Competition Policy:

Definition and Scope

Presented by
Dr. M. A. Razzaque
We are going to have discussions on:

 What is Competition?
 What is Competition Policy?
 What it Covers?
 What is the need for Competition Policy?
What is competition?

Competition

Literary meaning: a contestable situation where

people fight for superiority.

In market economy, competition is a process

whereby firms fight against each other for
securing consumers for their products
 Fair and Unfair Competition
Fair Competition
 Producing quality goods
 Becoming cost-efficient
 Optimizing the use of
resources
 Adopting the best
available technology
 Investing in research and
development, etc.
Unfair Competition
 Fixing prices with the
rivals
 Setting a price which is
lower than cost in order to
throw out competitors from
the market
 Advertising that belittles
others’ product, etc.
 Types of competition

Price Competition Non-price Competition

Competition among suppliers Competition to win

to win customers by offering
lower price. May not be an
appropriate strategy for those
loyal to a particular brand.
customers not by lowering
price but by advertising,
offering after-sales-service,
using sales-promotion tools,
etc.
 Forms of Market Competition

Barriers to
Models of Number of Number of Nature of
entry and
Competition buyers sellers products
exit
Perfect Identical
Very large Very large None
competition products
Single
Monopoly Very large One Very large
product
Monopolistic Minimum
Very large Large None
competition differences
Large
Oligopoly Very large Very few Large
differences
For detailed information please consult

 Competition Policy and Law Made Easy:

Monographs on Investment and Competition
Policy, #8 ;CUTS (Pages 1-4)
 Oligopoly Market : Competition Among the Few

Key Features:
 Interdependence between firms in performance and strategy
 Aggressive action followed by defensive reaction
 Price competition and price war

(Recent packages offered by Mobile Phone companies)

 Intense non-price (promotional publicity) competition, which
may result in wasteful expenditures.
Detail on Oligopolistic market structure

 Making Sense of Competition Policy, by Frank Fishwick

(1993) (Pages 47-62)
 Competition Policy /Law

 Competition policy => government measures directly

affecting both Firm Behavior and Industrial structure.

 A competition policy should include both:

i) Economic policies adopted by Government, that

enhance competition in local and national markets, and

ii) Competition law designed to stop anti-competitive

business practices.
 Components of competition policy
Competition Policy

Competition Law
Government Policies

Private Actions

Deregulation Consumer
Industrial
and Policy
Policy
Privatization

Regulations Governing Other

Trade Policy
Capital and FDI Policies
 Competition Law (National)
Anti-Competitive
Agreements Between
Firms
( Collusion)
•Import cartels
•Price fixing
•Market sharing
•Bid rigging
•Limiting production
•Refusal to buy or
supply
•Tie-in arrangements
•Exclusive-dealing
•Resale price
maintenance
•Territorial allocation
Regulation of Mergers to
Abuse of a Prevent Tactics to Gain
Dominant Excessive Dominance in a
Market Position Market
Applies to:
• Predatory pricing
•Total unification
• Price of the companies
discrimination involved
• Excessive pricing •Buying of
sufficient shares in
a company so as to
• Abuse of have a say in
intellectual property policy formulation
monopoly
 The three stages of provisions that a
competition law constitutes are:

 The behavior and structure of firms in the market

 Institutional and enforcement design with a competition

authority, and

 Competition advocacy.
For details on competition policy and law:

 Competition Policy and Law Made Easy: Monographs on Investment

and Competition Policy, #8 ;CUTS (Pages 23-26)

 UNTCAD: Trade and development Board: Intergovernmental Group

of Experts on Competition Law and Policy; sixth session, Geneva, 8-
10 November 2004 : Communication Submitted by the People’s
Republic of Bangladesh (Pages 2-4)
 Need for a Competition Policy
Benefits to Consumers

 A fair deal in the market place with:

 The best possible choice of quality

 The lowest possible prices, and

 Adequate supplies of commodities.

 Benefits to Efficient Producers
A safeguard against practices that could drive
companies out of business.
 Lower entry barriers to promote entrepreneurship and
growth of SMEs.
 Efficientallocation and utilization of resources
ensures more output and employment.
 Control of international unfair competition and
restrictive business practices, such as international cartels
On the whole, a competition policy maintains and
promotes the competitive spirit and culture in the
market.
Globalization and the need for Competition Policy

Globalization and Competition

Outcome of threat to

Concentration of Market Power

Therefore, we need competition policy to monitor, prevent

and control anti-competitive practices.
For details on globalization and competition:

 UNTCAD: Trade and development Board:

Intergovernmental Group of Experts on Competition
Law and Policy; forth session, Geneva, 3-5 July 2002 :
The relationship between competition, competitiveness
and development. (Pages 3-6)
 Arguments Against Competition
 Preventing formation of large firms may reduce efficiency. The
situation arises when there exists significant economies of scale:
Examples : Natural Monopolies, like,
Infrastructure, Power and Railway .
 An obsession with competition might be counterproductive
leading to inefficiency especially when goods and services tend to
be homogenous.
 Policy actions against highly profitable firms could work against
the development of dynamic and thriving firms.
 Over-regulation could increase firms’ cost of operations and
generates inefficiencies.
Thank you.