Need for competition framework

The last two orders by the Competition Commission of Pakistan (CCP) raise the all-important question of conflict between the state’s different regulatory regimes.
Take for instance the fertilizer case. The CCP has called fertilizer price hike as an “unreasonable price increase”. Critics, however, point out that prices were not increased without the reason. Engro had raised prices due to the government’s failure to meet its gas guarantee.
This effectively means that Engro’s price hike was not without any reason. The question therefore, is whether “unreasonable price increase” should be read as excessive pricing, especially considering that it is essentially market dynamics that dictate pricing.
If ‘unreasonable price increase’ is being read as excessive pricing, then is the CCP risking of becoming a price regulator? This is particularly important especially considering that “unreasonable price increase” is very difficult to capture. Establishing “unreasonable-ness” is not exactly an objective exercise due to absence of pre-defined cut-offs.
The second leg of the argument revolves around the fact that Engro’s price hike was followed by other industry players - in a market that has an officially deregulated pricing policy. Fertilizer prices of different producers have historically moved in tandem with each other, in what is called tacit collusion, which is considered a lawful conduct.
Of the many intricate affairs, the two key issues in fertilizer case are that market dynamics were dictated by government inaction (i.e. failure to provide gas to Engro) and a government approved deregulated pricing policy. CCP’s order therefore creates a kind of regulatory conflict for the industry players.
A similar regulatory conflict emerges in the ICH case. Khalid Mirza, the former founding chairman of the CCP, points out that the increase in settlement rates affects customers outside Pakistan, whereas CCP’ mandate is limited to Pakistan. This is too, therefore, begs the question whether the commission is operating outside its mandate.
“The PTA and Ministry of Telecom or for that matter any sector regulator is empowered by law to give policy directions and industry players have to follow that directive,” says Mirza, arguing that the CCP is not supposed to interfere in government’s domain.
If the government gives unlawful advice, industry players should not follow; but if government gives a policy directive or a law, then the players have to follow, Mirza explained, even if they might appear to clash with other statues.
Assessing where the balance lies in cases of regulatory conflict like these is outside this column’s scope. The idea is only to point out that the government needs to make an effort to resolve these conflicts because quite often the businesses risk getting fined by the CCP when in fact they are only operating under the relevant sector regulation.
“There are many areas where government policies are actually against competition,” says Ali Salman, Executive Director at the recently founded think tank called Policy Research Institute of Market Economy. “What Pakistan needs is a broader competition policy framework, and not just a single competition law,” he added.
Drawing an example from the National Competition Policy in India, Salman said that competition policy should aim at laying down an overarching framework for infusing competition principles in various statutes, regulations and policies of the government. “Sector regulatory laws should be in harmony with the competition policy framework,” he said.
The World Bank differentiates the two in the following manner: Competition Policy is a broader term which includes all government policies and laws whereas competition law is a specific statute with a predefined mandate to adjudicate on violation(s) of the law. It would be seen that a competition law is a regulatory instrument to check the prevalence of anti-competitive practices whereas a competition policy is a proactive and positive effort to build a competition culture in an economy.
And while that is being done, it should be kept in mind that competition is not an end in itself, but rather a means to higher economic welfare. This means that at the policy design stage, there needs to be an appreciation that different industries display unique elements and therefore may require different levels of competition.
Also, there are different kinds of competition – competition for resources or inputs for instance is different than that for output or market - and therefore the type of competition which best meets the efficiency criterion depends upon the market and government failures that arise in each industry.