Competition Policy

What is competition policy?

Competition policy comprises the full range of measures that may be used to promote competitive market structures and behaviour by enterprises, including but not limited to a comprehensive competition law dealing with anti-competitive practices of enterprises.

Why does competition policy matter for MSMEs?

Well-designed and implemented competition policy supports efficient and well-functioning markets, benefits end, and industrial, consumers, and supports innovation. Anti-competitive practices, if left unaddressed, can result in slower economic development, misallocation of resources, higher prices, lower product quality or limited consumer choice. For micro, small and medium enterprises (MSMEs) to thrive, they need a competitive environment in which they can compete on the merits and without being treated unfairly by their suppliers, consumers or competitors. Such an environment creates incentives for MSMEs to innovate and bring to market new goods or services.

Competition policy concerns MSMEs both as possible perpetrators of anti-competitive practices and as victims of such practices. To avoid becoming perpetrators, MSMEs need to take pains to comply with any binding rules implementing a chosen competition policy (competition law). Competition law violations such as bid rigging or other anti-competitive coordination involving competitors or distributors may expose MSMEs to substantial financial penalties. As victims of anti-competitive practices, MSMEs may be forced out of a market, lose market share or be unable to enter a new market, if such practices are left unchallenged.

What issues can emerge for MSME perpetrators of competition law violations and what are possible policy options?

• Lack of awareness on the part of MSMEs of the risks associated with competition law violations. Policy option: Undertaking targeted governmental campaigns to educate MSMEs about their exposure to legal risks under competition law.

• Competition law is complex and can be difficult for MSMEs to navigate competently and confidently. Policy option: Enhancing clarity of aspects of competition law of concern to MSMEs by issuing competition authority guidelines to enhance legal certainty about what SMEs are or are not permitted to do.

• Insufficient diligence by MSMEs to prevent competition law violations. Policy option: Promoting and encouraging the adoption and use by MSMEs of compliance programmes to protect themselves against inadvertent competition law violations.

What issues can emerge for MSME victims of competition law violations and what are possible policy options?

• Dominant companies may abuse their market position to disadvantage MSMEs (e.g., by refusing to supply them, charging excessive prices, boycotting them, hindering access to essential facilities, etc.). Policy option: Prohibiting companies from abusing a dominant position.

• Anti-competitive agreements imposed by a supplier on its dealers (e.g., vertical cartels providing for resale price maintenance) or concluded among suppliers (e.g., horizontal price-fixing cartels) may prevent MSME dealers from competing effectively with other dealers or MSME purchasers from being profitable. Policy option: Prohibiting anti-competitive agreements (cartels) among companies (Caveat: It may be appropriate to permit cooperation among MSMEs that is not anti-competitive and clarify the permitted scope for cooperation through appropriate guidelines. MSMEs may need to be able to enter into cooperative agreements with other MSMEs, e.g., on research and development or distribution, to be efficient and competitive).

• Mergers and acquisitions can create a dominant position of a newly created company or reinforce a dominant position of an existing company to the detriment of MSMEs operating in the same market. Policy option: Controlling mergers and acquisitions, including by prohibiting them, where appropriate, or permitting them under conditions.

• MSMEs may hesitate to contribute to the enforcement of competition law (e.g., because of fears about reprisals from companies engaging in anti-competitive conduct, the lack of prompt and effective remedies, or insufficient expertise on competition law). Policy options: Encouraging enforcement of competition law by or on behalf of MSMEs by allowing anonymous reports to competition authorities about suspected violations; providing for the possibility of requesting urgent interim measures to avoid serious irreparable harm; and supporting MSMEs in getting access to affordable competition law expertise (e.g., from competition authorities or other entities).

Where can policymakers access more resources?

• The United Nations set of principles on competitionis a set of non-binding multilateral instrument setting out principles aimed at, inter alia, attaining greater efficiency in international trade and development through the creation, encouragement and protection of competition; control of the concentration of capital and/or economic power; and encouragement of innovation.
• UNCTAD’s Training course on the Interface between SME Development and Competition Policy highlights how competition policy and law can be leveraged to further market entry, growth, and sustainable development of MSMEs, with a particular focus on times of emergency (COVID-19 pandemic).
• The ICC SME Toolkitdeveloped by the International Chamber of Commerce suggests practical tools for small businesses to enhance compliance with competition law.
• The UNESCAP report on the Role of Competition Policy in Strengthening the Business Environment for MSMEs in the ASEAN Region discusses issues of competition policy and law relevant to MSMEs in Southeast Asia and includes recommendations on how competition policy and MSME policy can work together to benefit those enterprises.
• APEC’s issues paper on SMEs, Competition Law and Economic Growth examines the theoretical and empirical underpinnings of the synergies between SMEs, competition law and economic growth with a particular focus on the APEC region.
• Competition Policy For Development: A Report On UNCTAD’s Capacity Building And Technical Assistance Programme sheds light on UNCTAD’s mandate as a focal point of competition-related discussions within the UN system and highlights the capacity building work carried out by the organization.