Consumers stand to gain from rivalry in the market

PUBLISHED : Wednesday, 27 January, 2010, 12:00am
UPDATED : Wednesday, 27 January, 2010, 12:00am

Professor Mark Williams is associate head of the school of accounting and finance and a professor of law at Polytechnic University. Here, he explains the importance of competition law and how it is applied in Asia.

What is competition law and why is it important?

A competition law is part of an overall public policy stance in favour of enhancing rivalry between providers of goods and services in a market, promoting economic efficiency and the welfare of consumers by providing more choice at less cost. The importance of a competition law is that it provides a mechanism to promote pro-competitive ends, prohibit anticompetitive activities and punish firms that engage in anticompetitive activities that ultimately injure consumer welfare. However, competition law is not a tool primarily to protect inefficient market players or to directly affect prices or quantities or the quality of goods or services offered by firms - the idea is for the market to supply consumer demand effectively and to prevent firms manipulating the market to unjustifiably enrich themselves at the expense of exploited consumers.

Has economic globalisation made the formulation and application of competition law more difficult across Asia?

Globalisation has, in fact, strengthened the case for appropriate and effective laws across Asia. The most problematic political issue is for an individual country and its government to be convinced that market forces can best provide the goods and services that consumers require within a framework of transparent and predictable rules provided by a pro-competition law. There are many international examples from which Asian countries have drawn inspiration for formulating their own statutes. Some have modelled their law on the United States anti-trust system, some on the European Union and others have taken a hybrid approach, but now almost all East Asian countries have a competition law of some sort and many are more actively enforcing them.

Can the principle of free and fair competition exist without the practice of free and fair access to information?

The availability of information is a very interesting and complex issue. A basic assumption in neoclassical economics is that, to achieve perfect competition, buyers need to have perfect information about all the products in any given market so that they can make appropriate choices. In reality, attaining such a situation is impossible. Giving consumers ample and accurate information is necessary to prevent market distortions and, in many countries, the issue of the provision of misleading or deceptive information by sellers is either part of a competition law or fair trade law or part of a dedicated consumer protection statute. Hong Kong's Consumer Council recommended such a law two years ago but, to date, the government has not responded or decided to include such provisions in its new competition law.

Does a no-holds-barred trading nexus, such as Hong Kong, even need competition laws? Why not just leave everything to the survival of the fittest on the grounds that ultimately consumers will benefit anyway?

Every game has to have a set of rules or someone will get hurt. An economic free-for-all often ends up with the market being consolidated to such an extent by key players that cartels or monopolies become common. Such businesses then leverage their market power to exploit business customers or consumers, generally leading to higher than competitive prices, lower levels of product innovation and reduced consumer choice. Monopolists and cartel operators always prefer less competition to more as profit margins can be enhanced; the firms win at the expense of the business or individual consumer. Government that involves itself in running businesses or regulating a business sector or in controlling access to some vital factor of production, such as land, can also distort or destroy competition. That is why government must be subject to competition laws except where some vital public function can only be served in the absence of competition.

How important is it for schools such as yours to address Asian competition law in your curriculum?

Asian competition laws are mostly relatively new. Many of them are implemented by inexperienced agencies that may lack resources or political or judicial support that is necessary for the law to be effectively implemented. Our MA in competition law and economics will try to provide the intellectual foundation and the practical knowledge necessary for firms, officials and lawyers to more effectively operate the competition system. Numerous international studies have shown that without a sound grasp of economic and legal theory to help inform policy and enforcement choices, effective and appropriate implementation of competition law is very unlikely and poor enforcement and policy implementation may actually harm market efficiency. We hope that opening up this area of study will help address some of those issues.