Promoting Competition in Argentina

1
Promoting Competition in Argentina

• Carlos Winograd
• Secretary for Competition Policy, Deregulation
• and Consumer Affairs
• Ministry of Economy

2
Why should competition be preserved and fostered?

• Competition introduces market rewards and
  punishments
• some producers may have to exit from the market
• survival of the best (and not necessarily the
  biggest)
• It encourages entrepreneurial activity,
  innovation, market entry, and greater efficiency
  in the market.
• This leads to greater productivity of capital and
  labour, reduces production costs, and improves
  the competitiveness of businesses and nations

3
Why should competition be preserved and fostered?

• Competition policy and consumer protection are
  two faces of the same coin.
• Competition ensures that consumers will benefit
  from lower prices, better quality and more
  variety.
• Consumer policy promotes freedom of choice
• Economics of information

4
Competition policy and efficiency

• Competition promotes two types of efficiency
• static efficiency (optimal use of existing
  resources at minimum cost)
• productive efficiency
• allocative efficiency
• dynamic efficiency (optimal introduction of new
  products and production processes as well as
  better organisational structures over time)

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Competition policy and efficiency II

• Market concentration
• not necessarily leads to anti-competitive
  conducts and, therefore, should not be the only
  criterion used by competition authorities
• may be the outcome of an innovation process
• theory of contestable markets
• Competition policy objectives
• achieve as much competition as is realistic
• find structures in which market power can be
  compatible with active competitive behaviour.

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Preliminary Considerations

• Competition policy is complex
• assessment problems
• high costs of bad intervention
• difficulty of competition policy redress
• Government intervention might be for worse.
• Rigour and caution are essential.
• Per se prohibitions are difficult to define.
• Usually a case by case analysis is the best
  alternative

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Preliminary Considerations II

• Text book perfect competition does not exist
• Most markets are not purely atomised
• information asymmetries are common
• Text book perfect regulator does not exist
  either
• political pressures
• lack of information
• capture
• Rent-seeking potential depends on the
  institutional framework of the competition regime.

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Competition Policy in Argentina

• Relatively recent concern.
• Institutions in charge of promoting competition
  are still weak and lack expertise
• The Competition Commission has become relatively
  important since 1996
• the judiciary lacks enough independence and
  expertise
• knowledge of competition laws is limited
• the institutional framework does not limit
  adequately the potential for private and
  governmental opportunism

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Competition Policy in Argentina II

• The new Competition Act, passed in 1999,
  represents an important step forward
• establishes an independent and autarkic
  Competition Tribunal.
• Binding decisions.
• Introduces control of mergers acquisitions.

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The role of the Competition and Consumer Affairs
Secretariat

• The new government has emphasised its will to put
  competition issues in the center of economic
  policies
• As the creation of the Competition and Consumers
  Affairs Secretariat clearly reflects.
• Within this new institutional framework we will
  take the role of competitition advocates.
• Launching enquiries each time we have
  presumptions of anti-competive practices

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Implications

• Like in Canada Chile and the UK a double agency
  system will be promoted, separating the roles of
• Those who determine the objectives of competition
  policy (Competition and Consumers Affairs
  Secretariat).
• Those who investigate and judge conducts
  (Competition Tribunal).
• Moreover, the Competition Tribunal
• becomes more independent from short term
  interests
• professional members (appointed through
  competitive and transparent selection process)

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Implications II

• The double agency system adopted in Argentina
• limits the discretion of one single agency, (e.g.
  Electricity market or postal services)
• enhances checks balances (allowing a
  functional division between the agency that files
  cases and the one that decides them),
• minimises the risk of capture by interest groups,
• promotes competition between both agencies.
• Furthermore, it fits better the Argentine
  institutional framework
• the executive branch lacks a long run horizon.
• the Competition Commission has not yet gained
  enough credibility and reputation as an agency
  that administers justice.

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The tasks of the Secretariat

• The proactive competition policy will rely on the
  Secretariat, that will be in charge of
• a regular monitoring of the organisation of
  different markets with the aim of detecting
  anti-competitive practices and structures.
• When an illegal conduct is detected, the
  Secretariat will
• file cases with the Tribunal
• promote deregulation.
• eliminate barriers to entry
• other forms of proactive policy.

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MA Control More dynamic proceedings

• To maximize the objectives of the MA Control
• more efficiency in the allocation of human
  resources
• minimize the risks of corruption
• Improvements introduced
• Fast-track
• Minimal Thresholds introduced
• Information required in three stages in
  accordance with complexity of the transaction
• Expected results
• better control in significant MA and more
  conduct analysis
• a reduction in private sectors costs
• remove investment barriers

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Secretariats most important proceedings

• Petrol market
• We developed guidelines for Repsol-YPF to sell
  assets in the
• refining market.
• gas station market.
• Objectives to enforce the agreements between the
  firm and the government.
• Maximising the probability of increasing
  competition.
• atomised sale vs. block sale,
• we promote the entry of a new player, who has the
  capacity to compete with the incumbent players.

16
Secretariats most important proceedings

• Petrol market (cont.)
• The Secretariat suggested a set of policies to
  increase competition
• Establish a five year limit on the length of the
  renewed exclusive sales contracts between the
  refineries and the gas stations.
• Establish an eight year limit in the case of a
  new gas station.
• Limit vertical integration to 40
• Establish a new monitoring system of the fuel
  quality, which rewards good quality and strongly
  punishes tampering.

17
Secretariats most important proceedings

• Electricity market
• The Secretariat suggested to the ENRE to ban
  ENDESAs simultaneous equity holding of EDENOR
  and EDESUR
• Objective
• enforce the regulatory framework
• allow yardstick competition
• avoid future competition barriers
• In February 2001, ENDESA sold its stake in EDESUR
  to EDF.

18
Secretariats most important proceedings

• Telecommunications
• Jointly with the Communications Secretariat, we
  produced the sectors new regulatory framework .
• Objective remove entry barriers and promote
  competition in order to allow
• lower prices
• higher diversity
• universal service
• The new regulatory framework places Argentina at
  the level of the most advanced countries.

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Secretariats most important proceedings

• Supermarket sector
• We promoted a self-regulative instrument to
  improve the commercial link between suppliers and
  supermarkets a Best Practices Code.
• Objective
• To set up clear rules that limit the potentially
  disloyal behaviour of the players.
• To set up swift mechanisms for the resolution of
  conflicts.

20
Secretariats most important proceedings

• Postal services
• Merger OCA - CASA
• First time the CNDC denied authorisation of a
  merger operation
• Significant market concentration and no
  efficiency gains
• Regulatory Framework
• We elaborated a new regulatory framework.
• objective to promote competition and remove
  entry barriers

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Promoting Competition in Argentina

• Carlos Winograd
• Secretary for Competition Policy, Deregulation
• and Consumer Affairs
• Ministry of Economy