barbados fair trading commission 9 th annual lecture competitive markets do they exist in small...

Barbados Fair Trading Commission 9th Annual Lecture

Competitive MarketsDo They Exist in Small Economies?

Can Consumers Really Expect to Benefit?Richard Whish

Professor of Law

King’s College London

Competitive Markets in Small Economies

• Note that this title addresses two distinct,

though related, questions; and it includes a

third one by implication:

– Do competitive markets exist in small economies?– Can consumers really expect to benefit from

competitive markets?– Is it worth having competition law in small

economies?

Richard Whish King's College London 2Fair Trading Commission

Barbados


Do competitive markets exist in small economies?

• What do we mean by a competitive market?– Market participants are subject to competitive

constraints (actual competitors; potential competitors; buyer power)

– Market participants do not have individual or collective market power

– Because they lack market power they cannot profitably raise prices at the expense of consumers


Barbados


Do competitive markets exist

in small economies?• Why do we believe that competitive markets

are a good thing?– Competition leads to lower prices– Competition leads to the development of better

products and services– Competition gives consumers choice

Richard Whish King's College London

Fair Trading Commission Barbados 4



in small economies?• What do we mean by a small economy?

– Population?– Size?– GDP?– Openness to trade?– Economic conditions?


Barbados



in small economies?• Michal Gal’s definition of ‘small economies’

– ‘An independent sovereign economy that can support only a small number of competitors in most of its industries when catering to local demand’

– This is influenced by three main factors: population size; population dispersion; and the degree of integration with neighbouring jurisdictions


Barbados



in small economies?• For the purposes of competition law and policy,

Gal’s definition is a useful one• It focuses on the economic conditions of the

market in question• The challenge then is to apply the provisions of

competition law to markets having those characteristics





in small economies?• Yes, in principle• There are many markets which can be

competitive at the local level• I will give many illustrations later in this

presentation: a paradigm example is telecommunications in countries where the sector has been liberalised





in small economies?• However there are many reasons why markets

may not be competitive in small economies:– Economic reasons

• There may be natural monopoly where competition is not possible; there will often be high levels of concentration where competition is muted

• High levels of concentration in a local market are unlikely to be eroded by competitive entry from within the market





in small economies?• Reasons why markets may not be competitive

in small markets:– There are often powerful business elites within small

economies which wish to preserve their privileged position

– Business may exercise considerable influence over politicians and the local media





in small economies?• Reasons why markets may not be competitive

in small markets:– In many economies, including small ones, there is a

lack of a competition culture and a need to educate citizens as to the benefits of competition of of their rights





in small economies?

• Reasons why markets may not be competitive in small markets:

– In many economies, including small ones, there are severe Governmental restrictions of competition

– Hence the significance – particularly in small economies – of competition advocacy by the local competition authority

Richard WhishKing's College London




in small economies?

• Reasons why markets may not be competitive in small markets:

– Markets may not be competitive because of the existence of cartels or abusive behaviour

– A particular problem may arise where suppliers and distributors enter into vertical relationships and where there is market power at both levels of the market: this can foreclose market access




Can consumers really expect to

benefit from competitive markets?• What benefits should consumers expect to derive

from competition: a reminder!– Lower prices

– Better products

– Choice

• Note the extent to which this issue is now debated: OECD, UNCTAD, ‘World Competition day’ on 5th December 2012, the ICN etc.


Barbados



benefit from competitive markets?

• Consumers in all types of economies can enjoy these benefits: why would they not be felt in a small economy?

• Cartels have a particularly pernicious effect on poor people, who spend a disproportionately large amount of their income on staples such as bread and flour; or fuel and candle wax

• But are these statements theoretical rather than real?


Barbados



benefit from competitive markets?• Consumers in small economies benefit from

competition that takes place outside the local market– Smartphones– Laptops– Internationally branded goods– International transport services





benefit from competitive markets?• Enforcement action against anti-competitive

practices that take place outside the local market can therefore benefit the citizens of small economies if it prevents the behaviour in question– Vitamins cartel

– Air cargo cartel

– Graphite electrodes cartel





benefit from competitive markets?• Competition from outside the domestic market

can benefit competition inside it: this is a way of disrupting the position of the incumbent local monopolist

• Hence the importance of an open trading policy: this is the opposite of protecting incumbent local businesses






• But can there be competition within the local market?– In principle, why not?– Retail trade– Hotels, bars, restaurants– Building and construction






• But can there be competition within the local market?– Services sector generally (banks; professional

services, including lawyers; life, health and car insurance; transport)

– Telecommunications: competition here brings radical improvements to citizens’ lives





benefit from competitive markets?• Examples of competition law cases in small

economies around the world:• Iceland

– 2004: oil cartel (note: the CEO of one of the offending companies was married to the Minister of Justice; the case is ongoing following appeals establishing procedural errors)


Barbados




• Examples from around the world• Iceland (continued)

– March 2011: abusive exclusivity in vertical agreements of Coca-Cola bottler, Vililfell hf

– November 2012: margin squeeze by dominant Telco, Siminn, in the mobile telephony sector





benefit from competitive markets?• Examples from around the world:• Mauritius: current investigations

– Supply of replacement automatic electronic ignition keys – Possible abuse of dominance in relation to secondary school

textbooks– The supply of coolers for retailers of non-alcoholic drinks– Payment cards– Chickens





benefit from competitive markets?• Examples from small economies around the

world:• Singapore

– 2008: price-fixing in the pest-control sector– 2009: guidance on recommended scale fees for medical

services– 2010: collusive tendering for electrical and building works





benefit from competitive markets?• Examples from small economies around the

world:• Singapore (continued)

– 2011: price-fixing by employment agencies of the salaries paid to Indonesian domestic workers

– 2011: price-fixing by modelling agencies– 2012: exchange of confidential information by ferry

operatorsRichard Whish King's College London



• Examples from small economies around the world:

• Jersey– 2009: Jersey Telecom imposing resale price

maintenance in relation to SIM packs in mobile telephony sector

– 2009: abusive refusal to allow competitors access to facilities for waste disposal




• Examples from small economies around the world:

• Cyprus– 2008: fixing or retail prices for petrol and diesel

(overturned on administrative grounds by the Supreme Court)

– 2012: Hermes Airport found to have restricted the availability of parking spaces for private operators of car-parking services

– 2012: dominant Telco, CYTA, guilty of abusive pricing practices





benefit from competitive markets?• How does this apply to Barbados?• Is there, or can there be, competition in any of

the local markets?– Telecommunications: perhaps the most obvious

example– Reduction in costs over the years as a result of

competition – New services being introduced, faster broadband etc.


Barbados



benefit from competitive markets?• How does this apply to Barbados?• Sectors that the Fair Trading Commission has

investigated:– Resale price maintenance in the distribution sector– Destination photography– Local shipping agents/Local Administration Charges– Lawyers fees– Banking services






•How does this apply to Barbados?– Milk– Bread

•Note now in the retail sector: Cost-U-Less/Price Smart/Super CentreRichard Whish King's College London




benefit from competitive markets?•How does this apply to Barbados?

– Inter-island transport: the case of Liat– Wikipedia: ‘Liat has a very poor reputation among

both locals and visitors to and from the Caribbean islands’

– ‘Baggage is often misdirected or not loaded entirely’– What would the position be if REDjet has successfully

remained in the market?Richard Whish King's College London

Fair Trading CommissionBarbados 31


Is it worth having competition law

in small economies? •Basically yes – why not?•My main reservation would be if it is not possible to have independent institutions capable of making non-political decisions or if there is a lack of human or financial resources to establish a viable authority•But the Government must be committed to the competition policy!





in small economies?•Should competition law be different in a small economy? •In principle I would say no: the basic principles – preventing the abuse of market power – are the same in all markets•However the law may need to be adapted to take into account the specific circumstances of a particular country





in small economies?•It is only worth having a competition law if there is effective enforcement•Is a leniency policy desirable?•Certainly it can be very difficult to operate such a policy in a small economy•But remember the effectiveness of the leniency regimes in the EU and US•If you are going to have a leniency policy in a small economy it is sensible to make it as simple as possibleRichard Whish King's College London



Is it worth having competition law in small economies?

•Competition law and policy are still somewhat under-developed in the Caribbean compared with the rest of the world•Competition can and does benefit the citizens of Barbados, and more competition will be a good thing•There are interesting times ahead in this region, and there is a very important role for the Fair Trading Commission, CARICOM and the OECS



barbados fair trading commission 9 th annual lecture competitive markets do they exist in small...

Documents