Wednesday, October 8, 2008
Posted by D. Daniel Sokol
Bronwyn E. Howell, NZ Institute for the Study of Competition and Regulation Inc. and Victoria Management School, Victoria University of Wellington asks, The End or the Means? The Pursuit of Competition in Regulated Telecommunications Markets.
ABSTRACT: Economic analysis takes as its defining performance benchmark the pursuit of increases in welfare (efficiency). Competition is merely one of a variety of means of achieving the efficiency end, especially in industries where the underlying economic circumstances predispose them towards greatest efficiency when competition (in the form of many market participants) is restricted. Typically, regulatory intervention in these industries is justified by the imperative to increase efficiency. Competition law and industry-specific regulation provide two competing means of intervention whereby the pursuit of efficiency can be enhanced. The challenge is in determining how to allocate responsibility for governance of industry interaction between these two institutional forms. Whilst competition law can govern interaction in most industries, where the underlying economic conditions are sufficiently different, industry-specific regulation offers advantages. However, its weakness is the risk of capture, leading to the subjugation of the efficiency end to the pursuit of other objectives (e.g. competition - the means - as an end in itself). But if the regulatory institution could be bound in some way to pursue an efficiency objective, could the risk of capture be averted?
By exploring the attempts to prioritise the pursuit of efficiency via both competition law and industry-specific regulation in New Zealand over the past twenty years, this paper concludes that such an endeavour is unlikely to be successful in the long run. As politicians ultimately control the rules by which the regulatory responsibilities are allocated, and politicians are themselves pose a potential risk of capture for the industry-specific regulatory processes, the inability of a government prioritising efficiency objectives to bind its successors to the same objectives means that the efficiency objective is not stable. From the New Zealand experience, the outcome could be total subjugation of industry-specific regulation to direct political control and the abandonment of efficiency as a primary regulatory objective. This suggests that, imperfect though it may be, competition law overseen by a judiciary with greater independence of the political process, offers the best chance of enshrining pursuit of efficiency into the governance of industry interaction, even in industries normally the focus of industry-specific regulation.