In defense of antitrust laws

James Robinson/Ovum
18 Sep 2012
00:00

In the past few months regulators from various jurisdictions have found their respective incumbent telcos to have breached national antitrust law and have imposed hefty penalties.

The preservation of fair competition and the protection of consumer welfare are two primary goals of most national regulatory authorities (NRAs) and recent activities have sought to achieve these objectives. Effective competition can benefit consumers and industry alike through lower prices, improved quality, product differentiation, and greater innovation.

However, the free market is not always optimal, and ex-ante regulation can help facilitate fairer competition in traditionally monopolized markets. Well-designed ex-ante regulation can work to protect the process of competition and prevent abuses of dominance. However, as more markets are deemed sufficiently competitive not to warrant ex-ante regulation, it is equally important to have a functioning, ex-post competition law framework in place.

The NRAs which have intervened recently have done well to act quickly on anti-competitive conduct and levy fines to dissuade others from considering similar practices. Further action will need to be taken to ensure that competition is maintained, but many countries, especially those which are less developed economically, can learn from these interventions when attempting to foster a competitive environment within their own communications markets.

Competition can yield wide-ranging benefits

Competition between firms is often viewed as fundamental for effective markets and it can lead to an array of benefits, particularly for consumers. Firstly, in a competitive market, there can be significant downward pressure on prices. Basic economic theory suggests that an increase in the supply of goods available will pull prices down.

This is good news for consumers as their spending power becomes greater, but increased demand for goods and services also gives businesses the incentive to raise output and the economy can be boosted as a whole. Competition can also increase the quality of goods and services being sold since as competition increases, quality will also improve as firms work harder to retain customers or even expand market share.

Similarly, greater rivalry can mean greater incentives to differentiate the products on sale. As the number of competitors in the market rises, firms are encouraged to make their own goods or services more heterogeneous to attract consumers. This improvement in choice benefits consumers as they can find the product more suited to them in terms of both price and quality. Finally, competing businesses drive innovation as each firm looks to better the other by creating new products or by inventing more efficient work processes.

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