Competition Law in Developing Countries

Thomas K. Cheng

14th August 2020

Competition Law in Developing Countries brings together perspectives of development economics and law to tackle the relationship between competition law enforcement and economic development. It addresses the question of whether and how competition law enforcement helps to promote economic growth and development. This question is highly pertinent for developing countries for two reasons. 

The first is that many developing countries have adopted competition law in recent years. About thirty jurisdictions had in place a competition law in the early 1980s. There are now more than 130 competition law regimes across the world. Many of these recent adopters of competition law are developing countries. The second, and related, reason is that despite the recent adoption of competition law in many developing countries, they still need to decide on the amount of resources to be devoted to its enforcement. Given the dearth of public funding, precious resources need to be deployed to maximize the prospects for growth and the potential for development, which should be the primary preoccupation for every developing country. If competition law is found to make insignificant contributions to growth and development, it would be wise for developing countries to deploy their valuable resources to more worthwhile endeavors.

The central argument of this book is that competition does contribute to economic growth, and thus promoting competition law enforcement will enhance the growth prospects of developing countries. Developing countries should take competition law enforcement seriously. While many competition law scholars in the past have asserted this as an article of faith, and the literature on competition law in developing countries has taken it as a fact, this book goes beyond that and seeks to establish the relationship between competition and growth on a more rigorous basis. 

The book achieves this by way of both theoretical analysis and empirical evidence. From a theoretical perspective, it embarks on an exhaustive survey of the various growth models that have been proposed by economists over the last six decades to determine what are the main drivers of growth are and whether competition has a role to play in it. Most of these economic models posit that innovation and productivity growth are the principal sources of economic growth. Therefore, to the extent that competition promotes innovation and productivity growth, fostering competition enhances economic growth. 

The book then proposes that innovation has to be understood differently in the context of most developing countries. Most developing countries are incapable of producing cutting-edge innovation along the global technological frontier. Instead, most of the innovation that takes places in these countries exists in the form of adaptation of foreign technologies. Adaptation, however, does not mean mere copying. Economists have suggested that even adaptation of technology requires R&D. This book calls such kind of innovation laggard innovation, as opposed to frontier innovation, which refers to cutting-edge innovations that mostly hail from the industrialized economies. The question then becomes whether competition promotes laggard innovation, and it is argued that it does through various mechanisms. This conclusion is bolstered by a wealth of empirical studies, which by and large have found a positive correlation between competition and economic growth. Therefore, it is in developing countries’ interest to devote resources to competition law enforcement. Having established that developing countries should take competition law seriously, it remains to be seen how they ought to enforce it. Special economic characteristics of developing countries include small and uncompetitive markets, missing institutions and prevalence of market failure, poorly developed financial markets, high barriers to entrepreneurship, heavy state presence, widespread corruption and state capture, prevalence of the informal sector, and domination by large business groups. These may necessitate some adjustments, either by shifting enforcement priorities or refining the analytical framework for specific business practices. Given the diversity of developing countries, these characteristics may not apply to each of them. Therefore, each developing country will need to decide for itself which of the suggested adaptations are necessary.

The book proceeds to examine a few principal grounds for adjustments to conventional approaches to competition law enforcement. These include the need to incorporate development and poverty considerations, the need to tailor enforcement approaches to reflect the economic characteristics of developing countries, and the need to simplify competition law rules to suit the enforcement capacity of developing country authorities. 

Specifically, it is proposed that developing countries need to adopt a harm avoidance principle in competition law enforcement, whereby incidental harm inflicted by competition law enforcement upon the welfare of the poorest members of society should be avoided or at least minimized. The principle does not require a wholesale abdication of competition concerns in the name of economic development. It does not dictate that competition be sacrificed to generate welfare benefits for the poor. It only stipulates that harm to the poor’s welfare be avoided to the extent possible in competition law enforcement. This may require special attention to the employment implications of competition law enforcement and a focus on abuse of dominance against small enterprises. 

The limited enforcement capacity of many developing country authorities means that the kind of sophisticated, highly context-specific, effects-based analysis prevailing in advanced jurisdictions will need to be simplified to enhance ease of administration. Again, the enforcement capacity of a developing country authority can vary widely, and whether simplifications of legal rules are necessary will need to be determined on an individual basis.

The implicit premise of convergence is that there exist one, or a few, correct approaches to competition law enforcement, which in most cases emanate from developed jurisdictions, that are applicable to all. This book rejects this assumption and argues that developing countries ought to tailor competition law enforcement to their own economic and political circumstances. It seeks to distill insights from the theoretical section and use them to propose modifications to the mainstream approaches to competition law enforcement originating from the industrialized economies. 

---

Competition Law in Developing Countries is now available on Oxford Competition Law. Click to read a free sample chapter on competition law enforcement and economic growth.

Thomas K. Cheng is an associate professor at the University of Hong Kong. He has written extensively on competition law in developing countries and on the competition law of a number of Asian jurisdictions, including Hong Kong, China, and Japan. His research has appeared in respected specialist U.S. journals, including Chicago Journal of International Law, Berkeley Business Law Journal, Virginia Law & Business Review, and University of Pennsylvania Journal of Business Law, and in leading competition law journals such as Journal of Antitrust Enforcement and World Competition.