Competition policy

 

Author Definition

 

Definition

Competition policy governs how businesses interact with both consumers and each other. A country’s competition policy is the sum of its competition laws, which proscribe anti-competitive behaviour, and the effect that its public policy may have on competitive processes in the economy. Sound competition policy is central to a country’s prosperity, as it drives lower prices, greater consumer choice, and high levels of innovation and economic productivity.

 

Commentary

The competitive process is the driving force of consumer and business outcomes in a market economy. In the economic model of perfect competition, businesses seek to undercut each other on price and offer ever-more valuable products to attract consumer purchases. This competitive process maximizes economic welfare, and leads to lower prices, greater consumer choice, and high levels of innovation. (Church & Ware, Chapter 2)

Outside of this theoretical world, however, markets can fail to achieve the outcomes associated with perfect competition. Businesses, governments, and economic realities can impede the competitive process through myriad factors, such as exclusionary business conduct, marketplace regulation, and economic barriers to entry. (World Bank) The main inspiration of competition policy is to correct for, or reverse, restraints on the competitive process, with the goal of influencing market outcomes closer to those that would be delivered by a perfectly competitive market.

The heart of a country’s competition policy lies in its competition law. Competition laws prohibit certain types of economic behaviour that are generally agreed to be anticompetitive in purpose or effect. For example, modern competition laws typically forbid cartels, monopolistic business practices, and mergers that have an anti-competitive effect. (International Competition Network, pages 3-6) Nearly all advanced economies have competition laws that are enforced by one or more national (or multi-national) competition agencies.

Competition policy, however, extends beyond competition law enforcement and into the wider realm of public policy. Public policy can often encourage, or even require, businesses to act in a manner that affects the competitive process. Domestic price controls, burdensome administrative policies, and restrictions on foreign investment are all examples of government actions that can chill legitimate competition. (OECD, page 4) Pro-competitive public policy stimulates a healthy competitive process to deliver effective marketplace outcomes.

Sound competition policy is not an end to itself, but rather is a key determinant of prosperity. Competitive markets increase economic opportunity by acting as a key driver of innovation and productivity. (Canada, pages 3-5) For example, pro-competitive competition policy reforms implemented by Australia in the 1990s are estimated to have increased that country’s real GDP by 2.5%, resulting in AU$20 billion in unlocked economic value. (Australia, page XVIII)

 

Bibliography

International Competition Network. (2014) The Origins and Aims of Competition Policy. OECD. (2021) Competition.

World Bank. (2017) A Step Ahead: Competition Policy for Shared Prosperity and Inclusive Growth.

World Economic Forum. (2019) The Global Competitiveness Report.

Australia Government Productivity Commission. (2005) Review of National Competition Policy Reforms.

Canada Competition Policy Review Panel. (2008) Compete To Win.

Church, J. and R. Ware. (2000) Industrial Organization: A Strategic Approach.

International Competition Network. (2014) Major Characteristics of Competition Policy.

OECD. (2018) Indicators of Product Market Regulation Brochure.

World Bank. (2021) Markets and Competition Policy.

This article is being reviewed by the Editors of the Dictionary.

Author

Quotation

Greg Lang, Competition Policy, Global Dictionary of Competition Law, Concurrences, Art. N° 89181

Visites 1396

Publisher Concurrences

Date 1 January 1900

Number of pages 500

 

Institution Definition

Competition puts businesses under constant pressure to offer the best possible range of goods at the best possible prices, because if they don’t, consumers have the choice to buy elsewhere. In a free market, business should be a competitive game with consumers as the beneficiaries. Sometimes companies try to limit competition. To preserve well-functioning product markets, authorities like the Commission must prevent or correct anti-competitive behaviour. To achieve this, the Commission monitors:

  • agreements between companies that restrict competition – cartels or other unfair arrangements in which companies agree to avoid competing with each other and try to set their own rules;
  • abuse of a dominant position – where a major player tries to squeeze competitors out of the market;
  • mergers (and other formal agreements whereby companies join forces permanently or temporarily) – legitimate provided they expand markets and benefit consumers;
  • efforts to open markets up to competition (liberalisation) – in areas such as transport, energy, postal services and telecommunications. Many of these sectors used to be controlled by state-run monopolies and it is essential to ensure that liberalisation is done in a way that does not give an unfair advantage to these old monopolies;
  • financial support (state aid) for companies from EU governments – allowed provided it does not distort fair and effective competition between companies in EU countries or harm the economy;
  • cooperation with national competition authorities in EU countries (who are also responsible for enforcing aspects of EU competition law) – to ensure that EU competition law is applied in the same way across the EU. © European Commission
 
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