Slide 1

Report
The Role of Competition Policy in Promoting
the ASEAN Economic Community
The ASEAN Competition Conference. Bali, Indonesia. 15-16 Nov 2011.
Andreas Stephan
ESRC Centre for Competition Policy
University of East Anglia.
www.ccp.uea.ac.uk
ESRC Centre for Competition Policy
Working Paper Series:
www.competitionpolicy.ac.uk
Blog:
Competitionpolicy.wordpress.com
Why Competition Policy Matters
Economic Growth
Competition Policy is not a prerequisite to economic growth: China and
India have grown enormously either without competition policy or without
active enforcement.
Japan and South Korea put industrial policy before competition policy in
order to boost investment and enter new markets.
But international markets were less liberalised - huge investments and
incentives by governments to maximise production.
Only Japanese sectors characterised by strong domestic competition
remain internationally competitive following the country’s downturn in the
1990s (Porter 2000).
Competition must be promoted along side investment and skills.
Why Competition Policy Matters
Productivity and Efficiency
Competitive pressures have positive impact on firm efficiency and
productivity growth (Van Reenen 1995, Buccirossi et al 2009).
Market power has opposite effect (Geroski 1990).
Competition policy boosts productivity by lowering artificial barriers to
entry put in place by anti-competitive practices, rewarding the more
productive with greater market power and putting pressure on managers
to increase internal productivity. (Van Reenen 2011)
Mechanism for selecting efficient firms and closing less efficient ones.
A lack of competition protects inefficient firms.
Firms which face strong domestic competition perform best in
international markets.
Why Competition Policy Matters
Innovation
Mixed picture, but competition trade-off between dynamic and static
efficiency no longer thought to exist. (OECD 2002; Blundell et al 1995)
Firms may innovate in ways that they may not have in the absence of
competitive pressures.
Little empirical support for view that large firm size or high concentration is
strongly associated with higher level of innovative activity. (e.g. Nickell
1996)
Nevertheless, competition alone will not guarantee sufficient innovation
and too much competition can stifle it.
Why Competition Policy Matters
Consumers and Public Finances
Competition policy helps lower prices, increase quality and maximise
consumer welfare.
Lower prices mean many in society can enjoy a higher standard of living
than under a monopoly or distorted competition.
Link between competition policy and social justice
Competition and commercial democracy through greater choice.
Government is one of the biggest consumers and so stands to gain
significantly.
Bid-rigging in public procurement can have a significant impact on public
finances and on investment in infrastructure etc.
Why ASEAN Cooperation is Important
Trade openness means countries are now more exposed to
international cartels.
Many of these control raw materials and key commodities of great
importance to emerging economies.
Enforcement against these is only currently undertaken by a small
number of jurisdictions, with fines falling short of deterrence.
Firms involved in international cartels tend to be based in a small
group of countries.
Why ASEAN Cooperation is Important
Why ASEAN Cooperation is Important
Overcoming capacity constraints in international enforcement.
Inadequate assets in jurisdiction to enforce decisions.
Fears of losing investment and jobs.
Lobbying from foreign firms not to enforce laws.
Why ASEAN Cooperation is Important
Also the ability to deal with regional infringements; the boundaries
of markets rarely coincide with the borders of legal jurisdictions.
Groups like ASEAN more accurately reflect local markets.
Focus on domestic enforcement may be considered more
important (as many international cartels will at least be brought to
an end by US or EU).
Resource savings through shared expertise, training etc.
Greater confidence for firms looking to invest in the region.
What are the Preconditions to Success?
Enforcement is there to make sure that liberalisation
works.
Highly concentrated markets bring rise to tacit
collusion and demand a regulatory rather than an
enforcement model.
Corruption and high levels of organised crime must
be dealt with separately.
Sufficient political backing.
Sufficient powers of enforcement and resources.
What are the Preconditions to Success?
Harmonisation (e.g. monopolisation rules and merger regulation)
Coordination (e.g. leniency applications in cartel cases). In terms
of leniency, competition authorities are reluctant to exchange
information. Firms will only apply for leniency in jurisdictions where
there is a credible threat of enforcement. What is really needed is
one-stop-shops for leniency through groups like ASEAN.
What are the Preconditions to Success?
Consumers are a key driver of competition. If they are unable or
unwilling to make or act on informed choices, then competition will
be distorted (e.g. Energy and Mobility Scooters in UK).
What are the Preconditions to Success?
Creation of a competition culture. Collectiveness
and the cohesion of social groups within
business may also serve to stabilize anticompetitive behaviour .
Strong competition culture will create greater
social constraints on such behaviour, such as
shaming penalties and negative publicity.
Firm culture reflects in part the overall ethical and
compliance culture of the country.
What are the Preconditions to Success?
Education through Media Coverage is Challenging
Complexity of some competition issues
Remoteness of Harm – lack of visual images
Lack of victim & image of wrongdoers.
Faceless upstream industries nobody has heard of.
Contradictory behaviour by Governments (UK Dairy case,
Australia, OPEC).
Leniency programme – clash with effective enforcement.
What are the Preconditions to Success?
Media coverage particularly important in disseminating
information. (OFT competition compliance survey 2011).
Early case selection should take newsworthiness into account.
By ensuring the media is engaged in effectively communicating
enforcement to the wider business community and public, the
agency helps to create robust competition culture.
A cartel of supermarkets (Bulgaria), bread (South African,
Panama), Cooking oil (Indonesia) or toilet paper (Brazil) has a
much better chance of significant media coverage than a cartel
involving ball bearings or marine hoses.
Sticking Points
Conflict between competition policy and trade policy.
Export cartels are generally exempt from competition laws.
Unclear how damaging export cartels are.
Canadian Potash cartel. Significant increase in the price of potash
(mined salts used in fertiliser). Many developing countries have
reduced their use of fertilisers as a result (lower agricultural yields
and higher food prices). Attempted takeover of Canada’s Potash
Corporation by BHP Billiton in 2010 blocked in part because
Canadian government feared breakup of export cartel.
Generally recognised as important to accessing new markets.
Hypocrisy, perceived blurring of lines in competition culture.
Sticking Points
Ensuring effective leniency. Anti-competitive agreements
underpinned by social or familial ties are hard to break.
There may also be a perception that ‘ratting’ or ‘dobbing’ is more
deplorable than the illegal act itself.
Importance of departing from fixed ‘models’ of enforcement. E.g.
Through to 2008, there were 15 cases in which the KFTC granted
rewards to cartel informants. These totalled 333 million KRW
($314,000 USD)
Concluding Remarks
Scope for Competition Policy to significantly benefit ASEAN
members.
Especially through cooperation and eventual harmonisation.
But the success of competition law depends on a number of
related factors.
These must be considered and addressed alongside the
development of competition policy.

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