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Promoting competition for long-term developmentCompetition is advantageous to consumers. This stems from the fact that competition encourages productivity improvements that propel economic growth. It also ensures that the more productive and efficient firms expand, take market share from less productive firms, and offer better products at lower prices. This in turn unleashes new demand. Competition laws and policies to promote competition are becoming increasingly important as developing Asia steps up the pace of its economic development. In the past two decades, many countries in Asia and the Pacific have adopted market-based reforms and reduced government intervention in their economies in response to heightened regional and global integration. Trade barriers have been lowered, foreign investment encouraged, exchange rate pegs removed, protection of domestic industries withdrawn, and government enterprises privatized. These changes reflect confidence that open-market forces will strengthen firms’ productivity and competitiveness, contributing more to growth and development than a closed, centralized orientation. As a result, policies to promote competition have risen up the domestic and trade agenda in Asia. Countries with different initial conditions of competition and at different stages of reforms or integration with global trade and investment flows may follow different paths to reaping the gains from competition. However, the globalizing economic environment imposes a form of discipline on domestic economic activity, creating pressure for promoting the sort of efficiency improvements that competition can bring. Greater competition in product markets can lead to lower prices, greater choice, and increased production efficiency, ultimately contributing to growth and development. Restrictions to competition thus must generally be removed to enable markets to deliver the benefits of competition. At the same time, the greatest degree of competition possible may not be optimal, and increasing economic growth requires a policy mix promoting both cooperation and competition, balancing short-term (static) efficiency improvements with long-term (dynamic) efficiency and development. Competition policy is concerned with both private anticompetitive practices and government measures or instruments that affect the state of competition in markets. It is usually aimed at enhancing consumers’ freedom of choice and firms’ freedom to access markets. There are some instances where consumers will prefer that a smaller number of goods (possibly a single good) be available in the marketplace. There are also some instances where production may be most efficiently pursued by a small number of producers (possibly just one). Competition policy must be applied in ways that take account of the technological characteristics of such markets. To the extent that creating national champions substantially increases concentration in a domestic market, there may be a stronger case for implementing competition policy than otherwise. In general, tension between the objectives of competition policy and industrial policy is more apparent than real. Most measures to protect domestic industries or firms create barriers to entry and can lead to high concentration in affected sectors. Competition law can reinforce the effectiveness of cuts in trade barriers on growth-enhancing imports. Participating in international organizations such as WTO or the Organisation for Economic Co-operation and Development is an effective way to bring the pressures of international competition to bear on promoting rivalry in domestic markets. During economic transition or reforms, the benefits of an open market economy cannot be fully realized unless restrictions on competition are removed. Opening markets is not enough by itself for countries to begin reaping the benefits of competition. Firms will still find incentives to engage in anticompetitive practices. Thus, the intended benefits of trade reform may not be realized without active enforcement of competition law. This highlights the importance of having faith in the benefits of competition from an early stage of economic growth and of incorporating competition policy into the broader economic policy framework. Foreign direct investment has not always resulted in increased competition in host country markets. However, for foreign investors the existence of a competition policy indicates some commitment by the government to ensure a level playing field among domestic and foreign investors. And relaxing foreign participation requirements can be generally expected to contribute to increased competition in the domestic economy. Competition policy is affordable. In most countries it will more than pay for itself. The savings on government purchases that result from less bid rigging alone are likely to easily offset any additional outlays needed to rigorously enforce national cartel laws. Even greater may be the increase in tax revenues resulting from greater competition-induced growth. At the same time, competition policy’s implementation serves to reinforce the consumer rights and competition culture that help ensure that the benefits of competition will be realized. Development of a competition culture can, in turn, ensure that competition is strengthened. In most developing countries, the interests of consumers are poorly represented and are much weaker than those of producers. Recognition of consumers’ rights creates a potent force for ensuring the promotion of competition. In this regard, it can be crucial that the authority charged with promoting competition has independence from ministries or other agencies representing producers or producer groups. Competition can help create a prosperous future. Preserving the ability of innovative firms to enter a market may well be contingent on the appropriate enforcement of competition laws. Intellectual property rights generally strengthen competition in an economy over the long run by providing incentives for the development of new products and production processes. Such technological progress is likely to contribute at least as much to social welfare in the long run as the elimination of allocative inefficiencies in the short run. With regional and global integration accelerating, the pressures of international competition and their context have become increasingly palpable. However, competition policy is important in its own right for domestic reasons. Drawing on lessons from the experience of Japan and Korea, developing countries in Asia and the Pacific should start early and take a long-term view in implementing competition policy. The complementarity of competition and competition policy with industrial, trade, and FDI policies highlights the need for active competition advocacy. Too often, the advocacy functions of competition authorities are neglected at the expense of enforcement of competition law, only to create the need for even greater enforcement as other legislation is enacted without consideration of its implications for competition. The general conclusion is that competition confers net benefits on an economy. Productivity rises, choice expands, and some (generally the bulk) of the increased benefits accrue to domestic consumers and factors of production. These benefits appear to be especially important in connecting the country to the global economy and in ensuring the international competitiveness of its firms as the country develops. At the same time, the discipline of participating in a globalizing economy reinforces the importance of competition. Of particular relevance is the fact that, while many countries are moving to implement or strengthen their competition policies, none appears to be moving toward repealing them.
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