Competition policy, industrial policy and corporate conduct

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Simon Roberts. 3 July 2012. Paper written in personal capacity, does not reflect the views of the Competition Commission. Introduction. Expansion of competition laws, vigorously promoted by IFIs, USA. ID: 275568 Download Presentation

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Competition policy, industrial policy and corporate conduct




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Presentations text content in Competition policy, industrial policy and corporate conduct

Slide1

Competition policy, industrial policy and corporate conduct

Simon Roberts

3 July 2012

Paper written in personal capacity, does not reflect the views of the Competition Commission

Slide2

Introduction

Expansion of competition laws, vigorously promoted by IFIs, USA

‘one size fits all’ form aimed at minimal intervention to correct market failures (‘cartels’)

Industrial policy and competition policy conflict or complement?

Competition means removing constraints, industrial policy is about imposing distortions and constraints to meet government’s objectives

Or:

Competition requires effective rivalry, this means need a number of firms which might require industrial policy to support entrants and smaller firms

In practice there is great diversity in competition regimes

Are competition institutions only appropriate at a stage of development where they will not be undermined by powerful business interests?

North,

Acemoglu

& Robinson – competitive markets as part of ‘open access’ (note: antitrust in US promoted by farmers)

I argue that competition policy needs to be viewed in context of policies to address orientation and conduct of big business

Competitive rivalry is important source of discipline

The approach and conditions vary by country

Slide3

Competitive rivalry and industrial development

Orientation of big business is central to countries’ industrial development

Investments to adopt and adapt new technologies, realise economies of scale and scope, build production capabilities, skills

Nature of relations with smaller firms is important for their development also

Rapid industrialisation to ‘catch-up’?

‘Unbalanced’ growth through interventionist industrial & trade policy; this context is explicit in mandate of Korea FTC

Discipline needed to ensure firms build new capabilities rather than entrench positions to extract rents – the evolution of ‘business enterprise systems’

Different sources of discipline – using export performance; contests for state support

etc

, as part of wider framework.

Dynamic rivalry and ‘optimal’ competition – competition relates to behaviour not structure

Slide4

Practice of competition law in developing countries

Competition law, under wider competition policy framework, embodies particular choices

Competition law and tests should depend on country conditions – especially tests for abuse of dominance

Entrenched incumbents? May be created by state, now may be TNC owned.

Competition policy and law

in practice

reflects local factors, in terms of influences and needs

SA law reflects fear of ‘business confidence’, need for ‘certainty’; and fear of the state – independence and checks

KFTC – took USA law, and adapted it to ‘free and fair competition’, promote ‘balanced development’, meaning a very active set of instruments addressed at large firms,

chaebols

New law in 1981, 1987 – addressing ‘unreasonable’ practices and ‘unjustifiable’ restrictions on competition, including subcontracting arrangements

KFTC promoted ‘shared growth’ of large firms and SMEs,

synchronised

with industrial policy

Other countries with laws not implemented but notionally independent institutions

Slide5

South Africa case study

Two different motivations:

addressing apartheid legacy of concentration of control

a

s part of making

liberalisation

work

Reflected in tension between broad objectives of law, and specific, narrow provisions relating to particular conduct

Act following international

best practic

e (Australia, Canada, EU)

Independent

institutions,

with strong legal checks on their

action

separate

Commission, Tribunal

, Appeal Court

Mergers – substantial lessening of competition test; public interest test

Cartels

Abuse of dominance – separately specified contraventions; pro-competitive

defences

Very concentrated economy: 1994 – Anglo-controlled companies accounting for 43% of JSE; top six conglomerates 84%

Slide6

Outcomes?

Mergers

Pre-merger

notification above

thresholds

meant around 400 merger to evaluate per year

main

area of work for first 7 years

Cartel prohibition: agreement or concerted practice which is:

direct or indirect price fixing, market division, bid

rigging; or

has

SLC effect (

no

penalty for first offence

)

Dependent on pro-active enforcement to identify, together with Corporate Leniency Policy

125 leniency applications over three years

cartels coupled with exclusionary strategies

Abuse

of dominance:

Exploitative (excessive pricing

)

Exclusionary abuses

Over 12 years, only 18

cases referred to the Tribunal, plus 2 settled prior to referral = 20

long

and drawn out

cases, extensive legal proceedings, often 3-5 years from referral to hearing.

Slide7

Of the 20 abuse cases:

To date 9 decided and 5 settled

Tribunal found abuse in 6 of 9 cases on which it ruled

2 over-turned on appeal (Sasol-Nationwide Poles, Harmony-Mittal)

4 cases where finding stands: South African Airways (2);

Patensie

(

agric

co-op);

Senwes

(former

agric

co-op)

3 of 5 settlements with substantive undertakings (Sasol Nitro, GSK&BI for ARVs, Foskor)

Former state-owned, regulated and/or supported in most cases, protecting existing monopoly margins:

SAA(2); Telkom (2); Sasol (3), Foskor; Mittal Steel (formerly Iscor)

Cigarettes and beer (SAB, BATSA)

Forestry and agriculture (

Safcol

,

Patensie

,

Senwes

, Rooibos, Astral)

Slide8

Example of fuels, chemicals, fertilizer

Initial development related to:

requirements of mines and agriculture

Apartheid state concern to reduce dependence on imported oil

Sasol, as infant industry (now grown up), and Anglo subsidiary

State providing capital; infrastructure

Source of discipline? Interests of constituencies – agriculture, mining.

r

egulation (of fertilizer, fuel)

Firm strategies - adapting to

liberalisation

?

control inputs – access to alternative feedstock (natural gas)

raise entry barriers – downstream firms with outside options, include them in coordinated arrangements

consolidation – attempted two mergers

Fertilizer and polymers – by-products from coal to liquid operations

Liberalisation

≠ competition

Other levers?

Infrastructure; fuel regulation; mining rights?

Or: competition law??

Slide9

Competition law and corporate conduct in Southern and East Africa

Arrangements by and between large companies operate across region, examples:

Beer

This agreement

enabled

us to

develop

opportunities

’,

justified

,

Najil

Fairbass

,

SABMiller

Communications Director.

Before

adding

: ‘There

may

be

antitrust

laws

at

the national

level

, but none

covering

the continent. I

don’t

see

what

the

problem

is

.’

(

Philippe Perdrix Le marché de la bière africaine monte en pression Jeune Afrique 10/09/2008,

cited

in Jenny, 2009)

Cement: cartel across SACU

Construction: bid-rigging across continent

Fertilizer: overland market, including ‘Export Club’

Entry also easier from adjacent markets (in the region), for example, poultry (from Zimbabwe/Botswana); steel rolling (from Kenya).

potential entrants can also be undermined such as

ArcelorMittal

acquisition in Mozambique.

Rivalry more likely across the region rather than in individual countries, if are substantial scale economies

Regional

Comesa

authority

Slide10

Conclusions

Competition law is part of framework for regulating conduct of large corporations

; as is industrial policy

Competition does not result from

liberalisation

, nor simply in the absence of explicit cartels – is about effective rivalry

Choice of model for competition regime matters

diversity of options: free competition, prosecutorial model; or fair competition standard in administrative model (Germany, Korea)

Depends on institutional capabilities

Will regimes simply be undermined by elite interests?

depend on mediation of interests,

p

rovides information/insight into business practices even in absence of effective sanctions

Examples from e.g. Kenya, Tanzania, Zambia point to building of popular support, pressure for greater powers, autonomy leading to laws strengthening authorities (e.g. Tanzania ruling on Breweries)

Slide11

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