ISLAMABAD, 11 June 2012: The Competition Commission of Pakistan (CCP) has issued a policy note the Government of Punjab for the ban on establishment of new sugar mills and expansion of existing ones, in force since December 2006, and asked the Provincial Government to lift the ban to allow a fair competition in the sector.
The Commission while dealing with the Complaint filed by Mr. Sheikh Abdul Razzaq, took notice of the ban imposed by the provincial government.
In a policy note, it was observed that under the Competition Act, 2010 (Act) it is CCP’s mandate to promote competition norms through advocacy and persuading economic agents including government agencies/ regulators to act in accordance with the Act. The policy note sent to the Chief Secretary Punjab and Secretary of Industries of Punjab said that in a free market an entrepreneur must be allowed to decide whether the opportunity to set up any business enterprise, including a sugar mill, was worth availing.
The CCP noted that legal, statutory and regulatory barriers to entry were usually the result of lobbying by existing players. It said that in economics and especially in the theory of competition, barriers to entry are obstacles to the path of an undertaking which wants to enter a given market. It may be any factor that makes it difficult for a new undertaking to enter a market. The term refers to hindrances that an undertaking may face while trying to gain entrance into a profession or a trade,” the commission said while defining the term ‘barrier’.
It said the object of erecting barriers to entry was to exclude new entrants to a market or sector of industry. These prospective entrants might bring with them efficiencies that could reduce costs related to production (by introducing novel technology or through better research and development) which in turn would enhance competition by forcing existing players to stay competitive. This threat can be neutralized by erecting barriers to entry for new players.
It said that if existing players had managed to exploit some of the economies of scale that were available to undertakings in a particular industry, they would have developed a cost advantage over potential entrants. They may use this advantage to cut prices if and when new players enter the market. Although they will be moving away from short-run profit maximization objectives, they will, however, inflict losses on new undertakings and thus protect their own market position in the long run. Once a potential entrant is successfully barred from a market, existing players are free to revert to their prior anti-competitive conduct.
The policy note said that capacity expansion restraint in the industrial sector might indirectly support the anti-competitive practices such as production curtailment and quota allocation and eventually manipulation of prices by the incumbent undertakings. However, incentives of capacity expansion would help achieve economies of scales and scope which could result in better prices and quality for consumers.
It has been observed by the CCP that the more robust competition policies are the better, the enforcement of law and higher the chances of enhancing economic efficiency. The consumers stand to gain the most from greater competition. Competitive markets encourage more trade, lower prices; provide greater choice and more employment. Competitive markets encourage more trade and lower prices. (They) provide greater choice and more employment. Let market forces of demand and supply prevail which will ensure competition. This will encourage manufacturers and service providers to be more efficient, to better respond to the needs of consumers, to innovate, to initiate and to venture, and consumers will benefit from better prices, quality goods and more choices.”