Competition Policy and Its Relation to Development: An Overview of the Linkages Deunden Nikomborirak Thailand Development Research Institute 7-UP II Projcct Final Meeting Landmark Hotel, Bangkok, Thailand June 27, 2006

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 zEconomics: Perfect competition will yield most efficient allocation of resources and outcome zBusiness: 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 Privatization Policy Regulatory policy Competition law Competition Advocacy

zEnsuring 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 zEnsuring 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. zThe law prohibits yAbuse of monopoly or market power yCollusive practices yMergers that lead to market power yUnfair 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? zHigh 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? zCorruption implies proliferation of “rent- seeking” 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 zCompetition Law and Policy serve to yensure fair competition among businesses and hence, efficiency and competitiveness of the industry yensure 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