Review Paper Two: The Links between Competition Policy, Regulatory Policy and Trade and Industrial Policies

Fatsani Banda, Genna Robb and Simon Roberts, Centre for Competition, Regulation & Economic Development (CCRED) offer Review Paper Two: The Links between Competition Policy, Regulatory Policy and Trade and Industrial Policies.

ABSTRACT: This paper builds on an earlier working paper no. 04/15 on barriers to entry and inclusive growth by assessing the linkages between competition policy as a micro-economic tool and other national policy objectives. In so far as the mandates of regulators and various government departments charged with facilitating economic development seek to transform the economy into one that is more inclusive, the objectives of competition policy and other policies are complementary. For example, the work of economic regulators should be in parallel with competition policy through promoting access and restricting the ability of incumbent firms to exercise market power to the detriment of rivals and ultimately consumers. However, in practice South African policymakers and regulators faced with difficult choices have placed limited emphasis on regulating for competition and greater emphasis on encouraging investment and balancing the narrow interests of established incumbents.

This paper reviews the performance of the competition authorities in the past 15 years and draw links to other economic policies. It discusses the key challenges faced by the competition authorities and other government agencies in regulating for competition and transforming the structure of markets. It also explores the impact of industrial and trade policy on competition and barriers to entry. Successful industrial policy should support entry, dynamism and innovation rather than simply subsidizing jobs. However, if the state neglects to facilitate the creation of new entrants, capabilities and industries in its developmental framework, there may be limited competition in the long-term, as is the case in many industries in South Africa. The paper finds that whilst recent policy documents highlight the importance of competition and competition policy in achieving the aims of industrial policy, in practice the importance of rivalry and entry by new players does not seem to have been a major consideration in the implementation of policy programs.

The findings of this paper and its companion paper provide motivation for a more detailed program of study into the nature and impact of barriers to entry in different sectors of the economy, focusing in particular on the role of entrenched incumbent firms and government actors in maintaining or increasing barriers to entry.