Competition issues at sub-national level:

Spurring entrepreneurship & innovation

January 31, 2005

Mark Dutz (mdutz@worldbank.org)South Asia Finance and Private Sector Development Department

The World Bank

Outline

1. Benefits of competition at sub-national level

– Road freight logistics & innovation: an example

2. Implications for competition policy

a. Enforcement actions to open ‘strategic bottlenecks’

b. Enhanced competition advocacy

c. Governance & institutional design

1. Benefits of local competition: Road freight logistics & innovation

• Mexico: Free entry into trucking & cargo handling, 1989-93– New goods by user firms due to faster & more reliable trucking

– Representative fertiliser co. improves operating margin by 10%

• Central Europe: Increased competition spurs innovative logistics 165 road freight services providers 493 user enterprises in food processing & distribution, and automotive

– Just-in-time consolidation/ bar-coding & tracking services stimulated by increased trucking competition

– Logistics innovations, in turn, dampen cost increases & raise revenues of business users

ease barriers to competition in upstream business services

2a. Enforcement actions to open bottlenecks

• Focus enforcement on detecting collusive agreements or exclusionary practices aimed at foreclosing access to essential business services

– focus on ensuring provision of essential inputs

– ex.1 examine exclusive purchase, supply or distribution agreements (including shipping, importing and distribution; millers’ cartel in Orissa; bid rigging in construction contracts; cartels in local services)

– ex.2 examine behaviour in land and financial markets

2b. Enhanced competition advocacy

• Address missing or poorly-functioning rules & institutions– recommendations to amend existing rules to promote competition

• State procurement policy

• Tied-selling of education & health services replaced by “competition for market” or other competition-friendly approach

– oversight responsibility to ensure that relevant institutions perform their role

• State systems for distribution & marketing of liquor

• Eliminate rules that suppress rivalry• State/local rules impeding entry

• Promote “culture of competition”• Awareness raising about benefits of competition

• Strengthening of “natural allies”

2c. Governance and institutional design

Objectives:

• Independence (predictability of enforcement)

• Influence (with local policymakers)– Reduce legal uncertainty/ confusion

– Make best use of scarce managerial & technical capabilities

– Avoid opportunism (“forum shopping”) & local pressure

1 common set of rules & approach

• Establish coherent central approach to enforcement & advocacy

• Create regional offices under control of national authority– Local delegation: monitoring (open investigations) & voice

– Central responsibility: policy, adjudication and resolution