BRIDGES TO PROSPERITY THROUGH COMMERCIAL LAW REFORM

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BRIDGES TO PROSPERITYTHROUGH COMMERCIAL LAW
REFORM

• James C. Hamill
• Deputy Director for International Technical
  Assistance
• Office of International Affairs
• US Federal Trade Commission

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Defining Competition

• Competition is a bargaining contest between
  buyers and sellers for the exchange of goods and
  services at agreed prices, quantities and
  qualities.
• It is a process for doing business, since
  planning for future transactions requires
  allocations of labor and production that
  anticipate different demands.

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Expansion of Competition Laws Worldwide

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Worldwide Spread of Competition Law

• 1900

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Worldwide Spread of Competition Law

• 1960
• Note EU introduced antitrust law in 1957

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Worldwide Spread of Competition Law

• 1980

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Worldwide Spread of Competition Law

• 1990

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Worldwide Spread of Competition Law
2000
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International Competition Network

• Nearly 100 members from over 80 jurisdictions.
• Formed in 2001 to tackle the challenges raised by
  globalization of antitrust.
• Mission promote procedural and substantive
  convergence.
• Initial focus differences in multi-jurisdictional
  merger review and development of competition
  advocacy.

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Worldwide Spread of Competition Law

• 2008

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Three Foundations of Competition LawViolations
defined similarly throughout the world

• CARTELS (in U.S., agreements often called
  price-fixing or collusion) commonly these
  are agreements between competitors on sale or bid
  prices and/or allocations of markets. Can be
  state supported.
• MONOPOLIZATION (often referred to as abuse of
  dominance) Exclusionary practices to establish
  a monopoly, or to protect it. Implies a power to
  control prices and exclude competitors.
• MERGERS AND ACQUISITIONS (called combinations
  in some laws) An international concern because
  of large numbers of foreign firms active in
  making acquisitions, or being acquired.
  Anticompetitive mergers may facilitate collusion,
  or produce what are called unilateral effects.

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Violations defined similarly throughout the world
(contd)

• Cartels are the main evil of U.S. antitrust
  law, because they are almost always harmful.
  These are treated in U.S. law as economic crimes,
  punishable by jail terms. Neither culturally nor
  politically is cartel behavior viewed with favor,
  which is one of the most significant social and
  political achievements of American antitrust.
  Suspicion of cartels is the primary but
  sometimes most difficult beginning of antitrust
  law implementation worldwide.
• Cases are rarely prosecuted in the U.S. system
  under an abuse of dominance (monopolization)
  theory, because of powerful arguments that
  monopolization is unlikely to succeed. Such
  cases are very complex. Price increases might
  lead to the entry of new competition and result
  in lower prices, despite exclusionary conduct.
  This field is under intense examination currently
  through joint FTC/USDOJ hearings on
  monopolization under U.S. law. Also a subject
  for rethinking in Europe.
• Merger and acquisition investigations consume as
  much as 60 of U.S. antitrust agency resources
  and require painstaking economic analysis .
  Anticompetitive mergers are the exception, not
  the rule. Most mergers are not harmful and can
  be beneficial. Since 1976, a premerger
  notification system has required advance
  reporting of most significant mergers so as to
  facilitate government investigations of a suspect
  few.

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Advantages of an Effective Competition Policy

• Convergent transparent competition laws provide
  assurance that commercial transactions in one
  country will be subject to the same standards as
  in other countries.
• Commercial law reform generally promotes the
  expansion of trade by making commercial
  transactions speedier and more certain.
• Appreciation of a culture of competition will
  spur greater entrepreneurship and willingness to
  enter and compete in existing markets. This has
  promise to change the social fabric and afford
  access to business opportunities.
• Competitive domestic economies ultimately will
  enjoy higher productivity and economic growth

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Some Benefits of Competition

• Increases consumer income
• Improves global competitiveness
• Improves efficiency
• Spurs innovation
• Lower consumer prices
• Greater consumer choice and convenience

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Competition Increases Consumer Income

• People in countries with high levels of economic
  freedom
• - 23,450 annual income
• - 2.6 income growth

• People in countries with low levels of economic
  freedom
• - 2,560 annual income
• - (0.9) income LOSS

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2. Domestic Competition Improves Global
Competitiveness

• Few roles of government are more important to
  the upgrading of an economy than ensuring
  vigorous domestic rivalry. Rivalry at home is
  not only uniquely important to fostering
  innovation, but benefits the national industry .
  . Firms that do not have to compete at home
  rarely succeed abroad.
• Michael Porter, The Competitive Advantage of
  Nations (1990)

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3. Competition Improves Efficiency

• Wal-mart gained market share in sales of general
  merchandise in the U.S. very rapidly between 1987
  and 1995
• - Led to heightened competitive intensity
• - Competitors responded by making
  substantial productivity improvements
• - Result was major growth in productivity in
  the sector
• U.S. Productivity Growth, 1995-2000, McKinsey
  Co.

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4. Productivity Prosperity

• Barriers to competition benefit some firms but
  deny opportunities and increase costs to other
  firms and to consumers. They also weaken
  incentives for protected firms to innovate and
  improve their productivity. Increasing
  competitive pressure can increase the probability
  of firm innovation by more than 50
• World Bank, World Development Report 2005

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Productivity Prosperity (contd)

• In 1991, McKinsey Global Institute studied 13
  countries for 12 years. It asked
• What makes some countries rich and other
  poor?
• Answer Productivity
• The study examined labor, capital formation,
  corporate governance, education, competition,
  etc. It asked
• What drives productivity?
• Answer Competition

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Productivity Prosperity (contd)

• Economic progress depends on increasing
  productivity, which depends on undistorted
  competition. When government policies limit
  competition . . . more efficient companies cant
  replace less efficient ones. Economic growth
  slows and nations remain poor.
• William Lewis, The Power of Productivity
  Wealth, Poverty, and the Threat to Global
  Stability (2004)

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5. Competition Leads to Lower Prices

• Competition in the airline sector in the U.S.
  saves consumers 12.4 billion annually
• Competition in the telecommunications sector in
  the U.S. lowered prices by 50 between 984 and
  1994

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6. Competition Provides Greater Choice and
Convenience

• Greater choice
• - Variety and types of automobiles
• - Telephone service providers
• Convenience
• - Internet sales
• - Specialized stores
• - Hypermarkets