COMPETITION ASSESSMENT:
THE OECD TOOLKIT
Il Foro Competencia y Regulación
Mexico City
Sean Ennis
9 January 2018
Outline
• Competition benefits on consumption side
• Benefits on supply side
• Competition assessment toolkit and key questions
• International experiences
• Conclusion
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Benefits of competition – consumer side
Competition leads to substantial reductions in consumer prices
Competition provides greater choice
Competition fosters investment that leads to better quality products
3
Passenger Flights in Europe
Market liberalisation in 1993 led to more intense competition and entry
of low-cost carriers (e.g. EasyJet, Ryanair )
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Passenger Flights in Europe
Price of the lowest priced carrier had fallen by 36% by 1997 and 66%
by 2002
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Benefits of competition – the firm side
Drives firms to improve their internal efficiency and reduce costs
Provides incentives to firms to adopt new technology
Provides incentives to firms to invest in innovation
Reduces managerial inefficiency
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Competition spurs productivity and
growth
• More competitive industries have higher
productivity rates and higher productivity growth
– Competitive industries enjoy higher annual productivity
growth (Nickell finds 2% gap)
• Virtuous Circle: as products became cheaper and
better, consumers buy more and firms’ turnover
increases
• Leading to higher growth
– EU single market increased productivity
– Countries with stronger competition frameworks have
higher growth (World Bank) 7
Competition and Productivity --
Japan’s Dual Economy
0 30 40 50 60 70 80 90 100 10
20
40
60
80
100
120
140
160 Steel
Automotive parts Metalworking
Cars
Consumer electronics
Computers
Soap and detergent
Beer
Retail Housing
construction
Food
processing
Employment
100% = 12.5 million employees Source: McKinsey Global Institute
U.S. = 100
Relative productivity levels
Index U.S. = 100
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Regulation and its impact on markets
• Rules and regulations typically have desirable socio-economic objectives
• In specific circumstances, they also have the potential to cause harm to the efficient functioning of markets
• We do not question the socio-economic values • Our objective: assess the effects of the
regulations on – Extent of competition in the markets – Incentives for firms to engage in innovative activity – Potential for growth and expansion of the markets – The usefulness or purpose of the regulation itself – Consumer welfare
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Regulation can stifle growth by
hampering productivity
Source - Arnold, J., Nicoletti, G. and Scarpetta, S. (2011). “Does anti-competitive regulation
matter for productivity? Evidence from European firms”. IZA Discussion Paper No. 5511.
Increase in multi-factor productivity compared to regulatory stance
Faste
r gro
win
g
More regulated
Regulations and their Impact on
Markets
• Some of the harmful effects that may arise from the rules and regulations relate to – Unduly high cost burden on firms
– Asymmetric costs across different types of firms
– Erecting barriers to entry (stringent or unreasonable licensing rules, for instance)
– Difficulty in marketing new products, hampering innovation
– Removing incentives to compete
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Pro-competitive reform can help
Difference, Australia GDP growth to OECD average
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IDENTIFY POLICIES TO ASSESS
APPLY CHECKLIST
ANY COMPETITION DISTORTION?
YES NO
IDENTIFY ALTERNATIVE OPTIONS
SELECT BEST OPTION
STOP IMPLEMENT BEST
OPTION
EX-POST ASSESSMENT
STOP
ALTERNATIVE STATUS QUO
Step 1
Step 3
Step 4
Step 6
Step 5
Step 2
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Competition Assessment Checklist Initial Screening Based on the Checklist
• The checklist consists of four core questions
• A YES answer to any of the questions would signal a competition concern and warrant a detailed review of the rule or regulation under consideration
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Competition Assessment Checklist Initial Screening: Checklist Question #1
• Does the rule or regulation limit the number or range of suppliers?
• This could arise, for example, if a regulation 1. Grants exclusive rights for a company to supply
goods or services 2. Establishes a license, permit or authorization process
as a requirement for operation 3. Limits the ability of some suppliers to provide a good
or service 4. Significantly raises cost of entry or exit by a supplier 5. Creates a geographic barrier to the ability of
companies to supply goods or services, invest capital or supply labor
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Competition Assessment Checklist Initial Screening: Checklist Question #2
• Does the rule or regulation limit the ability of suppliers to compete?
• This could arise, for example, if a regulation
1. Controls or substantially influences the prices for goods or services
2. Limits freedom of suppliers to advertise or market their goods or services
3. Sets standards for product quality that provide an advantage to some suppliers over others or that are above the level that many well-informed customers would choose
4. Significantly raises costs of production for some suppliers relative to others (especially by treating incumbents differently from new entrants)
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Competition Assessment Checklist Initial Screening: Checklist Question #3
• Does the rule or regulation reduce the incentive of suppliers to compete?
• This could arise, for example, if a regulation
1. Creates a self-regulatory or co-regulatory regime
2. Requires or encourages information on supplier outputs, prices, sales or costs to be published
3. Reduces mobility of customers between suppliers of goods or services by increasing the explicit or implicit costs of changing suppliers
4. Exempts the activity of a particular industry or group of suppliers from the operation of general competition law
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Competition Assessment Checklist Initial Screening: Checklist Question #4
• Does the rule or regulation limit consumer information or restrict consumer choice?
• This could arise, for example, if a regulation
1. Limits the ability of consumers to decide from whom they purchase
2. Reduces mobility of customers between suppliers of goods or services by increasing the explicit or implicit costs of changing suppliers
3. Fundamentally changes information required by buyers to shop effectively
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Greece 2016: Overview of
recommendations
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Potential
restrictions
Draft
recommendations
E-commerce 15 10
Construction 61 42
Media 68 68
Pharmaceuticals 88 54
Other manufacturing 80 48
Other wholesale trade 265 132
TOTAL 577 354
Romania 2015: Overview
Recommendations
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Construction Transport Food
Processing
Pieces of legislation
scanned
162
566 (plus 12 acts
not in force
anymore)
167
(Prima facie)
Restrictions found
81 85
45
Recommendations 64 50
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Romanian Maritime Transport: Piloting
Definition: A service provided by a pilot with local knowledge and skills which enable him to conduct the navigation and manoeuvring of the vessel in and approaching the harbour.
Restriction:
• Authorisation: Port operators may operate piloting services besides private providers but without needing authorisation. (TM2)
• Criteria for authorisation, esp. number of pilots required by law. Port authorities require more in practice. (TM3)
Recommendation:
• Piloting services should be outsourced by tendering procedure.
• Requirement for number of pilots should be replaced by requirement for service level.
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Piloting tariffs in different ports in EU
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Source: relevant port websites
Conclusion
• The technical tool, OECD’s Competition Assessment Toolkit, has been
– Developed based on country experiences and input
– Used constructively to improve regulations in other countries
• Economic benefits from more pro-competitive regulation can be substantial
• The application of the Competition Assessment Toolkit in Mexico holds potential for substantial beneficial impacts.
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Thank you
www.oecd.org/daf/competition
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