Alberto Heimler Regulatory Reforms and Regulatory Reforms and

Competition: How to Push Competition: How to Push the Agenda Forwardthe Agenda Forward

Discussion byİnci Ötker-Robe

International Monetary Fund

What is the paper about?

Challenges faced by the Italian Antitrust Authority to:

push forward competition-oriented reforms, and

convince legislators to intervene, so as to prevent unjustified restrictions to competition

What is the paper about? (2)

Resistance to competition:

Greater competition enhances drive for innovation

Competition helps increase set of consumer choices

But still: competition-oriented reforms trigger strong oppositions

Fear of destruction of existing jobs vs. Hope of creation of growth opportunities

Why is it so difficult to make a case for competition?

Large number of special interest groups Well organized & concentrated Lots to lose from competition. On the contrary:

Losers from restrictions to competition: Scattered with not much to lose from restriction

Differing views about merits of competition: Special interests present competition as disruptive, while

justifying restrictive regulations as beneficial to the general interest of the society

Differing perceptions of gains vs. losses from competition

More difficult to give up something owned than to gain something unexpected

Uncertainty vs. opportunity trade-off

The initiatives/proposals to promote competition… Role of the EC in favoring competition oriented

reforms in member states “Scapegoat” (in telecommunications, electricity, railroad

transportation, services, and banking)

Channel competition into a “technical debate” away from “political debate” focus on substance to achieve progress toward competition

Some useful regulatory tools: Regulatory impact analysis (RIA) Competition impact assessment (CIA)

Make sure choices are made with full information on alternatives transparency

Comments and suggestions (1)

The paper contains a wealth of information with many details

Would be beneficial to illustrate the paper’s arguments and proposals with one single example: e.g.: competition in the banking sector!

Example: Impact of regulatory reform on banking sector competition

“Technical debate”: Present technical arguments on:

Benefits of greater competition and reduced regulatory restrictions on banks

increased efficiency and greater sophistication of products better risk management techniques better opportunities for borrowers and lenders,...

Potential costs from increased competition aggressive lending behavior relaxed risk management practices for bigger market

shares risks to financial stability…. A challenge for many CEE countries with competitive

banking systems after the entry of foreign banks

Guiso, Sapienza, Zigales (2006, NBER) finds that adverse consequences of deregulation/liberalization were greater where restriction to bank competition were most severe at the start.

Example: Impact of regulatory reform on banking sector competition

Provide arguments for implications of certain restrictive regulations to achieve particular objectives (e.g., restrictions on banks’ activity to safeguard stability)

RIA (cost/benefit analysis) CIA (less restrictive option to achieve the

same objective?) role for prudential regulations?

All these considerations and technical arguments could help provide a better information set in making a stronger case for competition….

Comments and suggestions (2)

Elaborate on the competitive position of the Italian banking sector to put the argument for promoting competition into perspective.

Despite the initiatives, retail banking sector continues to be segmented along national boundaries

Elaborate on why competition is still limited

High price of banking services? High switching costs between banks (€34 in Italy)

(Drummond, Maechler, Marcelino (2007), IMF WP)

Issues for discussion (1) What more could EC, EU do to promote competition?

Efforts to accelerate “financial integration” within Europe to reduce scope for country specific regulatory/supervisory practices that may create undue costs for market participants in the way of a single market?

Are there incentive compatible frameworks that would make greater competition beneficial for everyone?

Role for the Lisbon Agenda? To address intra-area divergences, with national reform

programs focusing on making the single market a reality, by opening up services markets to competition by EU partners.

Role for better policy coordination, identification of common goals and priorities, or political will in accelerating progress in these areas?

Issues for discussion (2)

What lessons can we draw for countries in the road to the EU, if EU countries themselves are facing challenges in promoting competition?

What could the CEE countries could do, to benefit most from increased competition while mitigating potential costs?