CONDUCTING INDUSTRY/MARKET SPECIFIC COMPETITION ASSESSMENTS - - PowerPoint PPT Presentation

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

• ffering 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 Effective competition policy anti-monopoly 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 R&D, Supply Chains, creation

• f

‘common 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”

• f

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

• ther

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

• rdinary 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(?)

Some Observations on Selected Sectors

Russia:

• Important sectors from both economic and consumer

welfare view-point. Addressing issues on costs/prices, accessibility, quality…..will buttress support for competition, regional government, business…

• Mainly ‘non-tradable’ goods and services…..less focus on

inter-regional market integration, expanding trade, reducing market segmentation… Australian Initiatives:

• Telecom, Electricity, Gas, Rail & Road Freight….especial

emphasis on removing inter-regional barriers, reducing regulatory burden and costs of ‘doing business’, expanding domestic markets…. EU: Similar emphasis/initiatives on creating a ‘single market’

Investigative Tools and Approaches

• Competition Assessments generally conducted by

Competition Agencies and/or Designated Public Agencies (at national/regional levels) as part of the Government mandated ‘Competition Advocacy’ Function.

• Striking a ‘balance’ between fostering compliance and

enforcement of laws and regulations when it comes to addressing anticompetitive practices.

• Promoting reforms to reduce regulatory burden, red

tape, foster entry, expansion and investment.

• Positive

response from business through consultation, information dissemination.

• Competition Assessments generally at promoting

solutions through voluntary changes and cooperation in addressing anticompetitive practices.

Monitoring & Evaluation

• M&E important for:

(i)Accountability & transparency. (ii)Identifying areas of success/failure and corrective actions necessary for improving existing/future programs.

• M&E has to be conducted against ex ante objectives and targets BUT is a ex

post exercise.

• Entails qualitative and quantitative methods:

Qualitative: (a) perception surveys; (b) ‘focus’ groups

• discussions. While qualitative rank importance of

factors/answers. Quantitative: Changes in prices, costs, expansion/ availability/access to target goods and services, inter- enterprise rivalry, entry of new players, increase in investment….

• Validation of findings, recommendations, action plans.
• Action plans ensure local engagement/support
• Publication & Dissemination.

Constraints to Conducting Competition/Market Assessments and Promoting Competition

• Lack of political will/competition culture.
• High industry/market and ownership concentration in

product & financial markets.

• Entrenched incumbent firms & other stakeholder-interest

groups  Lobbying, Rent-Seeking Behavior, Corruption & Bribery……

• Underdeveloped capital & financial Markets, insufficient

information…….

• Weak legal framework, contract enforcement, property

rights………

• Inadequate

institutional capacity, resource, skills, knowledge constraints, staff turnover…….

• MOST of these constraints can be overcome thru’ domestic

and international inter-/intra-agency cooperation, and government-business cooperation.

Charting a Road Map for Future Competition-Competitiveness Assessments: Some Principles/Suggestions

• Competition/competitiveness is rooted in industries and

markets, and the business environment in which enterprises operate in.

• Competition

assessments (audits)

• f

the business environment aim at identifying private business and public policy based barriers often impede competition, competitiveness, productivity…

• Markets that are segmented by inter-regional trade

barriers, differential/discriminatory regulations, administrative requirements, inefficient/badly managed road-rail infrastructure, difficulties in accessing land, finance, energy….need to be addressed.

Some Principles/Suggestions--Continued

• Russia is a vast economy, with actual and potential

large domestic markets, where potential efficiencies can be exploited through increased integration.

• A starting point would be to examine existing (and

lack of) inter-regional and inter-industry trade flows, how links can be strengthened-further developed through improved logistics to form both domestic and global supply chains…. An agenda for the next round of competition/market assessments ?