Competitiveness undermined by lack of competition

In a speech to the National Competitiveness Council today (Friday 30^th November) the Chairman of the Competition Authority warned that the competitiveness of the Irish economy is seriously impaired by the lack of competition in many sectors.

Dr. Fingleton said, “Markets in which competition is weak or absent are characterised by higher prices, lower output, less innovation and lower levels of buyer satisfaction. In many markets in Ireland, competition has been severely restricted or, in some cases, totally prevented by state regulation. Such restrictions are widespread and exist in retailing, transport, banking, communications, energy, and many private and public services. In markets that the Authority has studied in detail, it has invariably found that such state mandated restrictions impose high costs and are disproportionate to any clear public policy objective.”

Dr. Fingleton added that many other markets where there are no regulatory restrictions are supplied by only a handful of players. The potential for weak competition in such markets raises concerns about whether consumers and other buyers get the right level of quality, service, product choice and variety at competitive prices.

The Authority Chairman urged the National Competitiveness Council to continue to exert a strong voice for competition in sectors that supply exporting business. Ireland's ranking near the bottom of the OECD league table for broadband indicates that monopoly interests still have a strong voice in policy determination. Tackling such vested interests is essential if firms that employ and produce in Ireland are to have access to efficiently produced and competitively priced inputs.

Dr. Fingleton also suggested that the National Competitiveness Council put greater emphasis on competition in consumer markets. “Just as the Culliton Report 10 years ago opened our eyes to how weak competition in input markets can limit competitiveness by raising business costs, we now need to open our eyes to how weak competition in markets for final consumer goods damage competitiveness.”

Dr. Fingleton contended that competition in markets for everyday consumer goods like clothes, food, retailing, and transport assists competitiveness in several ways. “First, lower prices for every day products feeds in to the consumer price index. With national wage bargaining based on the CPI, lower prices would moderate wage pressure. Second, Ireland competes with other countries to retain and attract skilled individuals not just on salary and tax, but also on lifestyle factors. Greater competition in consumer markets is one factor that could improve the range and variety of competitively priced goods and services. This would make Ireland a more attractive location for such workers, and hence for investment. Third, companies that learn through competition how to serve consumer needs in the domestic market would be much better placed to compete internationally.”

Employees are ultimately consumers and getting across the message that harm to consumers from weak competition translates indirectly into higher labour costs was not an easy task, said Dr. Fingleton. But, he stressed, it was vitally important for two reasons. First, membership of the Euro meant that Ireland could not have a competitive devaluation if it suffered a negative shock to competitiveness. Such a shock might result if the dollar decrepitates as expected in 2002. Second, exporting businesses are much stronger lobby groups for greater competition than consumers. This makes it all the more important that businesses and the National Competitiveness Council promote competition in markets for consumer products with the same vigour as they already promote competition in markets for inputs for business.

For further information contact Vincent Clarke at 01 804 5408 or 086 601 9655.