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The Competition Assessment Framework (The CAF)

The Competition Assessment Framework (The CAF). 7Up3 Conference Gaborone, Botswana 14 – 15 February 2008 “Promoting a Healthy Competition Culture in Eastern and Southern Africa” John Preston Competition Consultant Investment Climate Team, DFID, London. The CAF: What, Why, How?.

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The Competition Assessment Framework (The CAF)

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  1. The Competition Assessment Framework(The CAF) 7Up3 Conference Gaborone, Botswana 14 – 15 February 2008 “Promoting a Healthy Competition Culture in Eastern and Southern Africa” John Preston Competition Consultant Investment Climate Team, DFID, London

  2. The CAF: What, Why, How? • Fair competition benefits consumers both directly, through lower prices and higher quality, and indirectly • Fair competition stimulates efficiency and innovation, and is crucial for growth and poverty reduction, but anti-competitive practices are common • Competition needed for competitiveness • Many causes of weak competition – need for a holistic view • The CAF: a flexible diagnostic tool poses sets of questions, grouped by theme • Assessments could be undertaken by economic research groups, competition authorities or Ministries; need technical ability and right to form an independent view

  3. CAF Section 1: How to select sectors • (1) Is the sector important to the economy: or, Is it important for consumer welfare? • (2) If ‘yes’ to either or both, do any of these apply? Sector highly concentrated? High entry barriers? High barriers to carrying on business? History of anti-competitive conduct? Indications of concern from consumers or firms? Strong vested interests opposed to change?

  4. CAF Section 2: How to analyse competition • Identify the relevant markets (Section 3) • Examine the market structure (Section 4) • Look for barriers to entry (Section 5): A) natural B) strategic C) regulatory D) gender-based Possible entry must be likely, sufficient and timely

  5. CAF Section 6: Do Government Policies or Institutions Limit Competition? Include national, federal and local governments. • State-owned enterprises • Public procurement • Regulated sectors • Trade policies and industrial policies • Unequal enforcement of laws and regulations

  6. CAF Section 7: Vested Interests • Which stakeholders are affected by the level of competition in the relevant markets? • What is the nature of their interest? Do they oppose or support increased competition? What are the reasons for their views? To what extent are these justified? • How much power or influence does each stakeholder have over the level of competition?

  7. CAF Section 8: Look for signs of anti-competitive conduct by firms • Abuse of dominance: needs high market share • Collusion and cartels: domestic cartels usually the most common • Mergers – need review. Often beneficial, but sometimes reduce competition significantly • Vertical issues – restraints within supply chains • Other problems of market structure

  8. CAF Section 9: Draw Conclusions • Is competition in the relevant markets weak? • If so, what are the effects? • Who profits? • Who loses? • What corrective action is possible? (Affected by relevant laws and institutions) • Who would benefit from corrective action? • What are the likely effects of corrective action on the economy? (e.g. investment, productivity, employment, exports)

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