Understanding
Competition Policy
Erlinda M. Medalla
April 27-28, 2006
Hanoi
Enhancing efficiency and
optimizing welfare

In general, market discipline (where there is
effective competition) leads to efficiency
and welfare optimization

In certain cases, there is need to discipline
the market– where there are deviations
from competition due to errant firm behavior

Cases of inherent market imperfection–
where there is need for government
regulation to achieve competitive-like
outcomes
What is competition policy for?
Promoting (effective) competition
 Making markets contestable
 Discipline errant firm behavior
(restrictive business practices)
 And where market fails (natural
monopolies) enforcing competition
rules (regulation) to produce
competitive-like outcomes

Objective: eliminate rents and maximize
overall welfare
Major areas of competition
policy

Anti-trust law governing firm behavior
to ensure fair competition

Abuse of dominant position, restrictive
agreements, M&A
Consumer protection (from unfair
competition practices)
 Regulation of natural monopolies
 Review of government policies
impinging on competition

Competition and Regulation
Competition law to govern:
 Restrictive trade practices arising from:
 Abuse of dominant position
 Agreements
 Mergers and acquisition
 Consumer protection- unfair trade
practices
Regulation of natural monopolies
Types of Restrictive
Business Practices

Exclusionary abuse


Deliberate act of the firm (or group of firms)
to exclude potential firms from entering the
market by means other than becoming more
efficient.
Exploitative abuse

Abuse of market power where firms would
limit outputs thru some deliberate means in
order to increase prices and extract
monopoly rents.
Examples of Restrictive
Business Practices
Exploitative abuse;
 Cartel Agreements to fix prices, outputs
 Agreement to divide markets
 Collusive tendering (bid rigging)
 Predatory pricing
Exclusionary abuse:
 Resale price maintenance,
 Exclusive dealing, tying sales, designed to
limit competition from rival firms
What needs to be done?



Creating a “competition culture”
 Belief in markets and willingness to be
subject to market discipline
 Awareness of rights and knowledge about
anti-competitive acts
 “Profit with honor”
Capacity building
Crafting a “good” competition law
 a “living” law conducive to developing
national competition authority which is
respected and credible.
No one unique model
US- Strong anti-trust law enforcement
and sector regulation
 Europe- the mandate driven division of
labor between sector regulators and
competition authorities
 Korea- coordination between KFTC and
sector regulator– same competition
principles
 Australia- integration of regulation and
antitrust

Key elements of competition
law
Clear definitions
 Clear rules to identify prohibited actions
(e. g. per se prohibitions),& appropriate
remedies and/or penalties
 Rules on mergers & acquisitions
 Research function and Investigative
powers
 Independent competition authority?

Key elements of competition
law



Mechanism for reviewing existing (and
proposed) government policies &
regulations as they impact on competition
Provisions for transition–
 Capability building
 Start small
 Relationship between competition
authority and sector regulators
Education, information and advocacy
functions
Some major concerns at
early stages


Ensuring that it would not be just another
regulatory layer
Provisions on prohibited acts—


On implementing body—


How to be crafted to lessen ambiguity
How to create a credible, respected
authority
Need for learning period and capability
building

Need for information, education & advocacy
Thank you for your
attention.