The Effectiveness of Proposed Antitrust Programs for Developing Countries

Abstract

We examine whether traditional antitrust policies are appropriate for developing economies.Economists have typically claimed that antitrust enforcement does little good in small economies with free trade since imports should temper anticompetitive behavior.However, some recent trade liberalization programs have not had the full effect that their proponents had advertised.Specifically, imports have not adequately tempered domestic market power in a number of countries that have liberalized trade.Many commentators, arguing primarily that nontradeables are immune to trade effects, advocate the establishment of antitrust agencies to correct this problem.However, we believe that this failure of liberalization suggests the inappropriateness of antitrust policies.We argue that the continuance of market power is due to interest group rent-seeking rather than price-fixing or other private cartelizations.In fact, poliymakers in developing economies are institutionally susceptible to rent-seeking.Interest groups find soliciting preferential treatment from the state more attractive than cartelization.Thus, trade liberalization gives rise to significant state-sponsored nontariff barriers, against which antitrust is powerless.We suggest that, at its most effective, an antitrust agency can have a powerful competition advocacy program insulated from political pressure.