Competition and Competition Policy in Emerging Markets: International and Developmental Dimensions

This paper examines the role of competition policy in emerging markets from a developmental and international perspective. The main issues addressed include the following: • The state of competition and competition policy in developing countries; • The relationship between competition, competition policy and economic development; • The implications of the recent new advances in the theory of industrial organisation for competition policy; • The current international merger wave and its impact on developing countries. • Multilateral competition policy and the establishment of an International Competition Authority (ICA). The paper’s main conclusions include the following: • Contrary to conventional wisdom, many different kinds of evidence suggest that the intensity of competition in leading emerging markets is certainly no less, if not greater, than that observed in advanced countries. • Analysis and evidence indicates that maximum competition is not necessarily optimal, in terms of dynamic efficiency, i.e. maximization of an economy’s long-term productivity growth. • Even if it was not required in the past, developing countries need a competition policy today, because of the huge international merger movement as well as privatisation and deregulation in these economies themselves. • There is little evidence to indicate that the current international merger wave will enhance global economic efficiency. Giant cross-border mergers, as well as those occurring between large firms within advanced countries, could, however, adversely affect competition and contestability in developing countries and the world economy. Even with competition policies, developing countries may not be able to restrain anti-competitive behaviour by large multinationals. • The current competition policies in the US and the European Union are unsuitable for developing countries. Countries at different levels of development and governance capacities require different types of competition policies. A good model for many emerging countries with effective governance structures is that of the Japanese competition policy during 1950-73. The Japanese used both competition and cooperation to promote rapid industrialisation. The paper presents a proposal for a development-oriented international competition authority to control anti-competitive conduct and growth by mergers of large multi-nationals. It is argued here that the current discourse on the development dimension of competition policy at the WTO is unsatisfactory; its terms and language need to be radically changed. The ultimate aim of the WTO should not be to promote free trade for its own sake, but to achieve economic development.