Competition Policy: Definition and Scope

Presented by

Dr. M. A. Razzaque

We are going to have discussions on:

What is Competition? What is Competition Policy? What it Covers? What is the need for Competition Policy?

What is competition?

Competition

Literary meaning: a contestable situation where people fight for superiority.

In market economy, competition is a process whereby firms fight against each other for securing consumers for their products

Fair and Unfair Competition

Fair Competition Unfair Competition

Producing quality goods Becoming cost-efficient Optimizing the use of resources Adopting the best available technology Investing in research and development, etc.

Fixing prices with the rivals Setting a price which is lower than cost in order to throw out competitors from the market Advertising that belittles others’ product, etc.

Types of competition

Competition to win customers not by lowering price but by advertising, offering after-sales-service, using sales-promotion tools, etc.

Competition among suppliers to win customers by offering lower price. May not be an appropriate strategy for those loyal to a particular brand.

Price Competition Non-price Competition

Forms of Market Competition

Models ofCompetition

Number ofbuyers

Number ofsellers

Nature ofproducts

Barriers toentry andexit

Perfectcompetition

Very large Very largeIdenticalproducts

None

Monopoly Very large OneSingleproduct

Very large

Monopolisticcompetition

Very large LargeMinimumdifferences

None

Oligopoly Very large Very fewLargedifferences

Large

For detailed information please consult

Competition Policy and Law Made Easy: Monographs on Investment and Competition Policy, #8 ;CUTS (Pages 1-4)

Oligopoly Market : Competition Among the Few

Key Features:

Interdependence between firms in performance and strategy

Aggressive action followed by defensive reaction

Price competition and price war

(Recent packages offered by Mobile Phone companies)

Intense non-price (promotional publicity) competition, which

may result in wasteful expenditures.

Detail on Oligopolistic market structure

Making Sense of Competition Policy, by Frank Fishwick (1993) (Pages 47-62)

Competition Policy /Law

Competition policy => government measures directly affecting both Firm Behavior and Industrial structure.

A competition policy should include both:

i) Economic policies adopted by Government, that enhance competition in local and national markets, and

ii) Competition law designed to stop anti-competitive business practices.

Components of competition policy

Competition Policy

Competition Law

Government Policies

Private Actions

Deregulation and

Privatization

Trade Policy

Industrial Policy

Regulations Governing Capital and FDI

ConsumerPolicy

Other Policies

Competition Law (National)

Anti-Competitive Agreements Between

Firms ( Collusion)

Abuse of a Dominant

Market Position

Regulation of Mergers to Prevent Tactics to Gain

Excessive Dominance in a Market

Applies to:•Import cartels•Price fixing•Market sharing•Bid rigging•Limiting production•Refusal to buy or supply•Tie-in arrangements•Exclusive-dealing •Resale price maintenance•Territorial allocation

• Predatory pricing

• Price discrimination

• Excessive pricing

• Abuse of intellectual property monopoly

•Total unification of the companies involved

•Buying of sufficient shares in a company so as to have a say in policy formulation

The three stages of provisions that a competition law constitutes are:

The behavior and structure of firms in the market

Institutional and enforcement design with a competition authority, and

Competition advocacy.

For details on competition policy and law:

Competition Policy and Law Made Easy: Monographs on Investment

and Competition Policy, #8 ;CUTS (Pages 23-26)

UNTCAD: Trade and development Board: Intergovernmental Group

of Experts on Competition Law and Policy; sixth session, Geneva, 8-

10 November 2004 : Communication Submitted by the People’s

Republic of Bangladesh (Pages 2-4)

Need for a Competition Policy

A fair deal in the market place with:

The best possible choice of quality

The lowest possible prices, and

Adequate supplies of commodities.

Benefits to Consumers

A safeguard against practices that could drive

companies out of business.

Lower entry barriers to promote entrepreneurship and

growth of SMEs.

Efficient allocation and utilization of resources

ensures more output and employment.

Control of international unfair competition and

restrictive business practices, such as international cartels

Benefits to Efficient Producers

On the whole, a competition policy maintains and promotes the competitive spirit and culture in the

market.

Therefore, we need competition policy to monitor, prevent

and control anti-competitive practices.

Concentration of Market Power

Globalization and Competition

threat toOutcome of

Globalization and the need for Competition Policy

For details on globalization and competition:

UNTCAD: Trade and development Board:

Intergovernmental Group of Experts on Competition

Law and Policy; forth session, Geneva, 3-5 July 2002 :

The relationship between competition, competitiveness

and development. (Pages 3-6)

Arguments Against Competition

Preventing formation of large firms may reduce efficiency. The situation arises when there exists significant economies of scale:

Examples : Natural Monopolies, like,

Infrastructure, Power and Railway .

An obsession with competition might be counterproductive leading to inefficiency especially when goods and services tend to be homogenous.

Policy actions against highly profitable firms could work against the development of dynamic and thriving firms.

Over-regulation could increase firms’ cost of operations and generates inefficiencies.

Thank you.