1. Competition issues at sub-national level: Spurring entrepreneurship & innovation January 31, 2005 Mark Dutz (mdutz@worldbank.org) South Asia Finance and Private Sector Development Department The World Bank

2. Outline 1.Benefits of competition at sub-national level –Road freight logistics & innovation: an example 2.Implications for competition policy a.Enforcement actions to open ‘strategic bottlenecks’ b.Enhanced competition advocacy c.Governance & institutional design

3. 1.Benefits of local competition: Road freight logistics & innovation Mexico: Free entry into trucking & cargo handling, 1989-93 –New goods by user firms due to faster & more reliable trucking –Representative fertiliser co. improves operating margin by 10% Central Europe: Increased competition spurs innovative logistics 165 road freight services providers 493 user enterprises in food processing & distribution, and automotive –Just-in-time consolidation/ bar-coding & tracking services stimulated by increased trucking competition –Logistics innovations, in turn, dampen cost increases & raise revenues of business users ease barriers to competition in upstream business services

4. 2a. Enforcement actions to open bottlenecks Focus enforcement on detecting collusive agreements or exclusionary practices aimed at foreclosing access to essential business services –focus on ensuring provision of essential inputs –ex.1 examine exclusive purchase, supply or distribution agreements (including shipping, importing and distribution; millers’ cartel in Orissa; bid rigging in construction contracts; cartels in local services) –ex.2 examine behaviour in land and financial markets

5. 2b. Enhanced competition advocacy Address missing or poorly-functioning rules & institutions –recommendations to amend existing rules to promote competition State procurement policy Tied-selling of education & health services replaced by “competition for market” or other competition-friendly approach –oversight responsibility to ensure that relevant institutions perform their role State systems for distribution & marketing of liquor Eliminate rules that suppress rivalry State/local rules impeding entry Promote “culture of competition” Awareness raising about benefits of competition Strengthening of “natural allies”

6. 2c. Governance and institutional design Objectives: Independence (predictability of enforcement) Influence (with local policymakers) –Reduce legal uncertainty/ confusion –Make best use of scarce managerial & technical capabilities –Avoid opportunism (“forum shopping”) & local pressure 1 common set of rules & approach Establish coherent central approach to enforcement & advocacy Create regional offices under control of national authority –Local delegation: monitoring (open investigations) & voice –Central responsibility: policy, adjudication and resolution