Healthy market competition is fundamental to a well-functioning economy. Basic economic theory demonstrates that when firms must compete for customers, it leads to lower prices, higher quality goods and services, greater variety, and more innovation. Defining the market in relation to competition is very tricky. Competition laws are based on a certain understanding of how markets work and what market outcome should be achieved. Bangladesh enacted the Competition Act in 2012.
Competition is the basis of a market economy. When businesses vie for customers, prices fall and economic output increases. And as innovative firms replace unproductive firms, the economy becomes more efficient. It allows the market economy to allocate resources efficiently. Without it, there can be distortions that reduce overall welfare, as concentrated interests benefit at the expense of the broader public. It is an economic process of interaction, interconnection, and struggle among enterprises operating in the market to create better sales opportunities for their products, meet customers’ needs, and obtain the greatest profit. Along with giant monopolies, medium, small and even very small firms enter the market struggle.
When there is insufficient competition, dominant firms can use their market power to charge higher prices, offer decreased quality, and block potential competitors from entering the market, meaning entrepreneurs and small businesses cannot participate on a level playing field, and new ideas cannot become new goods and services. Market power leads to a dominant position and leads to inequality.
In economics, ‘market’ refers to a market for a commodity or commodities. It refers to an arrangement whereby buyers and sellers come in close contact with each other directly or indirectly to sell and buy goods. While defining ‘relevant market’ in the Competition Commission Act, 2012, under section 2-S (ii), a market comprises the area in which the conditions of competition for the supply of goods or provision of services or demand of goods or services are homogenous and are distinguished from the conditions prevailing in the neighbouring areas.
Productivity levels and growth rates in many countries have lagged behind the competitive markets around the world. Academics and policymakers have focused attention on the lack of product market competition as one of the main reasons for this poor performance. The idea that competition improves efficiency has a long history in economics. According to this theory, competition is a static end-state in which firms cannot persistently overcharge and earn abnormal profits. Competition between firms can benefit consumers, workers, entrepreneurs, and small businesses.
To obtain a competitive situation, several criteria need to be met. These include having a considerable number of rivals, participants possessing common knowledge about market opportunities, and free entry and exit. According to this theory, the excess of the price over costs decreases as the number of producers increases. Perfect competition is the opposite of a monopoly, where there are no rivals and a monopolist can extract abnormal profits by pricing as high as the consumer will bear. The measurement of competition is not straightforward. Over the years, this has resulted in the development of numerous methods to capture and measure the degree of competition.
Competition authorities measure market competition for broadly three reasons. The first is to apply competition law in markets affected by mergers and potential abuse of dominance (competition enforcement). The second reason is to assess whether pro-competitive intervention is needed and whether such intervention is likely to be net beneficial (competition advocacy). The third reason is to assess ex-post the effectiveness of the competition policy of an authority (impact assessment).
Competition authorities who may want to consider developing further their market screening intelligence using a combination of competition indicators could start with markets defined during casework. Subsequently, this can be extended to include other important markets, particularly as firm-level data becomes more available. They cannot create and perfect market competition unless all the stakeholders, and particularly the government, support the commission with law, policy and action. For example, after assuming the office of the President, Joe Biden signed an Executive Order on Promoting Competition in the American Economy. It launched a whole-of-government effort to combat growing market power in the U.S. economy by seeking to ensure that markets are competitive. The order of the US President, therefore, directs or encourages roughly a dozen agencies to engage in more than 70 specific actions that will remove barriers to entry and encourage more competition.
The authorities, including the Bangladesh Competition Commission, cannot avoid the responsibility for the so-called ‘syndicate’ in the market. Syndicate is the popular name of a collusion of sellers in the market, although a syndicate of buyers is also possible in the market. Despite an active anti-trust agency, the order of the US President is a unique example of how the leaders can instruct different agencies to ensure competition in the market. It may be noted that the President did not urge the law-enforcers to punish the businessperson for ‘syndicate’.
The major job of any competition commission is to create a market with perfect competition. The market and competition are the basis of a free market economy. Bangladesh has adapted the market economy, but the Bangladesh Competition Commission is struggling to establish different markets with perfect competition.
The writer is a CEO, Bangla Chemical & Legal Economist. E-mail: [email protected]
