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Outline
► Purpose► Approach► Case studies► Ease of economic activity► Sector characteristics► Cross-country comparisons
4
Purpose
► Research questions:1. Should all ASEAN countries adopt competition
policies
2. Should ASEAN countries integrate their competition policies
5
Purpose
► To explore question 1:– Review international experience – from introduction
of competition policies in other transition economies– Explore case studies in ASEAN – this project
6
Approach
► Select three sectors► Compare in ASEAN countries at different stages
in developing competition laws► Examine whether significant differences in
market conditions and outcomes
7
Approach
► Hypothesis:– Countries with competition laws have more
competitive markets and more efficient market outcomes
– Should see: • Fewer barriers to market entry• Fewer restrictive business practices• More suppliers• Lower market concentration• More frequent supplier entry and exit and consumer switching• Higher productivity• Lower margins and prices
8
Framework
► Structure-conduct-performance framework:– Market performance follows from the structure of the
market and the conduct of its participants– Competitive structural conditions encourage
competitive behaviour, through efficient incentives and signals, which promotes competitive and efficient outcomes
9
FrameworkB
ack
gro
und
Co
nd
itio
ns
Market StructureSeller concentrationBuyer concentrationEconomies of scale and scopeBarriers to entryProduct differentiationVertical integrationDiversification
Market ConductPricing and outputInvestmentCompetitive behaviourR & DAdvertising and productpromotionMergers
Market PerformanceAllocative efficiencyProduction efficiencyProfitabilityInnovative efficiencyProduct varietyExport/import substitutionIncome distribution
DemandPrice elasticityIncome elasticityBuyer tastesType of saleVariability
SupplyTechnologyTransport costsImport potentialComparative advantage
Product differentiation and salespromotion
Product innovation
Profitability
Process innovation
Public PolicyCompetition policyTrade policyTax policyForeign investment policyResource management policyLabour market policy
10
Case studies
Cement Telecommunications Transport and logistics
Competition laws in force
Indonesia √ √
Singapore √
Thailand √ √ √
Vietnam √ √
Competition laws in development
Malaysia √
Philippines √ √
No comprehensive competition laws
Brunei Darussalam √
Cambodia √ √
Laos √
Myanmar
11
Ease of economic activity
► Are competition laws conducive to general economic activity
► A number of international measures of ease of, or impediments to, general economic activity:– Ease of Doing Business– Index of Economic Freedom– Economic Freedom of the World– Competitiveness Scoreboard– Corruption Perceptions Index
12
Ease of economic activity
New ZealandAustralia
Japan
Korea
India China
MyanmarLaos
Cambodia
Vietnam
Singapore
Thailand
PhilippinesIndonesia
Brunei
Malaysia
0
20
40
60
80
100
120
140
160
Aver
age
rank
ing
Corelation coefficient between status of competition laws and ease of economic activity = 0.68
Competition laws in forceCompetition laws in developmentNo comprehensive competition laws
14
Cement
► Natural tendency towards geographically-concentrated monopoly or oligopoly
► Marked economies of scale and high minimum efficient scale – favour supplying markets from a small number of large plants
► Plants run most efficiently at high capacity utilisation rates and marginal costs rise quickly as production falls below optimal levels
► But low value-to-weight ratio and high transportation costs – favour a larger number of smaller, higher cost plants located close to dispersed markets
► Very energy intensive – largest component of variable costs
15
Cement
► High fixed relative to variable costs, high industry entry and exit costs due to capital investment in plants
► Competitive pressure from imports limited by high costs of entry – cement imported in bulk requires a bulk handling facility and shipping in bags incurs extra handling costs
► Closely connected with the volatile construction sector – often has difficulty balancing demand and supply and avoiding under and over-capacity
► Low price elasticity of demand due to the lack of substitutes – reducing prices would redistribute demand between producers rather than increase aggregate demand
16
Cement
► Under combination of high fixed costs and volatile but price inelastic demand, producers seek to avoid competing on price when demand declines
► International experience suggests: – Complete deregulation unlikely to result in more competitive
producer behaviour due to incentive for price collusion– Regulatory intervention to increase competition would not
necessarily result in better outcomes for consumers due to the large economies of scale and high capital intensity
– Optimal approach appears to be – accept market concentration in a small number of large producers and focus on constraining any abuse of their market power
17
Telecommunications
► A “network industry”► Traditionally seen as a natural monopoly:
– Reproducing the network is a major cost barrier to new entrants– Historically, network and service providers have tended to be
integrated
► Worldwide, countries are seeking to improve effectiveness and efficiency by separating network and service components and promoting competition in the latter
► Many have also introduced reforms to separate policy makers, regulators and operators, given the different skills required and incentives faced
18
Telecommunications
► Case for separation:– Service providers need access to, but not necessarily ownership
of, networks – Operating networks and providing services are very different
businesses, involving very different types of investments and requiring different management skills
– Separation lowers the cost of entry into the market for services, enhancing competition between providers and enabling development of specialised customer services
– Removes ability to inhibit competition by using network profits to subsidise services in markets that might otherwise attract competitors
– Makes interconnection costs more transparent
19
Telecommunications
– Provides network owners with incentives to maximise utilisation regardless of signal source and to expand coverage, but little incentive to over-invest, which is common where networks and services are bundled
– Inefficiencies introduced by some duplication of networks may be small relative to operational inefficiencies resulting from a lack of competitive pressure
– Separation also simplifies competition regulation, in needing to apply to network operations only
20
Telecommunications
► Asia:– Moving away from traditional public monopolies – But still reluctant to allow unrestricted entry, to
eliminate limits on private and foreign ownership and to establish strong independent regulators
– Liberalisation to increase competition generally introduced earlier and to a greater degree in mobile services than in fixed line sector
– Growth of mobile sector aided by popularity of pre-payment plans
21
Telecommunications
► International experience suggests:– Entry restrictions increasingly difficult to justify– Can ensure social objectives such as “universal
access” by adopting regulatory principles to prevent abuse of market power and to require compliance with minimum standards for reliability, quality and social outcomes
– Liberalisation and competition insufficient to reduce unit costs – requires reform in combination with technological development, increasing usage and maturing competitive market
22
Transport and logistics
► Very broad area, of variable data availability and quality
► Focus on:– A broad indicator – trade freedom – the ease with
which goods and services can move across borders– One specific sector – sea freight – competition in port
services
23
Transport and logistics
► Difficult to distinguish between different causes of costs and delays in cross-border movements, whether:– Insufficient competition in markets for transport services (e.g.
monopoly suppliers, high market concentration, collusion by incumbents)
– Official barriers to entry (e.g. tariff and non-tariff barriers, border entry requirements, national flag carriers)
– Poor transport infrastructure (e.g. insufficient port capacity, poor quality roads)
– Administrative difficulties (e.g. complex or inefficient border procedures, unofficial charges)
– Cultural and social impediments (e.g. language, road signs and traffic rules)
24
Transport and logistics
► Interested in not only barriers to entry from outside each country, but also barriers to domestic new entrants
► Measures of the ease of cross-border trading may be more a reflection of trade policy than of domestic competition policy and conditions
► But may still be informative to examine how trade freedom varies across countries that have different states of competition law
25
Cross-country comparisons
► Rigorous analysis hampered by limited availability of robust and comparable data
► Evidence available is also somewhat circumstantial – does not prove a causal link
► Observed differences in market conditions and outcomes might reflect influences other than competition laws, such as:– Other institutions and infrastructure underlying economic activity– Other government policies – economic development, trade policy– Specific sector characteristics or policies
26
Cross-country comparisons
► Difficult to discern to what extent presence/absence of competition laws may have contributed to observed differences
► But a crude comparison:– Does suggest some correlations, if not necessarily
causal relationships– Does show some signs of better market conditions
and outcomes in countries where competition laws are more advanced
27
Cross-country comparisonsIndonesia Singapore Thailand Vietnam Malaysia Philippine
sBrunei
DarussalamCambodia Laos Myanmar
Status of competition laws √√ √√ √√ √√ √ √ x x x x
Ease of economic activity √ √√√ √√ √ √√ √ √ x x x
Cement
Market concentration x x x
Excess capacity x √ √√
Barriers to entry √ x √
Output and prices √ √√ x
Telecommunications
Market concentration √ √ √√
Barriers to entry x x √
Output √√ √√ √√
Prices x √√ √√
Transport and logistics
Trade freedom √√ √√√ √ √ √√ √√ √√ x x
Sea freight √ √√ √√√
28
Cross-country comparisons
► Quite high correlation between competition laws and ease of economic activity generally
► In case study sectors, correlation between competition laws and market conditions and outcomes is most strongly positive for:– Cement output and prices – Trade freedom
► But negative in some sectors, most strongly for:– Excess capacity in the cement sector– Market concentration and barriers to entry in the
telecommunications sector– Sea freight
29
Cross-country comparisons
► Cement:– The Philippines has greater excess capacity and lower
barriers to entry, and therefore rates as more conducive to competition, than Indonesia and Thailand, both of which have more established competition laws
– But market performance in terms of output and prices rates lower in the Philippines, reflecting suspected price collusion
– Market concentration is high in all three countries, reflecting the characteristics of cement production
30
Cement
Indocement Tunggal Prakarsa
30%
Holcim Indonesia15%
Semen Andalas Indonesia
4%
Others6%
Semen Tonasa8%
Semen Padang12%
Semen Gresik25%
Indonesia
Holcim37%
Fortune11%
FR6%
Northern5%
Taiheiyo4%
Apo12%
Others10%
Solid9%
Republic6%
Philippines Price (US$/tonne)
0
10
20
30
40
50
60
70
80
90
Indonesia Thailand Philippines
Siam Cement
42%
Siam City
24%
TPI Polene
17%
Others
3%
Asia Cement
10%
Jalaprathan
4%Thaiand
31
Cross-country comparisons
► Telecommunications: – Even without competition laws, Cambodia rates better
in terms of market concentration, barriers to entry and prices than Thailand and Vietnam, which both have competition laws, reflecting early liberalisation and competition in its mobile sector
– All three countries have seen marked increases in output, as well as improvements in quality
32
Telecommunications
Price (US$, 3 minute call, mobile, peak)
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
2003 2004 2005
Thailand
Vietnam
Cambodia
Thailand
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2,000,000
1990 1992 1994 1996 1998 2000 2002 20040
10
20
30
40
50
60
70Waiting list for fixed lines (left axis)Faults per 100 fixed lines (right axis)
Cambodia
0
1
2
3
4
5
6
7
8
1990 1992 1994 1996 1998 2000 2002 2004
Fixed lines per 100 inhabitantsMobile phone subscribers per 100 inhabitants
Vietnam, connection charge (Vietnamese dong)
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
1990 1992 1994 1996 1998 2000 2002 2004
Connection - fixed line, residentialConnection - fixed line, businessConnection - mobile
33
Cross-country comparisons
► Transport and logistics:– Trade freedom is generally greater in countries that
have implemented or are developing competition laws– But in sea freight, Malaysia, which is considering
whether to introduce competition legislation, rates better than Singapore and Indonesia, both of which have competition laws in force, reflecting its less concentrated market and more room to expand capacity
34
Transport and logistics
Terminal handling charges (US$)
0
50
100
150
200
250
300
Indonesia Singapore Malaysia Thailand
20 foot equivalent unit
40 foot equivalent unit
Time and documents required to import and export
0 10 20 30 40 50 60
Laos
Cambodia
Vietnam
Philippines
Thailand
Indonesia
Brunei
Malaysia
Singapore Time for import (days)
Time for export (days)
Documents for import (number)
Documents for export (number)
Ease of Doing Business - Trading Across Borders (ranking)
0 20 40 60 80 100 120 140 160 180
Laos
Cambodia
Vietnam
Philippines
Thailand
Indonesia
Brunei
Malaysia
Singapore
Economic Freedom of the World - Freedom to Trade Internationally (score out of 10)
4
5
6
7
8
9
10
1970 1975 1980 1985 1990 1995 2000 2001 2002 2003 2004 2005
Singapore
Philippines
Malaysia
Thailand
Indonesia
Vietnam
35
Conclusions
► For case study sectors, as for ease of economic activity more generally:– High but not perfect correlation between competition
laws and market conditions and outcomes– Competition laws generally make a significant positive
contribution, but are not the sole determinant of how well markets behave and perform
– Other influences can compensate for less developed competition laws or detract from more developed competition laws
36
Conclusions
► Implication for policy makers – developing, implementing and enforcing competition laws: – May not be sufficient to achieve competitive market
conditions and outcomes in all sectors – Nor necessary for some sectors – But can generally be expected to be significantly
conducive– Need to consider sector characteristics