competition policy and economic development
DESCRIPTION
K omisi P engawas P ersaingan U saha. Competition Policy and Economic Development. Dr. Ir. Benny Pasaribu , M.Ec Commissioner, KPPU, INDONESIA. Outline of presentation. - PowerPoint PPT PresentationTRANSCRIPT
Competition Policy and Economic DevelopmentDr. Ir. Benny Pasaribu, M.EcCommissioner, KPPU, INDONESIA
Komisi Pengawas Persaingan Usaha
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Outline of presentation The presentation tries to show a preliminary study focusing on
the impact of fair competition on economic development. The study is conducted by the University of Gadjahmada, Jogyakarta, in 2010, in cooperation with KPPU-RI. This presentation shows that the improvement in fair business competition will have a positive impact on the performance of the relevant industries, hence the economic development, ceteris paribus. However this study needs to be followed by a more comprehensive research with the improvement on the economic modeling and collection of primary and secondary data and information.
The presentation consists of: Current development of competition law in Indonesia; The impact of fair competition on economic development; Conclusion.
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RECENT DEVELOPMENT COMPETITION LAW IN INDONESIA
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Objectives of the Law (article 3)
To safeguard the interests of the public and to improve national economic efficiency as one of the efforts to improve people’s welfare;
To create conducive business environment through the stipulation of fair competition in order to ensure the certainty of equal business opportunities for large-, medium-as well as small-scale businesses;
To prevent monopolistic practices and or unfair business competition that may be committed by business actors;
To create effectiveness and efficiency in business activites.
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THE LAW prohibits: Agreements; Business activities; and Dominant Position, that may potentially cause the
occurrence of monopolistic practices and unfair business competition;
These may include prohibitions of cartel, price discrimination, abuse of dominant position, and merger and acquisition, that may potentially cause the occurrence of monopolistic practices and unfair business competition.
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Principles of The Law no.5/1999
Business activities in Indonesia must be based on economic democracy, with due observance of the equilibrium between the interests of business actors and the interests of the public;
Guarantee fair price of goods and services with adequate quality and supply, and qualified services.
Promoting innovation, efficiency, and productivity.
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KPPU-RI
KPPU is an Independent Commission established according to Law no. 5/1999;
KPPU as the Competition Authority supervises the implementation of the Law;
KPPU has a number of authorities, including to impose sanctions, though administrative sanctions, against business actors violating the law.
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CURRENT DEVELOPMENT
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Development of Indonesian competition law
Fair Competition for Welfare of the Society
There is positive trends of increased number of reports from public;
The implication will be: an increase of public awareness.
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A. Reports Received
Reports
Development of Indonesian competition law (2)
Fair Competition for Welfare of the Society
Number of case initiative is increased compare to average number on the first five years.
The increased case initiative is one of KPPU’s efforts to conduct enforcement activity on anti competitive behaviors that harms consumers.
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B. Initiative Cases
Cases
Development of Indonesian competition law (3)
Fair Competition for Welfare of the Society
Between 2000-2010, KPPU issued 245 outputs;
51 statements on behavioral changes and the in-existence of unfair business competition;
KPPU issued 190 decisions on competition violation;
Some of which are abuse of dominant position by Carefour, SMS cartel, cooking oil cartel, fuel surcharge, and cartel in pharmaceutical;
KPPU also issued three policy recommendations, related to specific cases.
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190
3 5
Penetapan Putusan
Saran Berjalan
C. Decisions
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Process
DecisionStatement
Recommendation
Development of Indonesian competition law (4)
Fair Competition for Welfare of the Society
There are 78 objected decisions;
In district court level, 34 decision is affirmed (43.6%), while 29 decision (37%) is annulled by the court.
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29
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Menang PNKalah PNProses
D. Objection in District Court
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Annulled
Affirmed
Process
Development of Indonesian competition law (5)
Fair Competition for Welfare of the Society
There are 59 decision applied for cassation to the Supreme Court;
31 decisions is affirmed (53%), while 12 decision (20%) is annulled. Currently there are 16 decisions under cassation process.
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12
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Menang di MAKalah di MAProses
E. Cassation (Supreme Court)
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Process
Annulled
Affirmed
Development of Indonesian competition law (6)
Fair Competition for Welfare of the Society
As part of advocacy, KPPU issued policy advice to the government with increasing trend, especially since 2006;
Some advices dealt with policy in several sectors, namely energy and natural resources, transportation, telecommunication, retail, cooking oil, fuel surcharge, and agro-industry.
More than 50% of advices gained positive response by the government through policy adaptation.
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F. Policy Recommendations
Recommendations
THE IMPACT OF COMPETITIONON ECONOMIC DEVELOPMENT
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Conceptual Background (1)Pr
ice
Pm
Pc
Qm Qc Quantity
D
MR
S
DWL
Note:D = DemandS = SupplyPc = Price CompetitivePm = Price MonopolyQc = Quantity CompetitiveQm = Quantity MonopolyDWL = Deadweight Loss
16 Fair Competition for Welfare of the Society
Conceptual background (2)
A study by Marcin Przybla and Moreno Roma in 2005 found negative correlation between competition and inflation. Similar finding also identified by Jonsson in 2007;
A study by Griffith, Harrison and Mc Cartney in 2006 found negative correlation between competition and unemployment in an optimal labor market institution.
A study by Dutz and Hayry in 1990 indicated correlation between law enforcement and competition policy with long-term economic growth.
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Conceptual background (3)
Fair competitio
n
Normal Price
Increased Quantity and
Quality of goods and services
INCREASED WELFARE OF THE SOCIETY
Lower inflation
Poverty reduction
Increased competitiveness
Reduce unemployment
Economic growth
Better services
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Conceptual background (4)
Fair Competition for Welfare of the Society
The basic concept of the research is to follow classic SCP (Bain, 1957), where market structure will affect behavior and thus will affect performance in a simultaneous way.
Last theoretical development showed interactive SCP pattern where variable SCP will affect one another.
In a fair competition condition, market structure will not be concentrated, which affect to the innovative and competitive behavior leading to more efficient performance. This will create positive multiplier effect on other economic parameter, such economic growth, employment, and inflation.
Structure
Behavior
Performance
Concentration;Company size,;Entry and exit condition,;Product differentiation,;Vertical integration;
Pricing strategy Production strategy Marketing strategy,R&D
Profitability; Efficiency; Product quality; Technical improvement; Welfare;Employment;
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Model Joint research by KPPU and the University of Gadjah Mada
(2010), several approaches and quantitative analysis is used to estimate competition impact on economic growth, inflation, and unemployment. This research used data from KPPU decisions and researches from 2000-2009 and from Statistical Bureau.
Variables used: GDP (PDRB), GDP per Capita (PDR/PDD), GDP deflator, unemployment
(UNP), and competition index (CI)
ijtijt
ijtijtijt
ijtijtijt
ijtijtijt
CIUNP
vCIRBdeflatorPD
eCIPDDPDRB
uCIPDRB
lnln
lnln
lnln
.lnln
10
10
10
10
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Independent variable: Competition Index (CI) Competition index of an industry can show balanced condition of
resources allocation and SCP’s interaction in national and local areas.
CI is not merely reflecting the structure, but also behavior and performance of an industry (Interactive SCP)
Competition index of an Industri (“i”) in a region/city (CIirt) is calculated using this equation (Glaeser et al., 1992: 1138; Mody & Wang, 1997: 301-2; Kuncoro, 2001: chapter 5):
)/()/(
outputfirmoutputfirm
CIiINDO
irirt
SP
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Industries observed: Milk industry Cooking palm oil industry Flour industry Sugar industry Single artificial fertilizer industry Mixed artificial fertilizer industry Pharmaceutical industry Tire rubber industry Cement industry Automotive industry
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Data This study used secondary data as follows:
Large and medium industry statistic from Indonesian Bureau of Statistics. The survey provided data on manufacture’s level of large and medium scale manufacturer with more than 20 labor forces, which can be classified according to their industry and local codes, that consist of 20,000 companies, 27-33 provinces, and 300-400 regions from 1998 to 2007.
Economic Census 2006, especially for large and medium industry.
National Social and Economic Survey 1998-2007, especially for welfare’s indicators.
Macro-economic performance indicators, especially inflation (consumer price index and large trading price index), economic growth, and job opportunity.
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THE RESULTS OF THE STUDY
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Table 1. Competition Impact on GDP Growth
Regions
Industri
Cooking Oil Milk Wheat
Flour SugarSingle
Artificial Fertilizer
Mixed Artificial Fertilizer
Pharmaceutical Tire rubber Cement Otomotives
NAD 0,108 -0,076 0,095 SUMUT 0,899 1,085 -0,101 0,012 0,127 -0,149 -0,543 SUMBAR 0,160 -0,060 -0,161 -0,109 RIAU -0,291 -0,021 JAMBI -0,029 SUMSEL -0,103 -0,060 0,280 0,019 -0,019 0,023
BENGKULU 0,111
LAMPUNG 0,127 -0,013 -0,013 DKI -0,112 -0,511 0,343 0,014 0,097 -0,212JABAR 0,019 -0,150 -0,056 0,266 0,031 -0,048 0,303 0,354 0,059 0,057JATENG 0,273 -0,049 0,109 0,019 0,055 -0,062 -0,058 0,047 -0,038 0,174DIY 0,054 -0,104 0,037 -0,110 JATIM 0,077 0,064 -0,216 -0,209 0,014 0,136 -0,133 -0,079 -0,508 0,013BALI 0,010 NTT 0,129 KALBAR 0,122 -0,095 KALTENG KALSEL 0,229 -0,545 KALTIM -0,155 -0,115 SULUT -0,115 -0,199 SULTENG 0,263 -0,354
Positive elasticity indicates increase number of company (or competition) will increase output of other industries, vice versa.
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Table 2. Competition Impact on GDP per Capita
Positive elasticity shows increased competition that causing the increase of GDP per Capita, vice versa.
Regions
Industri
Cooking Oil Milk Wheat
Flour SugarSingle
Artificial Fertilizer
Mixed Artificial Fertilizer
Pharmaceutical Tire rubber Cement Otomotives
NAD 0,127 -0,063 0,114 SUMUT 0,870 1,031 -0,096 0,010 0,107 -0,147 -0,513 SUMBAR 0,135 -0,047 -0,122 -0,074 RIAU -0,233 -0,013 JAMBI -0,037 SUMSEL -0,089 0,002 0,367 0,015 0,003 0,047
BENGKULU 0,086
LAMPUNG 0,110 0,035 0,035 DKI -0,068 -0,515 0,213 0,070 0,093 -0,118JABAR 0,034 -0,192 0,015 0,263 0,030 -0,050 0,340 0,462 0,051 0,036JATENG 0,368 -0,042 0,162 0,009 0,065 -0,070 -0,049 0,047 -0,053 0,251DIY 0,035 -0,081 0,019 -0,072 JATIM 0,066 0,051 -0,183 -0,186 0,013 0,116 -0,104 -0,066 -0,430 0,011BALI 0,005 NTT 0,071 KALBAR 0,104 -0,058 KALTENG KALSEL 0,252 -0,355 KALTIM -0,115 -0,061 SULUT -0,090 -0,406 SULTENG 0,174 -0,275
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Table 3. Competition Impact on unemploymentRegions
Industri
Cooking Oil Milk Wheat
Flour SugarSingle
Artificial Fertilizer
Mixed Artificial Fertilizer
Pharmaceutical Tire rubber Cement Otomotives
NAD 0,407 0,219 0,299 SUMUT 0,355 0,420 0,008 -0,017 0,392 0,021 -0,245 SUMBAR 0,273 0,031 0,090 0,267 RIAU -0,440 -0,050 JAMBI -0,216 SUMSEL -0,217 0,819 1,151 -0,072 -0,211 0,238
BENGKULU 0,763
LAMPUNG 0,188 0,561 0,561 DKI 0,194 -0,008 -0,514 -0,098 -0,002 0,087 JABAR 0,162 -0,285 3,016 0,423 0,044 -0,072 0,410 0,694 0,069 0,023 JATENG 0,514 0,018 0,268 -0,002 0,131 -0,069 -0,536 0,025 -0,109 0,484 DIY 0,148 -0,086 0,146 -0,428 JATIM 0,071 0,586 -0,346 0,175 -0,068 0,196 -0,683 -0,237 -1,079 0,046 BALI 0,027 NTT 0,324 KALBAR 0,588
KALTENG KALSEL -0,996 KALTIM -0,306 -0,226 SULUT -0,670 -0,384 SULTENG 0,921
Positive elasticity shows increased competition that will raise unemployment, vice versa.
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Table 4. Competition Impact on PricesRegions
Industri
Cooking Oil Milk Wheat
Flour SugarSingle
Artificial Fertilizer
Mixed Artificial Fertilizer
Pharmaceutical Tire rubber Cement Otomotives
NAD 0,857 -0,167 0,680
SUMUT 0,356 0,566 -0,042 0,011 0,140 -0,035 -0,312
SUMBAR 0,326 -0,122 -0,238 -0,129
RIAU -0,568 -0,038
JAMBI -0,090
SUMSEL -0,160 -0,064 0,455 0,025 -0,043 0,043
BENGKULU 0,326
LAMPUNG 0,202 -0,030 -0,030
DKI -0,089 -0,895 0,215 0,191 0,164 -0,080
JABAR 0,070 -0,377 -0,034 0,557 0,067 -0,089 0,673 0,850 0,123 0,088
JATENG 0,810 -0,104 0,365 -0,027 0,146 -0,148 -0,089 0,103 -0,160 0,579
DIY 0,115 -0,170 0,089 -0,182
JATIM 0,168 0,457 -0,562 -0,068 -0,017 0,326 -0,656 -0,245 -1,040 0,040
BALI 0,024
NTT 0,318
KALBAR 0,310 -0,329
KALTENG
KALSEL 0,660 -0,639
KALTIM -0,182 -0,113
SULUT -0,235 -2,110
SULTENG 0,893 -0,201
Positive elasticity indicates increased competition that lead to inflation or increasing cost industry, vice versa.28
Summary of estimation result Table 1: for most of Java, increasing competition in cooking oil, single
fertilizer, and outer-inner tire as well as automotive industries, created positive effect on GDP growth. For out of Java Provinces, increasing competition created negative effects, especially in cement, tire rubber, and single fertilizer industries.
Table 2: for most of Java and Sumatera, increasing competition created positive effect on GDP per Capita, especially in cooking oil, sugar, single fertilizer, and automotive industries. For others, increasing competition created negative effect, especially in cooking oil, mixed fertilizer, pharmacy, tire rubber, and cement industries .
Table 3: in most regions, increasing competition can reduce unemployment, especially in mixed fertilizer, pharmacy, cooking oil, and flour industries. For automotive in Java, increasing competition will lead to increase number of unemployment.
Table 4: for inflation sensitive products (cooking oil, sugar, flour, milk, and cement), increasing competition will reduce inflation. For mixed fertilizer and automotive industries in most of regions studied, increasing competition tends to lead to inflation or price increase.
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KPPU Research: simulation of income savings due to price cuts Income savings made by consumers from 4
products due to price reductions after KPPU’s decisions:
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Commodity Price Decrease Income Savings (in total IDR)
Min Max
Sugar (2009) 4% 851.760.000.000 2.298.400.000.000
Flour (2009-2010) 1% 20.280.000.000 253.500.000.000
Bulk cooking oil (2009) 16% 3.075.800.000.000 9.599.200.000.000
Packaged cooking oil (2009) 4% 767.260.000.000 2.092.220.000.000
Income saving for consumer from SMS Using similar methodology,
KPPU’s research shows that after the decision on SMS cartel, consumer’s income saving is estimated to increase by +/- IDR 20 trillion/year.
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CONCLUSIONS
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Conclusions Fair Competition is part of the implementation of Indonesian Constitution,
hence a vital and strategic instrument in Indonesian economy; The study shows more intense and healthy competition, will lead to
positive impact on industry performance, inflation, unemployment, and economic growth;
Income savings from SMS, cooking oil, sugar, and so forth, are part of the people’s welfare improvement. Income savings are made possible when there is a price reductions of monopolistic practices by business actors after the KPPU’s decisions. The decisions of KPPU can be made according to the verdicts of the KPPU’s court and/or prevention and/or recommendation to relevant institutions;
As preliminary study, the findings may be valuable. However, I must aknowledge that the study may contain several weaknesses, especially on the limitation of the economic models and available data/information. More empirical and comprehensive research is necessary. Applying Computable General Equilibrium (CGE) model will provide highly useful findings, hence very much recommended.
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References Dutz, M. A and Hayri, A. 1990. Does more intense competition lead to higher
growth? World Bank Research Project. Griffith, R., Harrison, R and Cartney, G.M. 2006. Product Market Reform, Labor
Market Institutions And Unemployment. Working paper: The Institute for Fiscal Studies.
Jonson, M. 2007. Increased Competition And Inflation. Economics Review, 2nd Edition.
Kuncoro, dkk. 2010. Kajian Peranan Persaingan Usaha Dalam perspektif Kesejahteraan Konsumen, Inflasi Dan Pertumbuhan Ekonomi. KPPU dan Pusat Studi Asia Pasifik UGM.
Lipczynski, J. and Wilson, J. 2001. Industrial Organization: An Analysis of Competitive Markets. Prentice Hall: Singapore.
Pasaribu, Benny P. 1995. “Industrial and Trade Policies: A Multy Sectoral Model with Increasing Returns to Scale and Imperfect Competition”. PHD Thesis, University of Ottawa.
Pryzibla, M. and Roma, M. 2005. Does Product Market Competition Reduce Inflation? Evidence From EU Countries And Sectors. Working paper: European Central bank Ed 453.
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