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	Table of Contents
p. 73 of 77 BACK | NEXT Foreword, Acknowledgments, Acronyms and Abbreviations, Definitions I. Developing Asia and the world II. Economic trends and prospects in developing Asia III. Promoting competition for long-term development Introduction Benefits of competition Competition policy regimes Consistency with other development objectives Competition policy in the context of regional and global integration Issues for implementation Effects on government finances Toward a competitive future Summary and conclusions Endnotes and references Statistical appendix

Asian Development Outlook 2005 : III. Promoting competition for long-term development

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Effects on government finances

The effect on a government's budget of implementing and enforcing competition policy is, in principle, ambiguous. On the one hand, outlays are necessary to create and sustain a competition enforcement agency. On the other, greater competition brings benefits. For example, the vigorous enforcement of a bid-rigging law (a form of cartel law) can result in savings for government purchasers who otherwise might find themselves the target of suppliers' conspiracies. In many developing countries, the size of government purchases is now so large that only small reductions in the amount of bid rigging on state contracts would more than cover the likely costs of cartel enforcement. This is particularly noteworthy since as much as a quarter of documented competition law-enforcement actions in developing economies involve bid rigging against state purchasers (Clarke and Evenett 2003). The PRC, for one, has reported several enforcement actions of this type in recent years.

Table 3.6 provides some evidence of the magnitudes involved. The table reports data for seven developing economies that have competition enforcement agencies. It gives the savings to each respective national government if stronger cartel enforcement deterred bid rigging in just 1% of the value of state contracts. Those savings (reported in the second and third columns of the table) are compared to the current outlays on the national competition enforcement agency (in the last two columns of the table).

For countries with large government expenditures, such as India, a 1% reduction in bid rigging on state contracts would save the national treasury a sum equivalent to over 16,900% of the cost of its competition enforcement agency! This means that India could increase the expenditures on this agency 100-fold and still come out ahead--so long as the additional expenditures ensured that bid rigging on state contracts fell by at least 1%. In short, government expenditures in most developing countries are large enough that the savings on government purchases that result from less bid rigging are likely to easily offset any additional outlays needed to rigorously enforce national cartel laws.²⁰

More generally, data on the magnitude of national imports and government consumption expenditures can be employed to gauge the likelihood that investing in cartel enforcement will be beneficial for developing countries. Table 3.7 includes data on 26 developing countries for which there is no record in OECD documentation of active cartel enforcement in the 1990s. The purpose of Table 3.7 is to estimate the minimum percentage reduction in cartelization on different purchases that would have to follow from a $10 million investment in cartel enforcement for this outlay to at least pay for itself.²¹

In the case of a nation's imports, assuming very conservatively that cartels raise prices by 15%, this amounts to calculating what reduction in the percentage of cartelized imports is needed to generate savings of $10 million. For these 26 countries, the mean reduction in cartelization on imports necessary to justify an investment of this magnitude was 1.25%. For 12 of these countries, the reduction of cartelization needed on imports was less than 1%.

The reduction in bid rigging and overcharges necessary to justify increased outlays on competition law enforcement is small. This finding alone suggests that the net impact on a national treasury of adopting a competition law is likely to be positive, in stark contrast to the fears about the implementation costs of adopting multilateral rules on the "behind-the-border issues" in the world trading system. These direct benefits for the government budget and for customers more widely are in addition to the positive impact on macroeconomic performance (and consequently on tax revenues) of greater rivalry between firms.

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