Barbados Fair Trading Commission
9th Annual Lecture
Competitive Markets
Do 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
Fair Trading Commission
Barbados
2
Competitive Markets in
Small Economies
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
Richard Whish
King's College London
Fair Trading Commission
Barbados
3
Competitive Markets in
Small Economies
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
Competitive Markets in
Small Economies
Do competitive markets exist
in small economies?
• What do we mean by a small economy?
–
–
–
–
–
Population?
Size?
GDP?
Openness to trade?
Economic conditions?
Richard Whish
King's College London
Fair Trading Commission
Barbados
5
Competitive Markets in
Small Economies
Do competitive markets exist
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
Richard Whish
King's College London
Fair Trading Commission
Barbados
6
Competitive Markets in
Small Economies
Do competitive markets exist
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
Richard Whish
King's College London
Fair Trading Commission
Barbados
7
Competitive Markets in
Small Economies
Do competitive markets exist
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
Richard Whish
King's College London
Fair Trading Commission
Barbados
8
Competitive Markets in
Small Economies
Do competitive markets exist
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
Richard Whish
Fair Trading Commission
9
King's College London
Barbados
Competitive Markets in
Small Economies
Do competitive markets exist
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
Richard Whish
King's College London
Fair Trading Commission
Barbados
10
Competitive Markets in
Small Economies
Do competitive markets exist
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
Richard Whish
King's College London
Fair Trading Commission
Barbados
11
Competitive Markets in
Small Economies
•
Do competitive markets exist
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 Whish
King's College London
Fair Trading Commission
Barbados
12
Competitive Markets in
Small Economies
Do competitive markets exist
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
Richard Whish
King's College London
Fair Trading Commission
Barbados
13
Competitive Markets in
Small Economies
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.
Richard Whish
King's College London
Fair Trading Commission
Barbados
14
Competitive Markets in
Small Economies
Can consumers really expect to
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?
Richard Whish
King's College London
Fair Trading Commission
Barbados
15
Competitive Markets in
Small Economies
Can consumers really expect to
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
Richard Whish
King's College London
Fair Trading Commission
Barbados
16
Competitive Markets in
Small Economies
Can consumers really expect to
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
Richard Whish
King's College London
Fair Trading Commission
Barbados
17
Competitive Markets in
Small Economies
Can consumers really expect to
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
Richard Whish
King's College London
Fair Trading Commission
Barbados
18
Competitive Markets in
Small Economies
Can consumers really expect to
benefit from competitive markets?
• But can there be competition within the
local market?
– In principle, why not?
– Retail trade
– Hotels, bars, restaurants
– Building and construction
Richard Whish
King's College London
Fair Trading Commission
Barbados
19
Competitive Markets in
Small Economies
Can consumers really expect to
benefit from competitive markets?
• 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
Richard Whish
King's College London
Fair Trading Commission
Barbados
20
Competitive Markets in
Small Economies
Can consumers really expect to
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)
Richard Whish
King's College London
Fair Trading Commission
Barbados
21
Competitive Markets in
Small Economies
Can consumers really expect to
benefit from competitive markets?
• 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
Richard Whish
King's College London
Fair Trading Commission
Barbados
22
Competitive Markets in
Small Economies
Can consumers really expect to
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
Richard Whish
King's College London
Fair Trading Commission
Barbados
23
Competitive Markets in
Small Economies
Can consumers really expect to
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
Richard Whish
King's College London
Fair Trading Commission
Barbados
24
Competitive Markets in
Small Economies
Can consumers really expect to
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
operators
Richard Whish
King's College London
Fair Trading Commission
Barbados
25
Competitive Markets in
Small Economies
• 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
Richard Whish
King's College London
Fair Trading Commission
Barbados
26
Competitive Markets in
Small Economies
• 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
Richard Whish
King's College London
Fair Trading Commission
Barbados
27
Competitive Markets in
Small Economies
Can consumers really expect to
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.
Richard Whish
King's College London
Fair Trading Commission
Barbados
28
Competitive Markets in
Small Economies
Can consumers really expect to
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
Richard Whish
King's College London
Fair Trading Commission
Barbados
29
Competitive Markets in
Small Economies
Can consumers really expect to
benefit from competitive markets?
• How does this apply to Barbados?
– Milk
– Bread
• Note now in the retail sector: Cost-U-Less/Price
Smart/Super Centre
Richard Whish
King's College London
Fair Trading Commission
Barbados
30
Competitive Markets in
Small Economies
Can consumers really expect to
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 Commission
Barbados
31
Competitive Markets in
Small Economies
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!
Richard Whish
King's College London
Fair Trading Commission
Barbados
32
Competitive Markets in
Small Economies
Is it worth having competition law
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
Richard Whish
King's College London
Fair Trading Commission
Barbados
33
Competitive Markets in
Small Economies
Is it worth having competition law
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 possible
Richard Whish
King's College London
Fair Trading Commission
Barbados
34
Competitive Markets in
Small Economies
Is it worth having competition law in small
economies?
•
•
•
Competition law and policy are still somewhat underdeveloped 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
Richard Whish
King's College London
Fair Trading Commission
Barbados
35