7 Competition law in small isolated economies: a summing up
The structure of any country’s entities will depend upon that country’s comparative advantage and this will be affected by the characteristics that include size and location. Industry structure will reflect these characteristics. The small size and isolation of the New Zealand economy places it in an unusual position, and it is likely that isolation has been as important as size for the country’s comparative advantage, institutions and historical performance.
In small isolated economies there can be expected to be a larger fraction of domestic markets that are concentrated, although competitive industries may also exist. Where domestic markets are concentrated in such economies it is important that case-by-case application of the efficiencies criteria are applied to mergers and practices, particularly at the expense of rote application of competition rules of thumb derived from other jurisdictions.[68] The desirability of utilising economies of scale, perhaps by enabling exporting and dynamic efficiency means that the efficiency defence should generally weight consumer and producer surpluses equally in this calculation. On similar grounds it is generally not desirable to distinguish between foreign and domestic entities in the efficiencies calculation. The recent suggestions for the implementation of competition law in modern economies are designed to enhance dynamic efficiency and they are suited to direct application in small isolated economies.
For any economy cooperation enhances economic performance in specific circumstances and particularly in the presence of competition. In small economies cooperation can be particularly efficient—eg, in achieving scale and thereby export performance—and at the same time entail interaction among a large fraction of players in an industry. In this context the inclusion of per se restrictions on behaviours in competition statutes deserves further investigation.
The place and form of desirable competition law in any economy will depend upon the existing legal and political institutions of that country as well as more specific factors including those of size and location. Application of competition law that does not inhibit but enhances dynamic performance is a particular challenge for economies such as New Zealand with very small isolated domestic markets because domestic demand—and therefore domestic opportunity—is very limited and firms are extremely mobile in the modern world. This combination enhances the argument for competition law that enables dynamic efficiency and thereby the long term interest of New Zealand consumers.
Notes
- [68]This is the position of Khemani (1991, p.219).
