Welcome to Dr Lincoln's blog

Welcome for visiting my blog. Hope you enjoy the visit and always welcome back again. Have a nice day!


Regulate pricing behaviour better than regulate market structure

Comments on Stephen Bartholomeusz “Rethinking competition”, 29/05/2009, http://www.businessspectator.com.au/bs.nsf/Article/Rethinking-competition-pd20090529-SH46V?OpenDocument&src=sph

Most anti-trust laws have been based on the paradigm of “structure-conduct-performance”. As a result, anti-trust laws or regulatory authorities have a major focus on regulating the market/industry structure, such as the number of firms, market shares, etc. This makes the jobs of the regulatory authorities easier by limiting market shares, or concentration of an industry, such as the number of firms.

That approach may be good for markets or products where there are limited economies of scale. However, it can have significant adverse effects on the efficiency of costs and supply in cases where economies of scale are prevalent. Although the purpose of anti-trust is to protect the interests of consumers, the end results may hurt them, if anti-trust measures present costs of production from falling associated with economies of scale. But such negative effects are generally unobservable, so consumers don’t know if they have been hurt.

That is a paradox of anti-trust based on market structure. A better framework in protecting consumers seems for authorities to focus on firm behaviour/conduct, as opposed to market structure. Competition authorities or competition laws should have the power to collect costs and pricing information, if the market share of any individual firms exceeds certain percentage. Bu studying costs and pricing, the authorities can rule whether a firm has behaved competitively or not and take competition measures accordingly.

Both the world economy and individual national economies have changed so much with technologies, trade and economic integration and globalisation. It is time to rethink competition and how to manage competition, not for just the fears of concentration and for observable of the poor outcomes due to uncompetitive firm behaviours, but also for the economies of scale and their effects on costs and prices and ultimately the interest of consumers.

Authorities need to be prepared to do hard jobs. The days of easy doings should be gone.

No comments:

Post a Comment