Competition and consumer protection can play a direct and important role in promoting economic growth and reducing poverty.
Competition stimulates innovation, productivity and competitiveness, contributing to an effective business environment. This generates economic growth and employment. It creates possibilities for small and medium sized enterprises, removes barriers that protect entrenched elites and reduces opportunities for corruption.
Competition therefore increases a country's attractiveness as a business location, triggering national and foreign investments. Competition also delivers benefits for consumers through lower prices, improved services and greater choice. In this sense, Competition generates total consumer welfare.
Consumer protection benefits all consumers by ensuring that they have the right of access to: non-hazardous products; to adequate information to enable them to make informed choices according to individual wishes and needs; and to effective redress.
Empowered consumers, who know their rights and enforce them, are subject to fewer abuses. This directly improves their welfare. It also contributes to creating a level playing field for businesses which have to apply a common set of standards, supporting competition.
Despite the benefits of competition, anticompetitive practices are common, with two root causes:
Business conduct that restrains competition. This includes agreements between businesses not to compete (which are typically illegal), through cartels, price fixing and territorial divides for example. Businesses may also make formal, legal groupings such as marketing boards and cooperatives, which can in effect operate as cartels.
Government policies that burden competition. Governments often have restrictive licensing regimes for certain sectors and products, such as for agricultural inputs (e.g. seeds and agrochemicals).
Developing economies are particularly vulnerable to anticompetitive practices - poor business infrastructure and complex regulatory and licensing regimes make it harder for companies to enter these markets; their policies, laws and regulations are often not sufficiently robust, while their enforcement agencies lack the capacity to effectively detect and tackle many instances of anticompetitive behaviour; citizens, and businesses are less aware of the importance of competition and do not exercise their rights or fulfil their responsibilities.
Increasingly, many competition problems have a cross border component. Companies and supply chains are international, while competition laws and enforcement agencies are primarily national. Individual countries have struggled to address anticompetitive practices at the international level, which requires regional and global collaboration to set and enforce competition rules.
Competition policy aims to overcome this anticompetitive environment by applying a set of market rules that guarantee a level playing field for all businesses. The successful implementation of competition policy results in the elimination of anticompetitive regulation and unnecessary barriers to competition imposed by government policies. Anticompetitive business practices are also discouraged by effective enforcement of competition rules.