles of government are more important to the upgrading of an economy than ensuring vigorous domestic rivalry. Rivalry at home is not only uniquely important to fostering innovation but benefits national industry…..In fact, creating a dominant domestic competitor rarely results in international competitive advantage. Firms that do not have to compete at home rarely succeed abroad. Economies of scale are best gained through selling globally, not through dominating the home market” (page 662).
Competition-Competitiveness is Not Automatic: Need to Identify and Address Distortions The ‘really big’ distortions to competition … .. are not always obvious: “they have to be dug out of each market” ; “they are hard to find … (and) significant forces gain from their existence” (William Lewis, The Power of Productivity, 2004 To foster competition and competitiveness requires effective application of competition law-policy, cooperation and coordination at different levels of government, and between business and government, and in many areas requires ‘collective action’… ..particularly to encourage ‘common R&D, Supply Chains, creation of goods/facilities’…
Russia’s New Initiative to Developing Competition Mandating Regional Governments and Assessing Performance Adopting Common Standards for Promoting Competition Assessing, Monitoring & Evaluating Changes in Competition Unique Approach: Comprehensiveness; Multi-Institutional Engagement; Reporting Requirements, Incentives …. 6 Pilot Regions + Similar, highly successful initiatives undertaken by EU (Cecheni Report/Single Market), Australia (Hilmer Report/National Competition Policy) nearly two decades ago…..
The EU & Australian Experience EU The Cecheni Report postulated a ‘single’ market would yield significant economic gains —thru’ economies of scale -scope, greater trade, etc. The European Commission estimates that EU GDP was 1.8%( € 164.5 billion) higher in 2002 than it would have been without the single market; and that EU employment is 1.46% (2.5 million jobs) greater. Further gains are possible in eliminating barriers to trade in financial services, insurance and other sectors. Australia The Hilmer Report advocated universal application of competition law-policy(with few exceptions). The benefits of reforms have been estimated as follows: Contribution to GDP: Total 5.5%, Federal reforms 4.5% and State-Local reforms 1% Total Federal & State revenues increased 4.5%; Federal level 0.6% and State & Local level 3.8%. In other words most gains in revenues was thru’ elimination/reduction of State & Local regulations/impediments to competition
Measuring & Assessing Competition & Competitiveness Competition and the Competitive Process Multi-dimensional Conditioned by Market & Non-Market Factors Competition Assessments essentially “Audit” of the business environment in which enterprises operate in. Qualitative Quantitative Measures Qualitative Regulatory, Administrative, Policy Based Impediments impose burden on enterprises/time delays … Quantitative Impact on Prices, Output, Expansion, Investment, Ownership, Entry …… Impediments/barriers to competition often measured in Terms of Time “Tool - Kit”s : DfID-UK: Competition Assessment Framework (CAF) OECD: Competition Assessment Toolkit Provide “Framework” for Competition Assessments
What Are Competition Assessments/Market Studies? Competition Assessments or Market Studies are a systematic analysis of how specific industries, sectors or markets are performing in terms of efficient use of resources and delivering goods and services at lowest prices, greatest choice and quality to consumers while contributing to economic growth and development. Focus is particularly on assessing the extent to which competition is the major driver underlying functioning of markets. Competition Assessments are generally initiated in response to complaints relating to anticompetitive business practices resulting in high prices, shortages, ‘excess’ profits, regulatory burden imposed by government policies, and poor economic performance among other concerns
Why Conduct Competition Assessments/Market Studies Assess effective competitive functioning of industry and market performance by: identifying factors that may adversely affect industry/market/firm performance, and prevent realization of their potential contribution to consumer welfare and the economy; delineating factors that are determined by public policy vs. private sector business practices; gauging the effect changes in the business and regulatory environment on performance; identifying impediments and pro-competition measures/actions for improving industry/market performance; strengthening the competitive process through informed, coherent and consistent economic policy decisions and competition advocacy.
Initiating Competition/Market Assessments Distinction between Systemic vs. Industry/Case Specific Impact. Removing or reducing unnecessary/outdated Government-Public Policy Restraints: Regulatory barriers & restrictions on ownership, public procurement, domestic/international trade- investment, and other such policies Systemic Impact. Competition (Antimonopoly) Law--Case by case application Firm/Industry Impact. Complementary measures Buttress Each Other.
Selection of Industries, Sectors and/or Markets Pre-Identification, Selection & Prioritization. Criteria could include # of complaints/expressed concerns, importance of the industry or sector in terms of contribution to GDP, consumer/house hold budget, employment, linkages with other sectors/markets (intra-/inter-regional), etc. Data availability/collection. Consultation and Cooperation. Important to consult and obtain ‘buy in’ of major stakeholders, manage expectations, accountability and transparency … .. Follow-up: Monitoring & Evaluation (Finite time period ).
Identifying & Selecting Priority Inustries/Sectors/Markets A. Socially important sectors/markets. B. Priority product-service markets. In context of the current initiative in Russia: A: Pre-school education, medical services, retail trade in pharmaceuticals, housing, utilities, inter-municipal passenger transportation’ communication-broad band … . High profile markets impacting on day-to-day life of ordinary citizens’ form basis of popular support for government, business … . B: Hotel services, tourism, construction materials (cement, concrete), Selected products in forestry, agricultural and food sectors, gasoline and diesel … Also important Prioritization (?), ‘Market Failure’ (?), Institutional/Government Failure(?)
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