Competition issues at sub-national level:
Spurring entrepreneurship & innovation
January 31, 2005
Mark Dutz ([email protected])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
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