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Competition Policy in Small Distant Open Economies: Some Lessons from the Economics Literature - WP 03/31

Publication Details

  • Competition Policy in Small Distant Open Economies: Some Lessons from the Economics Literature
  • Published: Dec 2003
  • Status: Current
  • Authors: Evans, Lewis; Hughes, Patrick
  • JEL Classification: K21; L40; L50
  • Hard copy: Available in HTML and PDF formats only.
 

Competition Policy in Small Distant Open Economies: Some Lessons from the Economics Literature

New Zealand Treasury Working Paper 03/31

Published December 2003

Authors: Lewis Evans and Patrick Hughes

Abstract

New Zealand is a small open economy that is remote from all major markets. The smallness and remoteness of New Zealand combine to imply that this country has, at least quantitatively, distinctive features for the regulation of economic activity by competition law. The isolation and small size of the economy mean that typically all but exporting firms are small as judged on a world scale, and that domestic markets are small and generally highly concentrated. This paper reviews the economic literature on the implications of an economy’s size and isolation for competition law.

The literature suggests that principles underlying competition law do not change for small economies, but that the application of competition law should be different. In small economies, low regulatory and tax barriers to trade dominate the importance of competition law for good economic performance of domestic markets. In these economies, competition law should focus on economic benefit/detriment evaluations of mergers and trade practices rather than rules of thumb of the sort based on measures of market structure and indicators of competition, or those aimed at prohibiting particular practices per se. Producers’ surplus should not be de-emphasised in the calculation of benefits and detriments in small economies; particularly for activities that relate in any way to (potential) export activity. For any economy, particularly in the presence of competition, cooperation enhances economic performance in specific circumstances. In small economies cooperation can be particularly efficient—for example, in achieving scale and thereby export performance —although it may entail interaction among a large fraction of players in an industry. The approach that the literature suggests to the application of competition law in small economies places relatively heavy weight on dynamic efficiency as the criterion for competition law design and enforcement. It is squarely in accord with recommendations in the literature on desirable competition law for the so-called new economy.

Contents

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Abstract

Table of Contents

List of Tables

List of Figures

1 Introduction

2 Small and distant economies

3 Efficiency issues for small distant economies

4 Competition policy in New Zealand: a first examination

5 Dynamic efficiency and the modern economy

6 Trade, investment and competition policies

7 Competition law in small isolated economies: a summing up

References

Appendix – Measuring Remoteness

twp03-31.pdf (384 KB) pp. 1–35

List of Tables

List of Figures

Acknowledgements

Paper prepared for the New Zealand Treasury. It has benefited from comments on an earlier version by Lee Colville, Joanna Gordon, Rory McLeod, Frederick Sautet, Neil Quigley, Fleur Knowsley and Annemieke Karel.

Disclaimer

The views, opinions, findings, and conclusions or recommendations expressed in this Working Paper are strictly those of the author(s). They do not necessarily reflect the views of the New Zealand Treasury. The New Zealand Treasury takes no responsibility for any errors or omissions in, or for the correctness of, the information contained in this Working Paper. The paper is presented not as policy, but to inform and stimulate wider debate.

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