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Why Competition Law? PDF Print

Privatisation, Trade Liberalisation, Globalisation! It seems that every other word these days end in “sation”.

We have been hearing so much recently about these “sations”, about their benefits, and how through our own liberalisation agreement, the CARICOM Single Market (CSM), we too can experience the benefits of such economic arrangements.

Our leaders have indicated that it is the only means by which the small states of the Caribbean can survive in this global environment. In selling the idea, they have indicated that at its best the CSM will lift the standards of living of the majority of the population across the region. The treaty of Chaguaramus says that under this agreement, businesses from across the region will be able to set up in any member state of their choosing more readily. The freedom of professionals and academics to move, and the freedom to move capital will make for the best allocation or reallocation of our scarce resources. These provisions are designed to increase our productivity and efficiency as a region.

The truth is that establishing the framework for the easier movement of resources and for freer trade does not by itself lead to more competitive markets. There is a shared responsibility for us to capitalise on these initiatives in order to accelerate the process. Established businesses, and budding entrepreneurs, must now establish their presence in other states, and skilled persons must seek out emerging market opportunities. It is only when the actors like us play their roles as scripted can the benefits of the Single Market be realised.

Imagine two well established and entrenched business houses in the region are competing in a particular market. They introduce all kinds of smart initiatives to attract the consumer, they offer low prices, special discounts, new packaging, etc. all designed to attract the consumer to their particular products. In addition to woo customers, the businesses undertake initiatives such as community sponsorship and other gimmicks to enhance their image and sell more products. While this is happening, we as consumers across the region are smiling, we are the beneficiaries of the better prices, improved quality products, and improved delivery services. In addition the other initiatives like sponsorships and general patronage help to lift our social and economic welfare. ‘All well and good’, the benefits that were promised by the leaders at the onset of the liberalisation process are being realised.

Imagine again, the same two well established businesses decide that rather than compete, they can make more profits by setting their prices a little higher. In staying out of each other’s way they will continue to sell the same volumes but at higher prices, and they both are now enjoying the rewards of higher profits from no competition. Their shareholders also will be happy, as dividends will be high. These businesses too are also likely to attract the skilled personnel and capital which the leaders of the single market want to move freely.

In the second scenario we have described the practice of a cartel, a situation where businesses rather than compete, seek to collude to exploit high prices from the market. Markets dominated by cartels will ultimately see higher prices as businesses become lazy, and we the consumers do not get much by way of improved quality products, or improved delivery services. These businesses because of their inflated profits will also attract our best resources. Not ‘all well and good,’ Where these scenarios develop the benefits promised by our leaders from the single market, will flow now only to the shareholders and business owners of these businesses, and not to the wider public.

This is the classic example of how the goals of liberalization and the single market can and will be frustrated. Competition law is one of the pieces of legislation designed to protect this process. The focus of Competition law is the promotion of competition. Wherever businesses seek to move away from this policy and seek not to compete, the law is broken and the goals of the single market can be frustrated. Here the Community Competition Commission, the body to be set up to enforce competition law in the region can prosecute such businesses to ensure the maintenance of competition and ensure the goals of competition law are delivered.

If you have any queries about Utility Regulation, Consumer Protection or Fair Competition, please contact the Fair Trading Commission at 424-0260, or 421-2FTC.
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