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Competition Law Toolkit : Competition, Privatization, and Regulation
D. Ex Ante Regulation and CompetitionA particularly interesting issue is the relationship between competition law and ex ante regulation. Where it is likely that monopoly power will persist—and in particular where there is a natural monopoly in the economic sense of the term—ex ante regulation is also likely to persist. However, the general thrust of policy in Europe has been to encourage the emergence of competition where this is possible in utility sectors, and dramatic changes have taken place in the last couple of decades, particularly in the case of electronic communications. One question that arises when competition begins to emerge in a regulated market is whether ex ante regulation remains appropriate. If a regulator has been successful in "holding the fort" until competition arrives, does not the success of its policy mean that that regulator should now be dissolved, leaving it to the competition authorities to punish anti-competitive behavior through the tools specified in Articles 81 and 82 of the EC Treaty, or equivalent provisions of domestic law? There is a natural tendency, once they have been introduced, for regulatory rules to be retained. Institutions and the individuals within them like to protect their territory. Firms learn to live with the rules and the regulatory environment, which may protect them from competition to some extent. Regulatory capture is a possibility. The interest of policy makers, who are responsible for the original structure, may have moved on to more pressing or interesting issues. It is also possible that the regulatory rules work reasonably well, so that there is no particular call for change. However, there are powerful arguments for moving away from ex ante regulation once markets are open to competition. Competitive markets depend upon the dynamism of firms, competing with one another on price and products, and offering customers choice. As a general proposition, there should be as few restrictions as possible on the entrepreneurship of firms. Public restrictions, including regulatory restrictions, can be extremely harmful. It is noticeable that in recent years, competition advocacy has been growing as one of the crucial responsibilities of competition authorities—to comment and, where appropriate, to criticize restrictions of competition for which the state is responsible. Regulatory rules are among the most obvious public restrictions of competition. The work of the ICN in this respect was discussed in a previous section of this toolkit. Regulatory rules can be unduly prescriptive and lead to too much micro-management of markets. Price caps can be positively harmful to the emergence of new competition if the cap is set too low. Of course, in the short term, consumers will prefer low prices imposed by a regulator; but in the long term, this will not necessarily be to their advantage. Regulatory rules tend to operate on a "per se" basis, i.e., they are often applied simply on the basis of form rather than demonstrable effects in a particular case. Where a market has evolved to the point where effective competition is possible, the competition rules should be used to prohibit anti-competitive behavior that could have a seriously harmful effect on the market. A danger with a system of ex ante regulation is that rules are applied as a matter of administrative convenience but without any consideration of the desirable outcome. The abandonment of ex ante rules and a move to the application of competition law requires courage and self-confidence, but is a powerful signal that the policy of promoting competition in utility sectors has been a success.
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