Competition law and market regulation

By GENN

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In an ideal world for competition professionals, offer and demand are the main factors the drive markets. Nevertheless, in the real world there are several economic activities that present complexities that require certain level of regulation.

Telecommunications, energy, airlines and pharma are just a few examples of markets that present regulatory complexities such as essential facilities, vertical integration and public interest. In this regard, the one of the purposes of competition authorities is to provide regulatory advocacy to ensure that regulatory designs incorporate criteria of efficiency and competition in the markets.

Price as competition indicator in regulated markets: In industries such as pharma, their business is highly regulated mainly in price and reimbursements. For example, in the European case C-457/10 P – AstraZeneca/Commission, regulation of prices and reimbursements play a significant role. From the competition perspective, it was relevant to observe the price regulation to understand that fierce competition between companies in this industry was based more on innovation, since regulated prices are there, in most of the cases, to be efficient, so focusing on price is not often the answer. Therefore, competition authorities must respect price regulations and analyse their cases with a scope tailored to these industries, and market regulators must take into consideration competition concerns when establishing price systems.

Essential facilities: The regulation of essential facilities by competition authorities can often concide with the activites of regulatory agencies. Such is the case of the International Airport of Mexico City, where the Mexican competition authority Cofece decree this airport an essential facility. On this frame, in 2017 Cofece issued a resolution to regulate the slots of the airport to propose more efficient assignment rules. Nevertheless, this decision brough a series of judiciary reviews arguing that is the Communications and Transportation Secretary the competent authority to analyze this matter. Thus, this tool used by competition authorities can be highly related with sectorial regulation, resulting in certain clashes that may cause the inapplicability of either regulation or competition policy.

Political matters in regulated markets: The energy sector in Mexico is a clear example of this situation. In 2014, all energy-related markets had an extreme transformation due to liberalization and the introduction of private participation. Now, the new administration has used this movement as part of their political campaign and was a pillar to their victory. They suspended oil and gas bids; revised agreements with private companies on electricity markets with the goal of increasing again the participation of domestic publicly-owned companies; eliminated the controls on Pemex wholesale prices (public company that had the state monopoly before 2014); and removed the regulation that forced Pemex to share its infrastructure, among others. In this matter, Cofece has published certain opinions on how competition is hampered with these actions, as well as a constitutional controversy stating that these decisions affect competition in the energy sector, therefore this regulation is Cofece’s mandate.

Eduardo Perez-Motta is a former Chairman, Mexican Competition Commission, former Mexican Ambassador to the WTO, and former Chairman of the International Competition Network

 

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