International Agreements and Development Policy

Competition Policy and Development

Manuel ‘Butch’ F. Montes

University of the Philippines

Econ 198 2nd Semester, SY 2020-21

Main Issues – Competition Policy

• Competition Policy for Efficiency or for

Development
• Efficiency Development?
• Enterprise development Efficiency

• Issues in Competition Policy

• Regulation for Competition or Regulation of
Competition
• Policy for the domestic arena or as a international
discipline
• Static vs. Dynamic Efficiency

Manuel ‘Butch’ F Montes | Competition Policy | 2nd Sem, SY 2020-21 | 2

Policy Choices over Competition Policy

• Competition Policy
• Pure Approach
• Impure Approach
• Competition provisions in TPP, RCEP, USMCA

• Competition policy
• Regulation FOR Competition OR
• Regulation OF Competition

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Competition Policy – Pure Approach

• Prohibit and eliminate restraint of trade and

monopolistic practices
• Price-fixing cartels
• Monopoly behavior
• Barriers to market entry
• Consumer/user welfare as paramount criterion
• Objectives
• Maximize consumer welfare vs domestic development
• Competition main and often the ONLY tool to
promote efficiency in production
• If Foreign Supply more efficient, provide market access

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Competition Law – ImPure Approach

• (Domestic) Enterprise development

• Safeguard minimum viable scale of domestic enterprises
• Minimum scale for international competitiveness
• High levels of investment on part of private sector and steady
growth of profits

• Consumer welfare: Promote intense competition for

efficiency and consumer welfare
• Development objective: Requires competition policy to
promote both objectives

• Regulate competition for enterprise development

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References : Old and Classical and New and Digital

• References
• Motta, Massimo (2015) Competition Policy: Theory and Practice. Cambridge:
Cambridge University Press.
• World Bank Group and OECD (2017) A Step Ahead: Competition Policy for
Shared Prosperity and Inclusive Growth. World Bank: Washington, DC.
• World Bank Group, Australian Aid, Canada (2018) “Fostering Competition in
the Philippines: The Challenge of Restrictive Regulations.” World Bank:
Washington, DC. Nov.
• Singh, Ajit (2002) “Competition and Competition Policy in Emerging Markets:
International and Developmental Dimensions.” G-24 Discussion Paper Series
No. 18, G-24, Washington, DC. September
• World Economic Forum (2019) “Competition Policy in a Globalized, Digitalized
Economy.”
http://www3.weforum.org/docs/WEF_Competition_Policy_in_a_Globalized_D
igitalized_Economy_Report.pdf
• G. Núñez and F. Da Silva, "Free competition in the post-pandemic digital era:
the impact on SMEs", Project Documents(LC/TS.2021/15), Santiago, Economic
Commission for Latin America and the Caribbean (ECLAC), 2021.

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Competition Policy for Developing Countries

▪ Standard economics
• Economics of imperfect governments (because markets
are perfect?)
• Governance | state capability | corruption
• Election/ decision processes and outcomes
• Should imperfect states intervene in the natural state of
the world ?
▪ Industrial organization
• Economics of imperfect markets
• How do private actors operate in actually existing
markets? (Some influence over price)
• HOW should (imperfect) states regulate imperfect
markets / imperfect private actors?
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Competition Policy for Developing Countries

▪ Industrial organization
• Study of firm behavior : economics of imperfect competition
• Market power
• Product differentiation
• Price discrimination
• Durable goods and experience goods
• Secondary markets and their relationship with primary
markets
• Collusion
• Signaling
• Mergers and acquisitions
• Antitrust and competition
• Industrial policy

• Excess competition reduces investment and long-term growth in

productivity

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Competition Policy for Developing Countries

• Issues
• Relationship between competition, competition policy,
and development
• Enterprise development and industrial organization
considerations for competition policy
• Market power of companies from advanced countries
over developing countries and the firms there
• Should competition policy be a international discipline?
How to implement?

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Competition Policy for Developing Countries

• Developing countries often have less concentration

in markets than developed countries
• Standard measures of lack of competition
• Lack of competition in East Asia as cause of Asian
financial crisis
• Concentration ratios: % of market by 3 largest firms
• Higher in developing vs. US
• But greater industry participation of very small firms
• Non-standard indicator
• Persistence of profits
• Firms in developing countries have lower persistence

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Competition Policy for Developing Countries

▪Increasing application of competition policy

in developing countries
▪Analytical issues
• Is Excess Competition a problem?
• How to relate competition to motivate increased
effort
• Are firms too small to make profits that can be
reinvested to increase production and improve quality?

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Competition Policy for Developing Countries

▪East Asian record (Japan, ROK, Taiwan)

• Consistent with industrial organization outcomes
but not with perfect competition perspective
• Optimal degree of co-operation and competition
▪Taiwan relied on more competition than
ROK, but nevertheless had very large SOEs
• Chaebols in ROK

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Competition Policy for Developing Countries

▪Competition policy & economic reform

• Deregulation
• Privatization
• Import liberalization
• -> foreign competition
▪Privatization => private natural monopolies
▪International wave of mergers and
acquisitions (M&A)

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International Trends towards Oligopoly thru M&A

• Google has been buying potential competitors and getting

larger
Source: Tim Wu and Stuart
A. Thompson (2019) “The
Roots of Big Tech Run
Disturbingly Deep.” NY
Times, 7 June 2019

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International Trends towards Oligopoly thru M&A

• Facebook has been buying potential competitors and

getting larger
Source: Tim Wu and Stuart
A. Thompson (2019) “The
Roots of Big Tech Run
Disturbingly Deep.” NY
Times, 7 June 2019

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Global trends – dominance of large companies

• Increasing size of international companies and

market dominance
• Market dominance now by Big Tech

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International Trends towards Oligopoly thru M&A

• Google acquisition of YouTube, Waze

• Purchase of direct competitors – Doubleclick (online
advertising) and AdMob (mobile advertising)

• Facebook – WhatsApp, Instagram

• Shut down 39 companies
• Acquire and shut down other social networks: Nextstop,
Gowalla, Beluga, Lightbox
• Onavo – survey usage patterns of users
Source: Tim Wu and Stuart
A. Thompson (2019) “The
Roots of Big Tech Run
Disturbingly Deep.” NY
Times, 7 June 2019

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 Global Monopolies / Oligopolies

Sources: Nolan 2012,

Montes 2013

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Competition Policy for Developing Countries

▪ Global markets
• Universe of very large firms emanating from
developed countries
▪ What is competition policy in an FTA?
• A matter of market access for large international
firms into developing countries?
• A matter of efficiency, at the global level, for global
consumers?
• A matter of competition-driven investment toward
efficiency in developing countries?

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Competition Policy for Developing Countries

▪ Possible objectives
• Limit anti-competitive behavior by large private firms
• Stop abuses of monopoly power by larger corporations
created by intl. merger trend
• Promote development
▪Development and competition policy
• “Strong state” missing: Can developing country
implement competition policy?
• What kind of competition policy is possible in the
Philippines ?
• Is competition policy possible in corrupt society?
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Competition Policy for Developing Countries

▪ Policy Choices
• Promote competition as a good in itself
• Promote development
• Promote high rates of investment (incl. private
profits)
• Promote competition to motivate innovation,
efficiency, and efforts to expand production

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Competition Policy for Developing Countries

▪ Philippine Competition Law 2014

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Competition Policy for Developing Countries

▪ Philippine Competition Law 2014

▪ Prohibits
▪ abuse of dominant positions
▪ cartels and price fixing agreements
▪ Competition Commission can prevent domestic mergers
and acquisitions
▪ Can it prevent foreign investment financed mergers and
acquisitions?
▪ Allows private sector and non-government groups to
initiate cases

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Competition Policy for Developing Countries

▪Development and competition policy

• Dynamic rather than static efficiency
• Optimal degree of competition (not maximum
competition)
• Optimal combination of competition and
cooperation
• Maintain private sector’s propensity to invest at high
levels, and thus protect steady profits, prevent
overcapacity
• Simulated competition
• Industrial policy – coherence with competition
policies
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Competition policy

• TPP

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Competition policy

• TPP
Economic Efficiency

Consumer Welfare

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Competition policy

• RCEP
? Objective(s) of this chapter
vs
Objective of promoting
competition ?

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Competition policy

• RCEP

Recognize
sovereign rights
of each Party
on competition
policy

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Competition policy

• RCEP

How is Philippine Recognize significant

competition law differences among
shaped? Is it towards Parties on competition
objectives of TPP? policy
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Philippine Competition Policy

• 2014 Law

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Philippine Competition Policy

• 2014 Law

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Philippine Competition Policy

• 2014 Law – Like US law, allow private parties to

initiate case

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Philippine Competition Law and National Treatment

• RCEP National Treatment

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Right of Private Redress in TPP

• TPP Like US competition law, in TPP private actors (foreign

companies) have right to sue for redress for “uncompetitive”
behavior of competitors.

• RCEP does not have this provision but Philippine competition law
has

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Good and excessive competition in developing countries

• Privatization and deregulation raises stake on competition

policy
• Standard Model: Free market competition Increases in
productivity
• Not the actual model of East Asian success (World Bank 1993):
• “Optimal” degree of competition and cooperation
• East Asian success dependent on “Impure” policies
• Import controls
• Coordination between government, business and finance
• Restriction of foreign investment
• China: “imperfect” (regulated) capital and labor markets

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Developing country issue

• Competition policy
• Domestic
• International
• Does competition commission have the power to promote
competition in both spheres?

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Japanese Competition Policy

Source: Singh (2002)

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Japanese Competition Policy

• Allied occupation of Japan: 1947 Anti-Monopoly Law

(AML) vs zaibatsu
• But “Weak enforcement” after 1952 (end of Allied
occupation)
• MITI sponsored and supervised industry cartels versus
Fair Trade Commission (which was supposed to break
up cartels under AML)
• Strong competition among evenly matched firms
• The Japanese government has proceeded on the assumption
that competition among fewer, more evenly matched firms
is preferable to having one large firm competing with many
smaller rivals, a principle that is well-recognized in athletic
competitions (Nalebuff and Stiglitz (1983))
• Minimum size in order to compete internationally
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Japanese Competition Policy

• Requires industrial policy on part of the government

• E Asian countries developed institutional structures in which
firms competed for valued economic prizes, such as access
to credit, in some dimensions while actively cooperating in
others; in short, they created contests (World Bank 1993)
• Japanese pro-competition and anti-competition policy
depending on the sector
• MITI promoted contest-based competition between
oligopolistic firms: could lead to extremely intense
competition
• Contrary view: Porter and Sakakibara (2004) Japanese
sectors less cartelized were more dynamic and more
internationally competitive
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Japanese Competition Policy

• Possible reverse causation: Sectors more supervised

by MITI were precisely those growing more slowly
because of technical and internal difficulties
• Japan’s support for car industry (Magaziner and
Hout 1980) - industrial development
• Discourage foreign investment in the car industy
• Comprehensive import controls through the mid-60s,
high tariffs through mid-1970s
• State control of all foreign licensing agreements
(government guarantee of payments only if 90% of
licensed parts produced in Japan within 5 years.)

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Competition Policy - Key Points

• Each country determine its competition policy for

itself based on needs and circumstances
• NOT for market access for developed country firms
to developing countries
• International companies dominate in technology,
finance, managerial capabilities, international
networks, market power input and output markets
• Can swamp domestic enterprises
• Block the development of domestic enterprise
• Danger of “National Treatment” of international
companies in domestic markets
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 Policy Issues

Costs, Intl. Prices, Competition

Supply International
Capacity Environment

Investment: Intl. Treaty Obligations

Private and Public
Participation in intl.
Efficiency: through rule setting and
Competition, standards
Technology,
Regulation

Economic
Policy
(Unilateral)
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