Market, competition and syndicate

Healthy market competition is fundamental to a well-functioning an 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. Bangladesh authorities seems has misconceived the idea of market and competition.

Competition laws are based on a certain understanding of how markets work and what market outcomes should be achieved. In competition law, the relevant market acts as a filter that delineates that part of commerce within which competition law assesses companies’ market behaviour.

The Government of Bangladesh enacted the Competition Act in 2012. In the Preamble,

the Act stated that, “WHEREAS in the context of gradual economic development of the country, it is expedient and necessary to make provisions to promote, ensure and sustain congenial atmosphere for the competition in trade, and to prevent, control and eradicate collusion, monopoly and oligopoly, combination or abuse of dominant position or activities adverse to the competition”.

Competition is the basis of a market economy. When businesses vie for customers, prices fall and economic output increases. And as unproductive firms are replaced by innovative firms, the economy becomes more efficient. The relevant market concept is not static, neither in competition law nor in economics. Thus, competition 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.

Competition is an economic process of interaction, interconnection and struggle between the enterprises acting on the market in order to provide better sales opportunities for their products, meet the needs of customers and obtain the greatest profit. Modern competition as an integral attribute of the world market. Industrialization of economic life expands the mass base of competition. 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. Research has also connected market power
to inequality.

The word market is derived from the Latin word 'Marcatus' which means trade, commerce, merchandise, a place where business is transacted. The common usage of market means a place where goods are bought or sold. It is a medium or place to interact and exchange goods and services. In simple words, the meeting place of buyers and sellers in an area is called Market.

The term market defined by different authors in different ways among them. Those definitions of Market are: “Marketing is concerned with the people and the activities involved in the flow of goods and services from the producer to the consumer”. The American Marketing Association defined as "Marketing includes those business activities which are involved in the flow of goods and services from production
to consumption."

According to Pyle "Market includes both place and region in which buyers and sellers are in free competition with one another." In the words of Clark and Clark "A market is a centre or an area in which the forces leading to exchange title to a particular product operate and towards which the actual goods tend to travel."

Need for a Market are :

• To exchange (barter) goods and services.

• To adjust demand and supply by price mechanism.

• To improve the quality of life of the society.

• To introduce new modes of life.

• To develop product by enhancing market segment.

In common parlance, by market is meant a place where commodities are bought and sold at retail or wholesale prices. Thus, a marketplace is thought to be a place consisting of a number of big and small shops, stalls and even hawkers selling various types of goods.

In economics however, the term “Market” does not refer to a particular place as such, but it 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.

Empirical studies have largely suggested that product market competition is positively correlated with productivity. Productivity levels and growth rates in many countries have lagged behind the competitive markets around the world. Academics and policy makers 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 over charge and earn abnormal profits. Competition between firms can benefit consumers, workers, entrepreneurs, small businesses. A market is competitive when rivals are sufficiently threatening to incentivise an incumbent to improve (better quality, lower price, new services, more innovation, etc.) to maintain its competitive advantage. Inefficient firms are penalised by consumers while more efficient and innovative
companies are rewarded.

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 there being free entry and exit (Cournot, 1938). 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. In a monopoly, there are no rivals and a monopolist can extract abnormal profits by pricing as high as the consumer will bear (i.e. as far as the elasticity of demand permits).

The structural characteristics of a market include the number of firms (and the absolute and relative size of firms), the entry and exit conditions, and the extent of product differentiation. Market structure is expected to influence the conduct of firms. Conduct variables include pricing strategies, other forms of strategic decisions (e.g. on product quality, advertisement expenditure, etc.) and collusion. Conduct, influenced by structure, determines performance.

Competition authorities measure market competition for broadly three reasons. The first one 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 competition policy
of an authority.

The measurement of competition is not straightforward. Competition is a complex concept and not directly observable. Over the years, this has resulted in the development of numerous methods to capture and measure the degree of competition.

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. This could allow an authority to obtain a more reliable view on how a market is evolving and hence identify where there could be problems, or alternatively myth-bust when indicators suggest problems are absent in
well-defined markets.

As for example after assuming the office of the President, the US President Biden has signed an Executive Order on Promoting Competition in the American Economy. It launches a whole-of-government effort to combat growing market power in the U.S. economy by seeking to ensure that markets are competitive. Because of the scale and scope of the market power problem. The US President’s executive order makes the promotion of competition central to the government’s mission by dedicating the entire government to reversing these trends.

The order of 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. For example, the order encourages the Department of Health and Human Services to work with states developing drug importation programs and to consider finalizing rules allowing hearing aids to be sold over the counter at a fraction of their current price. It requires all agencies to use their procurement and spending powers to avoid entrenching monopolists and to create new business opportunities for small firms. It encourages the Federal Trade Commission (FTC) to issue rules curtailing noncompete agreements which inhibit labor mobility, preventing workers from switching to jobs that offer better pay and benefits. And, it directs the Department of Agriculture to consider strengthening its enforcement of laws designed to prevent large meat-processing companies from taking advantage of farmers.

The scrutiny of the market and ensure perfect competition in the market is primary job of competition commission. The focus should be given to create a perfect competition in the market. The authorities cannot avoid the responsibility for the so-called “syndicate” in the market. Despite an active anti-trust agency, the order of US President is a unique example the statemen 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 writer is Non-Government Adviser, Bangladesh Competition Commission. He can be contacted at [email protected]