UNDERSTANDING &
COMMUNICATING BENEFITS
OF COMPETITION REFORMS
TANIA BEGAZO, ECONOMIST
COMPETITION POLICY GROUP
TRADE AND COMPETITIVENESS GLOBAL PRACTICE
CREW Project International Conference
Bangkok
November 19, 2014
What is a competition reform?
Approach to implementing competition reforms
Evidence as a Catalyst for Change
1
Understanding & Communicating Benefits of Competition Reforms
Key elements to explain and communicate the benefits of
competition reforms
C.
Awareness
+
raising
initiatives
B. Media
outreach
A. Empirical
evidence
1. Literature reviews – effects on key
variables:
- Macroeconomic/sectoral: productivity,
growth
- Microeconomic: consumer welfare and
savings, income poverty
2. Reform/country-specific ex-ante estimates:
- Macroeconomic: GDP growth, productivity
- Microeconomic: consumer savings,
income poverty
- Indicators along theory of change
3. Reform-specific ex-post estimates
- Entry, market structure, consumer welfare,
prices
A.1. Relevant empirical evidence I:
Example: Evidence of benefits for consumers
A number of existing sectoral studies provide evidence of the effects of competition
reform or enforcement of competition rules on consumers and producers...
Sector
Evidence
Methodology
Reference
Various foods and
medicine
- Mexico
Consumer welfare loss from
monopoly is higher for the poorest vs
the richest by 20% in urban areas
and 23% in rural areas
Uses household income
and expenditure survey.
Calculate elasticities and
welfare effects
Urzua (2013)
14 household
commodities
- Australia
Welfare loss associated with
monopoly is 46% higher for the
poorest 10% compared to richest
Uses household survey
to estimate elasticities &
welfare effects using
consumer surplus
Creedy and
Dixon (1998).
Also (2009)
Flour, bread and
maize meal
- South Africa
Collusion between bread
manufacturers lead to an overcharge
between 7% - 42%
“During and after”
approach using data from
the cartel firms
Mncube
(2013)
Pre-cast concrete
products
- South Africa
Cartel led to an overcharge of:- 17% - 28% in Gauteng
- 51% - 57% in KwaZulu-Natal.
“Difference in difference”
using prices of a nonimplicated firm as a
competitive benchmark
Khumalo et al
(2012)
A.1. Relevant empirical evidence II:
Example: Evidence of benefits for producers
Sector
Evidence
Methodology
Reference
Rice
- Vietnam
Land and market reforms (moving to
market driven production and pricing)
led to dramatic increases in paddy rice
productivity in rice growing regions
Build data set on Total
Factor Productivity
Kompas et al
(2009)
Various export
crops
- Sub-Saharan
Africa
Competition among processors
increases farmgate prices and
improves farmer livelihood
Use a game theory model
to simulate price effects of
a change in market
structure
Porto, Chauvin
and Olarreaga
(2011)
Trucking
- Lao
Breaking a cartel and opening transit
to all Thai truckers reduced logistics
costs from Bangkok to Vientiane by
30%
Case study
Arnold (2005)
Fertilizer
80% to 100% of the fertilizer subsidy
paid by the Indian government from
2011-2020 would, in fact, finance
monopolistic rents from the Potash
fertilizer cartel
Use projected prices and
production figures from
the Conference Board
Report on Potash
Jenny (2012)
Shipping
- Latin America
Reducing market power in shipping
would reduce shipping costs by 45%
and boost trade by 17 %
Back-of-the-envelope
calculation assuming all
markups are reduced to
the smallest markup in the
data set on prices
Hummels et al
(2009)
A.2. Benefits of proposed reforms I:
Country specific estimates – Kenya
Demonstrating the effects of limited competition in sugar and maize on the poor
Method:
•
Use household survey data to
estimate welfare effects of price
changes across the income
distribution.
•
Elasticities are estimated from survey
data and welfare effects proxied by
equivalent income effects of price
changes.
Findings:
•
Eliminating market distortions (trade
barriers, non-tariff barriers,
government influence on prices,
potential anticompetitive practices at
business associations) would reduce
poverty.
Household expenditure share in maize
Eliminating overcharges
of 20% would increase real
income and …
Poverty by 1.8 pp
Poorest decile gains 6.4
times more than the richest
Household expenditure share in sugar
Poverty by 1.5 pp
Poorest decile gains 3.4
times more than the richest
Source: KIHS 2005/2006. Argent and Begazo (2014)
6
A.2. Benefits of proposed reforms II:
Country-specific estimates – Turkey
Method 1: Demonstrating the effects of
increased competition on productivity growth
Method 2: Demonstrating the effect of reduced
service sector regulation on growth value add
growth in service intensive industries
Use pricing power (Price Cost Margins) as proxy
for product market competition.
Uses results from previous studies on the effect of a
country moving toward OECD best practices levels
of regulation
Labour productivity growth was regressed on PCM
across countries, industries and time
Calculates the effect of a significant decrease in
regulatory restrictiveness (at least one quartile) for
Turkey
Findings: A 10% decrease in average PCMs
leads to a 4.5% increase in the annual rate of
productivity growth
Findings: A significant decrease in regulatory
restrictiveness increases value added growth in
service-intensive industries by 0.5% -1 %
Findings: A 0.75% increase in value added
growth would equate to an additional value
added US$484 million for Turkey
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A.2. Benefits of proposed reforms III:
M&E framework for competition reforms
Outputs
Outcome
o # Draft
law/regulation
Advisory to
increase the
effectiveness
of antitrust
rules
o # practices
recommende
d for
modification
o # Reports
produced
o # Training/
awareness
workshops
conducted
o # participants
in events
satisfied
Advisory to
minimize
distortive aid
and incentive
schemes
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# Law/Regulations adopted
# Practices modified
Advisory to
remove sector
regulations that
create entry
barriers and
limit expansion
Impact
Goals
Unlock private
sector growth and
investment in
markets that lack
competition
• Market concentration
(reduction of modified
HHI)
Investment
generated
Direct fees involved in merger
notification
# of days of merger review
process
Compliance Cost
Savings due to
more effective
competition rules
Minimize
administrative
burden of antitrust
rules on businesses
Consumer savings
due to higher
competition
Allow for affordable
and high quality
products for
businesses,
households and the
public sector
• # anticompetitive
practices
detected/prevented
• # state aid instruments
modified to minimize
distortions
• Amount of aid granted
through approved state aid
• Market concentration
(reduction)
Public sector
savings due to
higher competition
Public sector
savings
Efficient allocation
of public resources
and a level playing
field for businesses
A.3. Benefits of completed reforms I:
Opening the domestic container shipping market to
competition in the Philippines
Context/Background
- High shipping costs
- Few shipping operators
on primary routes
- Burdensome
registration procedure
- Existing operators
delay/ prevent entry of
competitors
- Usage of foreign
vessels can be restricted
by domestic players via
“Certificate of Public
Convenience” (CPC).
Output
- Simplification
of CPC
issuance
procedure for
existing
operators
- Avoid
delaying/
preventing
entry
Outcome
- Incumbents
no longer
have the
opportunity
to contest
entry
- Expedite
issuance of
CPC
from >50 to 4
days
Impact
POTENTIAL MEDIUM TERM
INDICATORS:
1) SERVICE
QUALITY/PRICES
2) INVESTMENT
Expected additional
investment generated in the
shipping industry:
Research question
• How does increased contestability affect incumbents’ decisions on pricing, routes covered, quality,
investment, frequencies, capacity?
A.3. Benefits of completed reforms II:
Promoting equal treatment during registration in agricultural
input markets in Honduras
Context/Background
- Only 1,200 pesticides
were registered in
Honduras vs 2,500+ in
Guatemala, Costa Rica or
Nicaragua.
- Fertilizer consumption at
least 50% below
neighboring countries.
- Discretional treatment of
registration applications
distorting the level
playing field.
- Some applications
processed in 6 months,
others in 3 years
Output
Streamlined
registration
procedure
+
Procedural
manuals for
consistency
+
Online database
for transparency &
facilitation of
consumer choice
(ongoing)
Outcome
Cost-effective
registration on a
level playing field
Streamlined and
standardised
process reduced
registration time
- From up to 3
years to 90 days
Impact
INDICATOR 1:
CHOICE
Increased choice for at
least 35,000 farmers:
300 products
registered/year (340%
increase).
INDICATOR 2:
PRICE
Prices of some
pesticides dropped up
to 9%.
FUTURE DIRECTIONS FOR IMPACT STUDIES: SUBNATIONAL REGULATIONS
• Anticompetitive regulations can exist at the subnational level
• Likewise, reform programmes often occur at the subnational level
• Provides an opportunity to exploit inter-state or inter-regional variation to examine impacts
• Examples from European retail sector: Bertrand and Kramarz, 2002; Viviano, 2008
10
1. Communication strategy:
- Press conferences
- Press releases
- Factsheets
- TV interviews
2. Training to journalists:
B. Engaging the media
Media engagement and training to journalists
• E.g. In Kenya, a Business Journalists Training workshop
held by the Competition Authority in May 2014
• The Authority is now covered by the media 2-3 times per
week
• Potential pilot to test use of media and impact figures to
advocate for pro-competition reforms in specific sectors
Media campaign for specific competition decisions
• E.g., COMESA launch of merger guidelines
Understanding
& Communicating Benefits of Competition Reforms
12
+
1. Global voice on the importance of
competition:
- Competition Advocacy Contest –
successful implementation of reforms
- Generation of data for research/analytics
(Product market regulation indicators,
competition diagnostics indicators)
- Pre-ICN conference
- Peer-to-peer learning (RCC)
2. Country-level Outreach to different
stakeholders:
- Government bodies (regulators,
prosecutors, judges, public
procurement authorities)
- Business associations
- CSO
C.1. Global voice on the importance of competition
An example of a global initiative
•
The WBG Competition Advocacy Contest showcases activities of competition agencies
that result in measurable impacts on markets, consumers & other stakeholders to:-
• Expand interest in the competition agenda globally
• Raise the profile of competition champions within governments
•
2013 Awards - 4 themes:
2014: Inclusive growth for shared prosperity
1. Successfully promoting pro-competition market
reforms, opening of markets, and infusion of
competition principles in other sectoral policies
1. Promoting pro-competitive reforms that
foster growth and reduce inequality
2. Assessing the potential negative effects of certain
rules and regulations on the market and informing
policy makers and public authorities
2. Promoting awareness of competition
benefits in a time of crisis
3. Raising awareness of private sector stakeholders
and empowering consumers to deter anticompetitive
behaviour
4. Improve the effectiveness of antitrust enforcement
through advocacy with relevant public bodies.
3. Promoting cooperation with relevant
public bodies in order to balance other
public policy interests with competition
goals
Conclusions
• Quantification of the positive impact of reducing regulatory
restrictions and tackling anti-competitive behavior can help…
1. Catalyze reform
2. Strengthen enforcement of antitrust rules
• Combination of ex-ante and ex-post estimates
• Methodologies for ex-ante estimates and indicators to test the theory
of change.
• Ex-post estimates require understanding current data availability
(e.g. household surveys, firm-level data) and developing
appropriate quantitative methods; and identifying appropriate
indicators and building databases for future research
• Dissemination of results to government, judiciary, private sector and
civil society is key to build support for the pro-competition agenda and
overcome political economy barriers to reform.
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Contacts
https://www.wbginvestmentclimate.org/advisory-services/cross-cuttingissues/competition-policy/
Tania Begazo
tbegazo@worldbank.org
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