Presentation by Sean Ennis, Senior Economist, OECD Competition Division, at the II Competition and Regulation Forum: “Reaching for market efficiency” which took place in Mexico on 9-10 January 2018. Further information is available at www.oecd.org/gov/regulatory-policy/.

1. COMPETITION ASSESSMENT:
THE OECD TOOLKIT
Il Foro Competencia y Regulación
Mexico City
Sean Ennis
9 January 2018

2. Outline
• Competition benefits on consumption side
• Benefits on supply side
• Competition assessment toolkit and key
questions
• International experiences
• Conclusion
2

3. Benefits of competition – consumer side
Competition leads to
substantial reductions in
consumer prices
Competition provides greater
choice
Competition fosters investment
that leads to better quality
products
3

4. Passenger Flights in Europe
Market liberalisation in 1993 led to more intense competition and entry
of low-cost carriers (e.g. EasyJet, Ryanair )
4

5. Passenger Flights in Europe
Price of the lowest priced carrier had fallen by 36% by 1997 and 66%
by 2002
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6. Benefits of competition – the firm side
Drives firms to improve their
internal efficiency and
reduce costs
Provides incentives to firms
to adopt new technology
Provides incentives to firms
to invest in innovation
Reduces managerial
inefficiency
6

7. Competition spurs productivity and
growth
• More competitive industries have higher
productivity rates and higher productivity growth
– Competitive industries enjoy higher annual productivity
growth (Nickell finds 2% gap)
• Virtuous Circle: as products became cheaper and
better, consumers buy more and firms’ turnover
increases
• Leading to higher growth
– EU single market increased productivity
– Countries with stronger competition frameworks have
higher growth (World Bank)
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8. Competition and Productivity --
Japan’s Dual Economy
0 30 40 50 60 70 80 90 10010
20
40
60
80
100
120
140
160 Steel
Automotive parts
Metalworking
Cars
Consumer electronics
Computers
Soap and detergent
Beer
Retail Housing
construction
Food
processing
Employment
100% = 12.5 million employees Source: McKinsey Global Institute
U.S. = 100
Relative productivity levels
Index U.S. = 100
20
8

9. Regulation and its impact on markets
• Rules and regulations typically have desirable
socio-economic objectives
• In specific circumstances, they also have the
potential to cause harm to the efficient functioning
of markets
• We do not question the socio-economic values
• Our objective: assess the effects of the
regulations on
– Extent of competition in the markets
– Incentives for firms to engage in innovative activity
– Potential for growth and expansion of the markets
– The usefulness or purpose of the regulation itself
– Consumer welfare
9

10. Regulation can stifle growth by
hampering productivity
Source - Arnold, J., Nicoletti, G. and Scarpetta, S. (2011). “Does anti-competitive regulation
matter for productivity? Evidence from European firms”. IZA Discussion Paper No. 5511.
Increase in multi-factor productivity compared to regulatory stance
Fastergrowing
More regulated

11. Regulations and their Impact on
Markets
• Some of the harmful effects that may arise
from the rules and regulations relate to
– Unduly high cost burden on firms
– Asymmetric costs across different types of
firms
– Erecting barriers to entry (stringent or
unreasonable licensing rules, for instance)
– Difficulty in marketing new products,
hampering innovation
– Removing incentives to compete
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12. Pro-competitive reform can help
Difference, Australia GDP growth to OECD average
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13. IDENTIFY POLICIES TO
ASSESS
APPLY CHECKLIST
ANY COMPETITION DISTORTION?
YES NO
IDENTIFY ALTERNATIVE
OPTIONS
SELECT BEST
OPTION
STOP
IMPLEMENT BEST
OPTION
EX-POST
ASSESSMENT
STOP
ALTERNATIVESTATUS
QUO
Step 1
Step 3
Step 4
Step 6
Step 5
Step 2
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14. Competition Assessment Checklist
Initial Screening Based on the Checklist
• The checklist consists of four core
questions
• A YES answer to any of the questions
would signal a competition concern and
warrant a detailed review of the rule or
regulation under consideration
14

15. Competition Assessment Checklist
Initial Screening: Checklist Question #1
• Does the rule or regulation limit the number
or range of suppliers?
• This could arise, for example, if a regulation
1. Grants exclusive rights for a company to supply
goods or services
2. Establishes a license, permit or authorization process
as a requirement for operation
3. Limits the ability of some suppliers to provide a good
or service
4. Significantly raises cost of entry or exit by a supplier
5. Creates a geographic barrier to the ability of
companies to supply goods or services, invest capital
or supply labor
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16. Competition Assessment Checklist
Initial Screening: Checklist Question #2
• Does the rule or regulation limit the ability of
suppliers to compete?
• This could arise, for example, if a regulation
1. Controls or substantially influences the prices for goods or
services
2. Limits freedom of suppliers to advertise or market their goods
or services
3. Sets standards for product quality that provide an advantage to
some suppliers over others or that are above the level that many
well-informed customers would choose
4. Significantly raises costs of production for some suppliers
relative to others (especially by treating incumbents differently
from new entrants)
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17. Competition Assessment Checklist
Initial Screening: Checklist Question #3
• Does the rule or regulation reduce the
incentive of suppliers to compete?
• This could arise, for example, if a regulation
1. Creates a self-regulatory or co-regulatory regime
2. Requires or encourages information on supplier outputs,
prices, sales or costs to be published
3. Reduces mobility of customers between suppliers of goods
or services by increasing the explicit or implicit costs of
changing suppliers
4. Exempts the activity of a particular industry or group of
suppliers from the operation of general competition law
17

18. Competition Assessment Checklist
Initial Screening: Checklist Question #4
• Does the rule or regulation limit consumer
information or restrict consumer choice?
• This could arise, for example, if a regulation
1. Limits the ability of consumers to decide from
whom they purchase
2. Reduces mobility of customers between suppliers
of goods or services by increasing the explicit or
implicit costs of changing suppliers
3. Fundamentally changes information required by
buyers to shop effectively
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19. Greece 2016: Overview of
recommendations
19
Potential
restrictions
Draft
recommendations
E-commerce 15 10
Construction 61 42
Media 68 68
Pharmaceuticals 88 54
Other manufacturing 80 48
Other wholesale trade 265 132
TOTAL 577 354

20. Romania 2015: Overview
Recommendations
20
Construction Transport Food
Processing
Pieces of legislation
scanned 162
566 (plus 12 acts
not in force
anymore)
167
(Prima facie)
Restrictions found 81
85
45
Recommendations 64 50 32

21. Romanian Maritime Transport: Piloting
Definition: A service provided by a pilot with local knowledge and skills
which enable him to conduct the navigation and manoeuvring of the
vessel in and approaching the harbour.
Restriction:
• Authorisation: Port operators may operate piloting services besides
private providers but without needing authorisation. (TM2)
• Criteria for authorisation, esp. number of pilots required by law.
Port authorities require more in practice. (TM3)
Recommendation:
• Piloting services should be outsourced by tendering procedure.
• Requirement for number of pilots should be replaced by
requirement for service level.
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22. Piloting tariffs in different ports in EU
22
Source: relevant port websites

23. Conclusion
• The technical tool, OECD’s Competition Assessment
Toolkit, has been
– Developed based on country experiences and input
– Used constructively to improve regulations in other
countries
• Economic benefits from more pro-competitive regulation
can be substantial
• The application of the Competition Assessment Toolkit
in Mexico holds potential for substantial beneficial
impacts.
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24. Thank you
www.oecd.org/daf/competition
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