Markets and Competition Policy

Competition fosters economic welfare and makes markets work for development. The World Bank Group supports clients in promoting and implementing pro-competition rules in key sectors, deterring anticompetitive business practices, and minimizing distortive government interventions in markets.

Overview

Many markets in developing countries do not yet benefit fully from healthy and effective competition, and government interventions often fail to provide firms with the right incentives to compete. At the regional, national, and subnational levels, sector-specific rules and regulations frequently limit market entry or reinforce the dominance of a few firms. Although more than 100 countries have enacted competition laws, anticompetitive practices continue, especially in developing countries. Regulatory frameworks often fail to ensure that more efficient market players can compete on a level playing field. State-owned enterprises (SoEs) tend to be more significant market participants in developing countries and to benefit from undue competitive advantages. Restrictions are more prevalent in non-tradable services with significant spillover effects.

Anticompetitive business practices have been detected in various markets that are important for a country’s overall competitiveness and poverty alleviation. Cartels, which increase prices in affected goods and services by at least 20 percent, have been found in markets such as fertilizer, cement, and transportation services. Staple consumer products such as bread and sugar, and critical financial services ranging from electronic payment systems to insurance, cost consumers more due to cartels and abuse of dominance. Bid rigging in public procurement is prevalent in construction, transportation, and health sectors.

Strategy

The Markets and Competition Policy cluster of the World Bank Group works in more than 60 countries across regions, at the national, subnational and regional level, to offer implementation support, technical advice and capacity building on:

Designing pro-competition market regulation. Opening specific markets to competition, reducing government interventions that may shelter less efficient firms, protect incumbents or facilitate collusion, including sector-specific regulatory design.
Embedding competition principles in broader public policies. Implementing effective competition advocacy strategies, national competition policies, state aid, and infusing competition principles in regulatory reforms.
Reforming the competition framework and its implementation. Design of anticartel programs (including leniency), merger control, market and competition analysis techniques, institutional effectiveness of competition authorities, and advocacy strategies across government agencies.
Fostering competitive neutrality in markets with direct state participation. Designing mechanisms that minimize the distortive effects of incentives and state aid support and promote competitive neutrality among market players

Building upon the World Bank Group Markets and Competition Policy Assessment Tool (MCPAT), we provide empirical research and economic analysis as foundations for reform implementation around three modules: (1) Antitrust rules and enforcement; (2) Pro-competition market and sector regulation; (3) Competition principles in broader public policies, including SoEs and competitive neutrality.

Results

Market and competition reforms foster efficient regulatory frameworks in key sectors, deter anticompetitive business practices, and minimize distortive government interventions in markets. Such reforms improve market contestability, lead to entry of new firms, expansion of efficiently operating firms, and changes in the behavior of firms with market power. The resulting improvements in markup benefit both firms and households and lead to potential increases in sector productivity (dynamic efficiency within firms and allocative efficiency between firms), exports, investment, and consumption. These changes subsequently translate into increases in aggregate output, employment, and consumer welfare.

In Kenya, the World Bank Group is advising the government on competition regulations that will break up cartels in key economic sectors. With the enactment of these regulations, anticompetitive agreements will be prohibited and removed, generating private savings for firms and households. Estimates indicate savings of about $18 million annually in insurance markets alone. In addition, sector-specific work in agribusiness has helped unlock key markets that were closed to private investment because of statutory state monopolies. We are helping stakeholders draft bylaws that will allow private participation in previously monopolized markets.

In the Philippines, the World Bank Group has helped implement reforms that dramatically cut the time needed to register new vessels. One result is that incumbent operators are no longer able to prevent new companies from serving certain routes. This translates into a potential 5 percent savings in transport logistics costs.

By promoting equal treatment for firms seeking to register for agriculture inputs, the World Bank Group helped Honduras more than triple the amount of products registered per year and decreased the prices of some pesticides by as much as 9 percent.