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Competition Commission and economic development

Published : Monday, 31 January, 2022 at 12:00 AM  Count : 1193
M S Siddiqui
Free markets have the potential to provide great improvements in living standards, channelling resources to productive uses and providing consumers with quality and choices. Sometimes, though, abuses of market power by firms can undermine many of these potential benefits. The presence of many firms in a market does not ensure competition. Under certain conditions, Enterprises may be able to collude with each other to create and abuse market power, for example by agreeing to raise prices or by restricting output resulting in raising prices to consumers or by restricting wage growth for workers. Price-fixing, bid-rigging, and market-allocation agreements among firms' harm competition and increase prices for consumers. Increased industry concentration may in part result from an uptick in merger and acquisition activity.

Competition policy encompasses any policy including competition law that promotes competition and facilitates efficient resource allocation. Competition policy, in this context, is defined as those government measures that affect competition, by directly affecting the behaviour of enterprises and the structure of industry. Competition policy, properly implemented, promotes efficiency and productivity. Enterprises faced with vigorous competition are continually pressed to become more internally efficient and more productive. Competition compels managers to reduce waste, improve the technical efficiency of production, abandon outdated production techniques and operations and invest in new technologies. It fosters innovation--firms who do not innovate are left behind. Competition forces restructuring in sectors, at the appropriate time, that have lost competitiveness.

The competition for capital and other resources by firms throughout the economy leads to money and resources flowing away from weak uncompetitive sectors towards the more competitive sectors. Hence competition directs resources to its most efficient use and leads to the closure of inefficient firms and the freeing up resources for more productive uses. Therefore, the major goal of competition policy is to promote and protect competitive processes in order to foster allocative, internal and dynamic efficiency. Hence, it could be said that "efficiency is the goal, competition is the process".

There are links between competition, competition policy, and macroeconomic outcomes, such as productivity, growth, innovation, employment and inequality. In appropriate regulations, or anti-competitive behaviour preventing entry and expansion, may therefore be particularly damaging for economic growth. Competition leads to an improvement in allocative efficiency by allowing more efficient firms to enter and gain market share, at the expense of less efficient firms. Competition also improves the productive efficiency of firms, as firms facing competition seem to be better managed.

Because more competitive markets result in higher productivity growth, policies that lead to markets operating more competitively, such as enforcement of competition law and removal of regulations that hinder competition, will result in faster economic growth. There is also evidence that intervening to promote competition will increase innovation. Enterprises facing competitive rivals innovate more than monopolies.

When there is little or no competition, consumers are made worse off if a firm uses its market power to raise prices, lower quality for consumers, or block entry by entrepreneurs. An enterprise with market power recognizes that if it reduces price to gain more customers, it loses revenue on the existing customers it already has. Thus, it may set a higher price and provide a lower quantity of its product than would maximize societal welfare. Competition pushes firms to reduce price below this level, both to gain share from rivals, and in recognition that higher prices can be profitably undercut by competitors who are similarly trying to increase their sales. Alternatively, monopolists may choose not to upgrade quality or variety, which would also leave customers worse off than if the market had competitors.

Competition between firms may also help workers. In the same way that two firms might compete against one another and lower prices to entice consumers to purchase a product, firms competing to hire from a specialized labour market may raise wages to attract and retain workers.

Small and medium enterprises (SME) is primary stage of developing entrepreneurship in any economy. Small businesses and entrepreneurs can benefit, for example, when upstream firms compete against each other for the opportunity to supply a product to a downstream small business or entrepreneur. If an entrepreneur sells its products to downstream firms rather than to end-users, it would benefit from there being a greater number of downstream firms to which it can sell products-the greater the number of downstream firms, the better the ability to negotiate a good price for the products it sells. Thus, whether the business model of an entrepreneur is business-to-business or business-to-consumer, competition among upstream firms and among downstream firms helps the entrepreneur grow his or her business by creating and capturing value in the marketplace.

Market share may increase as a firm realizes economies of scale, or efficiencies created by larger operations, resulting in lower costs that are passed on to consumers in the form of lower prices. Competitive markets promote economic efficiency and growth. Their benefits can include lower prices and better products for consumers, greater opportunities for workers, and a level playing field for entrepreneurs and SMEs that seek to enter new markets or expand their share. When firms act to impede competition, through anticompetitive mergers, exclusionary conduct, collusive agreements with rivals, or rent-seeking regulation to restrict entry, their profitability may increase, but at the cost of even greater reductions in consumer welfare and societal benefits.

As part of the fundamental rights, the constitution guarantees freedom of profession, trade or business, thereby ensuring that a citizen cannot be restrained from carrying on a business except by a law imposing a reasonable restriction in the interest of the general public. A recent decision of The Ministry of Manpower and Overseas Employment to authorize only 25 Manpower exporters to recruit and send to Malaysia is anti-competitive but Competition Commission (CC) of Bangladesh is silent on this issue.

There are a number of regulating authorities but they have different agenda to promote or regulate the market but they are not responsible to promote competition. They don't have expertise and research to know the benefits of competition. CC can coordinate and advise them to frame their policy to promote competition and encourage others, have been using their regulatory authority to foster beneficial competition between firms. CC has other responsibility to suggest authorities to promote competition through rulemaking and regulations and by eliminating regulations that create barriers to or limit competition.

Competition law is an economic law and is about the behaviour of economic agents. Economics provides a theoretical basis for the law; it also provides the tools with which to analyse markets and competition within them. It has been said that a lawyer who has not studied economics�. is very apt to become a public enemy. Therefore, for a proper appreciation of competition law it is important to understand the economic concepts inherent in the law.

The Competition Commission is a quasi-judicial body. Unfortunately, the CC of Bangladesh comprises only retired bureaucrats like any other commission in Bangladesh. CC is still behaving like a department of government. It must have legal expert on commercial law and practice. The members of CC should be economist as well. Only administrative experience is not enough to understand the market and competition as well as promoting economic development to competition.
M S Siddiqui is a Legal Economist




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