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Competition Law Toolkit : Emerging Economies
A. Does Everyone Benefit From Competitive Markets?As a general proposition, all citizens benefit from competitive markets, whatever the state of development of the country that they live in, although it should be acknowledged that sometimes the process of competition can lead to firms going out of business and workers losing their jobs. Other policies are needed to deal with the dislocation that is caused by the loss of inefficient firms. In countries that have a free market—that is to say, where the state is absent from or is in the process of withdrawing from the provision of goods or services and from the regulation of their price and availability—there is a good argument that consumers should be protected from the adverse effects of the types of practices described in Overview of Practices Controlled by Competition Law, and in particular from horizontal cartels and the abuse of market power by dominant firms. It is difficult to see why consumers in a poor developing country should not be protected from a cartel of bus companies that fixes fares or of retailers that fix the price of essential goods, but that consumers in a wealthy, developed country should be. Indeed, one could argue that the former are more in need of protection than the latter: price fixing cartels are likely to have a proportionally greater effect on the economic well-being of impoverished people than that of relatively wealthy ones. On a more general level, it is arguable that allocative efficiency is particularly important in developing economies that are handicapped by resource constraints. Similarly, in small or developing countries, it is often the case that just a few firms, or even one firm, control the entire market for particular goods or services. In those circumstances, consumers may suffer all of the bad effects of monopoly—higher prices, lower output, inefficiency, and a lack of choice of products. Competition law can be deployed to prevent the exploitation of consumers. In many countries, it has been the norm for many years for the state to have a dominant influence over the price of goods or services. This may be because the state itself is the provider (often the only provider), or because the state has established a system of price regulation: there will be institutional machinery to determine prices and to decide when a price increase is to be permitted. Citizens become accustomed to the idea of price regulation, which brings certainty (though not necessarily contentment) if the regulated price is seen to be too high. Governments, especially those that are selected on the basis of a democratic mandate, have a great incentive to manipulate the system of price regulation in order to gain the support of the population or particular interest groups within the population. However, it is obvious that price regulation represents the antithesis of a competitive market, in which competitors vie with one another on the basis of efficiency, initiative, and inventiveness to win consumers through price competition. Price regulation thoroughly distorts the competitive process and prevents society from obtaining the benefits that competition is capable of bringing. If a country does wish to base its economic development on free-market principles and the process of competition, a much better solution for its citizens is the adoption of a competition law that prohibits anti-competitive practices such as cartels and the abuse of dominance. The existence of such a law provides a clear and unequivocal signal to all stakeholders: that competition is a benefit to society as a whole and is something that enhances consumer welfare.
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