Post on 18-Dec-2015
UNDERSTANDING & COMMUNICATING BENEFITS OF COMPETITION REFORMSTANIA BEGAZO, ECONOMIST
COMPETITION POLICY GROUP
TRADE AND COMPETITIVENESS GLOBAL PRACTICE
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CREW Project International Conference
Bangkok
November 19, 2014
What is a competition reform?Approach to implementing competition reforms
Understanding & Communicating Benefits of Competition Reforms2
Evidence as a Catalyst for Change
Key elements to explain and communicate the benefits of competition reforms
A. Empirical evidence
B. Media outreach
C. Awareness
raising + initiatives
1. Literature reviews – effects on key variables:- Macroeconomic/sectoral: productivity,
growth- Microeconomic: consumer welfare and
savings, income poverty
2. Reform/country-specific ex-ante estimates:- Macroeconomic: GDP growth, productivity- Microeconomic: consumer savings,
income poverty- Indicators along theory of change
3. Reform-specific ex-post estimates- Entry, market structure, consumer welfare,
prices
Sector Evidence Methodology Reference
Various foods and medicine - Mexico
Consumer welfare loss from monopoly is higher for the poorest vs the richest by 20% in urban areas and 23% in rural areas
Uses household income and expenditure survey. Calculate elasticities and welfare effects
Urzua (2013)
14 household commodities- Australia
Welfare loss associated with monopoly is 46% higher for the poorest 10% compared to richest
Uses household survey to estimate elasticities & welfare effects using consumer surplus
Creedy and Dixon (1998). Also (2009)
Flour, bread and maize meal- South Africa
Collusion between bread manufacturers lead to an overcharge between 7% - 42%
“During and after” approach using data from the cartel firms
Mncube (2013)
Pre-cast concrete products- South Africa
Cartel led to an overcharge of:- - 17% - 28% in Gauteng - 51% - 57% in KwaZulu-Natal.
“Difference in difference” using prices of a non-implicated firm as a competitive benchmark
Khumalo et al (2012)
A number of existing sectoral studies provide evidence of the effects of competition reform or enforcement of competition rules on consumers and producers...
A.1. Relevant empirical evidence I: Example: Evidence of benefits for consumers
Sector Evidence Methodology Reference
Rice- Vietnam
Land and market reforms (moving to market driven production and pricing) led to dramatic increases in paddy rice productivity in rice growing regions
Build data set on Total Factor Productivity
Kompas et al (2009)
Various export crops- Sub-Saharan
Africa
Competition among processors increases farmgate prices and improves farmer livelihood
Use a game theory model to simulate price effects of a change in market structure
Porto, Chauvin and Olarreaga (2011)
Trucking- Lao
Breaking a cartel and opening transit to all Thai truckers reduced logistics costs from Bangkok to Vientiane by 30%
Case study Arnold (2005)
Fertilizer 80% to 100% of the fertilizer subsidy paid by the Indian government from 2011-2020 would, in fact, finance monopolistic rents from the Potash fertilizer cartel
Use projected prices and production figures from the Conference Board Report on Potash
Jenny (2012)
Shipping- Latin America
Reducing market power in shipping would reduce shipping costs by 45% and boost trade by 17 %
Back-of-the-envelope calculation assuming all markups are reduced to the smallest markup in the data set on prices
Hummels et al (2009)
A.1. Relevant empirical evidence II: Example: Evidence of benefits for producers
Method:• Use household survey data to
estimate welfare effects of price changes across the income distribution.
• Elasticities are estimated from survey data and welfare effects proxied by equivalent income effects of price changes.
Findings:
• Eliminating market distortions (trade barriers, non-tariff barriers, government influence on prices, potential anticompetitive practices at business associations) would reduce poverty.
Source: KIHS 2005/2006. Argent and Begazo (2014)
Household expenditure share in maize
Household expenditure share in sugar
Eliminating overcharges of 20% would increase
real income and …
Poverty by 1.8 pp
Poverty by 1.5 pp
Poorest decile gains 6.4 times more than the richest
Poorest decile gains 3.4 times more than the richest
A.2. Benefits of proposed reforms I: Country specific estimates – Kenya
Demonstrating the effects of limited competition in sugar and maize on the poor
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A.2. Benefits of proposed reforms II: Country-specific estimates – Turkey
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Method 1: Demonstrating the effects of increased competition on productivity growth
Use pricing power (Price Cost Margins) as proxy for product market competition.
Labour productivity growth was regressed on PCM across countries, industries and time
Findings: A 10% decrease in average PCMs leads to a 4.5% increase in the annual rate of
productivity growth
Method 2: Demonstrating the effect of reduced service sector regulation on growth value add
growth in service intensive industries
Uses results from previous studies on the effect of a country moving toward OECD best practices levels
of regulation
Calculates the effect of a significant decrease in regulatory restrictiveness (at least one quartile) for
Turkey
Findings: A significant decrease in regulatory restrictiveness increases value added growth in
service-intensive industries by 0.5% -1 %
Findings: A 0.75% increase in value added growth would equate to an additional value
added US$484 million for Turkey
o # Draft law/regulation
o # practices recommended for modification
o # Reports produced
o # Training/ awareness workshops conducted
o # participants in events satisfied
Advisory to remove sector regulations that create entry barriers and limit expansion
Allow for affordable and
high quality products for businesses,
households and the public sector
Unlock private sector growth
and investment in markets that lack competition
Goals
Consumer savings due to higher competition
Investment generated
Outcome
• Market concentration (reduction of modified HHI)
Outputs
Minimize administrative
burden of antitrust rules on businesses
Compliance Cost Savings due to more effective competition rules
Impact
• # anticompetitive practices detected/prevented
Direct fees involved in merger notification# of days of merger review process
Public sector savings due to higher competition
• # state aid instruments modified to minimize distortions
• Amount of aid granted through approved state aid
• Market concentration (reduction)
# L
aw
/Reg
ula
tion
s a
dop
ted
# P
racti
ces m
od
ified
Efficient allocation of
public resources and a level
playing field for businesses
Public sector savings
Advisory to increase the effectiveness of antitrust rules
Advisory to minimize distortive aid and incentive schemes
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A.2. Benefits of proposed reforms III: M&E framework for competition reforms
A.3. Benefits of completed reforms I:Opening the domestic container shipping market to competition in the Philippines
- High shipping costs- Few shipping operators
on primary routes- Burdensome
registration procedure- Existing operators
delay/ prevent entry of competitors
- Usage of foreign vessels can be
restricted by domestic players via “Certificate of Public Convenience”
(CPC).
- Simplification
of CPC issuance
procedure for existing
operators
- Avoid delaying/
preventing entry
- Incumbents no longer have the
opportunity to contest
entry
- Expedite issuance of
CPC
from >50 to 4 days
POTENTIAL MEDIUM TERM INDICATORS:
1) SERVICE QUALITY/PRICES
2) INVESTMENTExpected additional
investment generated in the shipping industry:
Context/Background Output ImpactOutcome
Research question• How does increased contestability affect incumbents’ decisions on pricing, routes covered, quality,
investment, frequencies, capacity?
A.3. Benefits of completed reforms II: Promoting equal treatment during registration in agricultural input markets in Honduras
- Only 1,200 pesticides were registered in
Honduras vs 2,500+ in Guatemala, Costa Rica or
Nicaragua.
- Fertilizer consumption at least 50% below
neighboring countries.
- Discretional treatment of registration applications
distorting the level playing field.
- Some applications processed in 6 months,
others in 3 years
Streamlined registration procedure
+
Procedural manuals for consistency
+
Online database for transparency & facilitation of
consumer choice (ongoing)
Cost-effective registration on a level playing field
Streamlined and standardised
process reduced registration time- From up to 3
years to 90 days
INDICATOR 1: CHOICE
Increased choice for at least 35,000 farmers:
300 products registered/year (340%
increase).
INDICATOR 2:
PRICE
Prices of some pesticides dropped up
to 9%.
Context/Background Output Impact
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Outcome
FUTURE DIRECTIONS FOR IMPACT STUDIES: SUBNATIONAL REGULATIONS• Anticompetitive regulations can exist at the subnational level• Likewise, reform programmes often occur at the subnational level• Provides an opportunity to exploit inter-state or inter-regional variation to examine impacts• Examples from European retail sector: Bertrand and Kramarz, 2002; Viviano, 2008
1. Communication strategy:- Press conferences- Press releases- Factsheets- TV interviews
2. Training to journalists:
B. Engaging the media
Media engagement and training to journalists• E.g. In Kenya, a Business Journalists Training
workshop held by the Competition Authority in May 2014• The Authority is now covered by the media 2-3 times
per week • Potential pilot to test use of media and impact figures
to advocate for pro-competition reforms in specific sectorsMedia campaign for specific competition
decisions• E.g., COMESA launch of merger guidelines
13Understanding & Communicating Benefits of Competition Reforms
1. Global voice on the importance of competition:- Competition Advocacy Contest –
successful implementation of reforms- Generation of data for research/analytics
(Product market regulation indicators, competition diagnostics indicators)
- Pre-ICN conference- Peer-to-peer learning (RCC)
2. Country-level Outreach to different stakeholders:- Government bodies (regulators,
prosecutors, judges, public procurement authorities)
- Business associations- CSO
+
C.1. Global voice on the importance of competitionAn example of a global initiative
1. Successfully promoting pro-competition market reforms, opening of markets, and infusion of
competition principles in other sectoral policies
2. Assessing the potential negative effects of certain rules and regulations on the market and informing
policy makers and public authorities
3. Raising awareness of private sector stakeholders and empowering consumers to deter anticompetitive
behaviour
4. Improve the effectiveness of antitrust enforcement through advocacy with relevant public bodies.
• The WBG Competition Advocacy Contest showcases activities of competition agencies that result in measurable impacts on markets, consumers & other stakeholders to:-
• Expand interest in the competition agenda globally• Raise the profile of competition champions within governments
• 2013 Awards - 4 themes: 2014: Inclusive growth for shared prosperity
1. Promoting pro-competitive reforms that foster growth and reduce inequality
2. Promoting awareness of competition benefits in a time of crisis
3. Promoting cooperation with relevant public bodies in order to balance other public policy interests with competition
goals
Conclusions
• Quantification of the positive impact of reducing regulatory restrictions and tackling anti-competitive behavior can help…
1. Catalyze reform2. Strengthen enforcement of antitrust rules
• Combination of ex-ante and ex-post estimates• Methodologies for ex-ante estimates and indicators to test the
theory of change.• Ex-post estimates require understanding current data availability
(e.g. household surveys, firm-level data) and developing appropriate quantitative methods; and identifying appropriate indicators and building databases for future research
• Dissemination of results to government, judiciary, private sector and civil society is key to build support for the pro-competition agenda and overcome political economy barriers to reform.
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Contacts
https://www.wbginvestmentclimate.org/advisory-services/cross-cutting-issues/
competition-policy/
Tania Begazo
tbegazo@worldbank.org