BUILDING SUPPORT FOR COMPETITION REGULATION –

THE IMPORTANCE OF THE CONSUMER INTEREST

 Robin Brown and Howard Hollow

Foundation for Effective Markets and Governance

Australia

 1 Successful introduction of competition regulation, as for other kinds of regulation, needs whole of government, business and broad civil society support. 2 Education and information – different programmes for different groups needed  3 A constituency for competition regulation cannot be artificially generated. 4 The ordinary consumer voice and the small business voice need support

5 Regulatory change creates winners and losers 6 Regulators do not operate in political vacuums. Regulation is whole of society process - triangular governance 7 The value of a single, independent competition and consumer protection regulator

1 Getting whole of government, business and broad civil society support. Distinguish competition policy and competition regulation (law). *Competition policy determines which sectors of an economy should be exposed to competitive markets. For example, in many countries there is very limited exposure if any of health and education services to competitive markets. *Competition regulation is intended to contribute to the benefits flowing from exposure of sectors to competitive markets.

All areas of government need some understanding of competition regulation. Clearly particular areas need higher levels of understanding such as·        those concerned with industry and commerce policy and programmes·        those concerned with monitoring or operating state owned enterprises·        those concerned with law reform and enforcement, and·        judicial officials

Regulatory policy cannot remain too far out of step with public opinion. The successful message is that competition regulation is for consumers and is just as important for the advancement of consumers’ interests as consumer protection regulation. The process of gaining support of government, business and civil society took a very long time in Australia –1967 to mid to late 1980’s. We hope other countries can do better. 

A collaborative process is the key

2 Education and information – different programmes for different groups needed  Overcoming negative and indifferent attitudes and gaining early civil society support for competition regulation requires extensive education and information and advocacy by trusted agents.

Quite basic education on market processes is needed by many groups. 

Business and lawyers and others who advise business need targeted programmes

What we mean by the word market

Who is involved in markets

The various kinds of markets

How markets work

What is done when they do not

CORPORATE COWBOYS

AN APPARATUS TO HARNESS MARKET FORCE

A BETTER APPARATUS

3 A constituency for competition regulation cannot be artificially generated. It is critical that civil society support for competition regulation is built on existing civil society groups and networks

4 The ordinary consumer voice and the small business voice need support Consumer groups are effective civil society advocates, but need assistance Consumer voice without support not as loud as the voice of producer interests Often the producer adversely affected by competition regulation will falsely assert that its interests are the same as the public interest

-Various models for supporting the consumer voice-Even in developed countries state support is provided EG In the UK there are bodies set up by government, but independent from it, to research, educate and advocate on behalf of consumers-Many small business sectors will benefit from competition regulation to limit the power of larger businesses, but their voice may also need support

Supporting the Consumer Voice Advocacy agency set up by government Advocacy agency statutory independence Funding a national association of civil

society consumer groupsConsumer groups in OECD countries funded by

selling product information - ?LDCs and DCs

Continuity is important and normal aid project funding is not very satisfactory

5 Selling the benefits – but regulatory change does create some losers  -Regulation should have and be shown to have the dual goals of efficiency and equity. Improved efficiencies in particular markets and the overall GDP improvement can be shown-But ensuring equitable sharing in the benefits requires effective consumer protection regulation and other interventions-As well as developing an understanding of the benefits, there must be openness that there will be short-run adjustment costs and some losers

 

Time

Costs of adjustment to competitive markets:- market exit and entry costs;- frictional unemployment

Running costs of competition author-ity

Line of optimal efficiency, ie. where efficiencyis traded off for equity and other socialobjectives

Standing costs of non-competitive markets:- technical and allocative inefficiencies;- excessive prices - domestic & import;- low quality;- reduced FDI;- lack of access to weorld markets;- unemployment to under employment; and- unjust enrichment

?1

?2

Sound estimates of values ?1 & ?2 needed for political decision tointroduce competition regulation

6 Regulators do not operate in political vacuums Regulation is whole of society process - triangular governance  There is an important role for civil society in maintaining government support for competition regulators to ensure the law is improved as needed and not watered down and to ensure adequate resourcing for the regulator

Consumer groups play an important continuing role supporting competition regulation

They counterbalance negative business pressure

They test the exemption process

They extend the eyes and ears of the regulator

They stimulate the regulator to action- small watchdogs to keep the big watchdog alert

They help interpret the regulator’s actions for the community

 Once introduced, the highest levels of compliance with competition regulation, like other kinds of regulation, requires continuing government, business and broad civil society support.

Compliance is limited as understanding is limited.The wider the civil society support for any form of regulation the wider is the base of the compliance pyramid thus the more effective is the work of the regulator.

business / producers

civil society / consumers

the state

triangular governance

Incapacitation

Criminal Penalties

Civil Penalties

Warnings

Compliance Education

The Regulatory Compliance Pyramid

The apex of the pyramid has to be real and seen to be real

That is, the Consumer and Competition Regulator must be seen to have the authority to enforce the law and not be open to political interference

Producers Consumers

Government

The Regulatory Compliance Pyramid with strong triangular support

Producers Consumers

Government

The Regulatory Compliance “Pyramid” with weak triangular support

7 The value of a single, independent competition and consumer protection regulator The effectiveness of a competition regulator will be greatly improved if it is also the consumer protection regulator and is a whole of economy regulator.

A combined competition and consumer protection regulator will enjoy greater confidence amongst consumers and a more positive image in public debate, thus stronger support for its work.

For example in Australia the AUSTRALIAN COMPETITION AND CONSUMER COMMISSION is portrayed in the media as the “Consumer Watchdog” whether it is warning or enforcing in relation to a consumer protection matter or a competition matter.

There are significant synergies and economies of scope if one regulator can work on making a market work in terms of both competition and consumer protection issues.

The general competition and consumer regulator should have an overview role in relation to special market sector regulators to ensure consistency across all markets and to guard against regulatory capture

Parliament

The PeopleCivil Society

Executive

Consumer Competition Policy Advisory Council

Producer Groups

Consumer Groups

Consumer Competition Regulator

Courts

Market Sector RegulatorsCo-regulatoryAgencies

The Market

Outline of Technical Assistance for New Competition Regulatory Regime

·        assistance in the development of an appropriate structure for the regulator;·        assistance with recruitment of appropriate staff;·        development of programs for implementation of the legislation – this would include devising procedures (and developing procedures manuals) for:

- dealing with complaints and enquires;- prioritising, planning and conducting investigations and collecting evidence;- reporting and assessing outcomes of investigations;- dissemination of information on outcomes and designing effective media strategies:- developing appropriate processes for exemption functions (including analysis of applicant submissions, market enquires; analysis of submissions of interested parties, development of evaluation techniques, preparation of decisions, promulgation of decisions, development of appropriate review procedures); and- streamlined consideration of mergers and acquisitions.

·        development of programs of guidance for administrators and business, other government organisations and the community generally;·        development of training programs and staff exchanges;·        educating those groups to be effected by the legislation; andprovision of on gong technical support