Welcome legislation

The passage of The Competition Act of 2010 in the National Assembly on September 23 is a much-awaited welcome step. There are several reasons for this, not least among them that the law will provide for a permanent competition commission to be set up and that will help enhance its independence. Already, in the past we have seen that even when performing under the somewhat transient cover of a presidential ordinance, the commission managed to carry out some very commendable work, taking on for instance the cement and the sugar cartels in the country. It also put on notice cartels in the poultry and LPG sectors as well as raised issue with the Karachi Stock Exchange on what it said were certain anti-competitive practices of its members.  In fact, such was the performance of the commission that when its demise neared, because of the absence of any legislation, there was a public outcry.

The background to this legislation is the reality of how large segments of Pakistan’s economy function. Cartels – a term used by economists to describe the concentration of power of a few firms in a particular industry – tend to dominate many sectors. From the point of view of their proprietors the companies make hefty profits but it can be argued – with some justification – that these profits come at the expense of the consumer and arise because of the anti-competitive nature of cartels, the most common of which is setting prices such that all member firms of the cartel make sustained profits. This also perhaps explains why for instance the price of petrol often rises in Pakistan – even when it may have fallen in the international market – because the price of petrol is fixed by a body comprising the oil companies and refineries. Then one can take a look at the automobile sector where despite the recent problems that the Pakistan economy has faced – which would have caused overall demand to go down – prices of automobiles have always risen. In layman’s terms, cartels are bad for consumers because they keep prices higher than what they would be were the firms truly competing. They also make for complacent firms and companies that don’t particularly place a premium on product innovation or customer service. For all these reasons, the legislation is a good one.

Published in The Express Tribune, September 25^th, 2010.