Does competition exist in local industries (Final)

Recap

October’s focus has been on shedding light on the concept of competition. The articles this month covered a range of areas, which started with providing a comprehensive understanding of the concept of competition, providing explanations and painting pictures of the different types of market structures that exist. The effort included analyzing specific industries to determine whether or not competition existed in those industries. The industries under observation were, the bauxite, gold and beverages – particularly aerated drinks, beer, and rum industries. For both the gold and bauxite industries, it was established that the majority of their output was exported; both faced competition in the international market.  Prima facie, the bauxite industry is duopolistic in nature and highly uncompetitive from the local and production side.  But, the industry faces much competition from other major global players. However, the importance of this industry to the Guyana economy could change with access to cheaper sources of energy, which could lead to the emergence of value-added activities in the domestic economy and bring the uncompetitive nature of the industry into sharper focus.  The gold industry on the other hand has a different fate. It has a much larger number of producers and is much more complex, facing much more competition than bauxite globally. But this industry has another dynamic to it. An issue that arises is whether the large number of rights, being approved by GGMC, is spread across a large number of owners or if the rights were concentrated in the hands of a few holders.  While the ownership of multiple rights is allowed, one needs to know if, as currently configured, it fosters competition.

As it relates to the beverages industry, attention was paid to markets in which some of Guyana’s large companies operate, namely Banks and DDL and the behaviour of the outputs understudy- rum and aerated drinks. In the local beverage market, these companies directly compete against each other with primarily aerated drinks, rum, fruit juices and water.  These companies produce similar products under different brands making the market from the outlook seem duopolistic and highly uncompetitive when looking at the structure of the market from the product line. These products are competitive at the products level, but not at the enterprise level. However, it is only when imports by companies like Ansa Mcal and Massy are taken into account, the structure of the industry changes, but remains highly concentrated as an oligopoly.   In analyzing the behaviour of the output of soft drinks, output increased at a decreasing rate from 2012 to 2014 before picking up in 2015.  The behaviour of output seems to suggest that there was some type of pressure on the market for soft drinks.  The behaviour of the output of rum was also intriguing. Rum output declined by 66 percent from its output in 2006 to that of 2013. The market is clearly duopolistic and uncompetitive, but one must take into account the occurrences of smuggled rum into the country that would pose some competition, making the market oligopolistic in nature, but still pretty uncompetitive.

This week’s article will bring an end to discussions on the topic of competition.  Having seen how concentrated many industries in Guyana are and the need for some consideration to be given to finding ways of expanding competition, focus will be placed on the regulator.  To get to that point, one must consider the role of the Competition Commission of Guyana.  This rather reticent institution holds the key to creating space in highly concentrated industries and expanding competition.  As such, this article will also examine the role of the Competition Commission in implementing the Competition Act, particularly as it relates to enabling the country to achieve the benefits that competition brings and in promoting diversification in the Guyana economy.

 

A man’s favourite- beer

Nothing could be more interesting than the situation of beer. Unlike that of rum and the other industries examined, Banks beer is the only locally produced beer and the primary market for Banks beer is the Guyana market.  As such, where beer is concerned, Banks DIH is a monopoly.  The focus on one product in the activities of a conglomerate might appear to be unfair, but the production tables suggest otherwise.  As could be gleaned from the Table below, beer constitutes about 80 percent of the production of alcoholic beverages in Guyana and Banks DIH gets most of its revenues from alcohol and other beverages.  Thus, a focus on beer is not unfair.

TABLE 3

Banks beer receives competition from Ansa McAl with its Stag brand.  Other beers like Desperados, Red Stripe, Heineken, Carib and Corona are in the market and limit the dominance of Banks.

 

Governing body – Role

The discussion about competition is not intended to target any particular business or industry.  It is true that the port operation industry is not competitive and so is the banking industry.  It is intended to stimulate further consideration about competition.  It is hoped that over time all of these industries will be examined to determine the risks associated with insufficient competition.    It is to be remembered that what matters most is the welfare of the consumer and the ability of the country to hold its own in a globalized economy.  US competition laws are over 100 years old and still have one goal in mind and that is to protect the process of competition for the benefit of consumers.  More efficient production could lead to lower prices, greater consumer surplus and more exports.   The people who could help to bring such favourable circumstances to Guyana are sitting in the office of the Competition and Consumer Affairs Commission.  It is not possible to provide a comprehensive discourse about the Competition and Consumer Affairs Commission since its work covers a wide range of activities and offences.  Yet, the importance of this institution requires an understanding of its defensive role in favour of consumers.

The Competition and Consumer Affairs Commission is a corporate body established under the Competition and Fair Trading Act of Guyana, which came into effect in 2006. This Act, like similar laws around the world, aims at promoting fair competition in local industries and sectors for the benefit of consumers.  The Commission has been operational for about 6 years and is charged with administering and enforcing the Act. The Commission is the dominant authority in the country in addressing issues of competition.

The Commission is tasked with three primary functions.  The first involves promoting competition – publicizing, advocating and conducting industry and sectoral studies to ensure that industries do not remain or become anticompetitive.  The Commission has to be active in relation to the strategies and conduct of participants in the industry.  It must remain aware of the situation in local industries and sectors.  The Commission is therefore about encouraging competition while enhancing economic efficiency in production, trade and commerce.  The second function involves the prohibition of anti-competitive business conduct that prevents, restricts or distorts competition or constitutes the abuse of a dominant position in the market. It is therefore about expanding business and not stopping it.  This objective is often lost in the discourse of competition even though breaking up monopolies lead to additional market participants.  The third function is the promotion of welfare and interests of consumers.  Increased competition often means better products at better prices for consumers.

To pursue these functions, the Commission is vested with power to declare certain business practices as abusive of a dominant position.  It can prohibit competitors from withholding supplies or services that a competitor might need from the dominant market participant.  The Commission can order the termination of an agreement that restricts competition and prohibit companies from discriminating on the basis of price.  Offending enterprises can be ordered to cease and desist from any conduct that has, and was likely to have, the effect of reducing competition.  These actions are possible because the Commission has investigative powers that can enable it to act on allegations of anti-competitive conduct that might be reported to it.

However, in addition to these authoritative roles, the Commission is also tasked with the mandate of undertaking studies and publishing reports and information regarding matters affecting the interests of consumers.  Educating consumers is of paramount importance to the Commission which it does through advocacy and other awareness initiatives.  It is very proactive in this regard.  But staffing issues might be holding it back from giving greater effect to its purpose.

Comments  

The abuse of sugar workers and some tentative solutions

My intention was to write this week about whether Guyana can evade the resource curse, which is often associated with oil and natural resource extraction.

By ,

The Consolidation Fund and the persistent overdrafts

 We noted last week that the Consolidated Fund (CF), which has been a standard part of the budget estimates, was not reported for the 2018 budget.

By ,

Budget 2018: Does it make a credible commitment to social cohesion and good governance?

We noted last week that the budget provides a glimpse that the government is starting to think about a coherent development strategy.

By ,

Budget 2018: Searching for the comprehensive economic vision? Part 1 

The 2018 national budget outlines snippets of a broader economic vision, the Green State Development Strategy (GSDS), which somewhat underpins this budget and will likely do so for future APNU+AFC budgets.

By ,

Your browser is out-of-date!

Update your browser to view this website correctly.

We built stabroeknews.com using new technology. This makes our website faster, more feature rich and easier to use for 95% of our readers.
Unfortunately, your browser does not support some of these technologies. Click the button below and choose a modern browser to receive our intended user experience.

Update my browser now

×