comp law 2

Egyptian Competition Authority

Guidelines for Competition Impact Assessment of State Measures published in 2022.

ECA Strategy 2025-2021 second pillar

Limiting anti-competitive state measures and promoting competitive neutrality.

Purpose of the Guidelines (two-fold)

1) To guide government agencies in assessing whether draft legislation/decisions may impact competition. 2) To guide ECA in carrying out this analysis for draft/existing state measures.

Article 5/11 of ECL

Requires government authorities to consult ECA's opinion before issuing laws, regulations, decisions, or new policies.

Main inspiration for the Guidelines

Document produced by the World Bank Group during a Technical Assistance Program to ECA in 2017, and similar documents from other international organizations.

Stage One of Assessment

Screening Affected Markets.

Stage Two of Assessment

Assessment of Anticompetitive Effects.

Stage Three of Assessment

Rationale and Justifications for Intervention.

Stage Four of Assessment

Designing Alternatives and Assessing the Feasibility of Corrective Measures.

First Step of Stage One

Identifying the markets that could be affected by the state measure.

Second Step of Stage One

Understanding the Characteristics of the Affected Markets.

Two key market characteristics in Stage One

Barriers to entry and market structure.

Definition of affected markets

Markets that will be affected by the state measure, either directly or indirectly.

Article 3 ECL on relevant markets

Relevant markets consist of two elements: the relevant products and the geographic area.

Relevant products definition (Article 6 Executive Regulations)

Products that can be considered, from the consumer point of view, practical and objective substitutes to each other.

Criteria for determining relevant products (3)

1. Similarity in characteristics and usage. 2. Ability of buyers to shift due to price/competitive factor changes. 3. Sellers' business decisions considering buyers' ability to shift.

Criteria for determining geographic area (2)

1. Ability of buyers to shift geographic areas due to price/competitive factor changes. 2. Sellers' business decisions considering buyers' ability to shift between areas.

Factors for assessing geographic area criteria

Cost of transportation (including insurance and time) and tariffs/non-tariff barriers (national and international).

Definition of barriers to entry

Restrictions that limit entry or expansion in the market or make entry more difficult.

Effect of high barriers to entry

Greater market power for existing players, making it more likely state measures affect competition.

Three categories of barriers to entry

1) Legal or regulatory restrictions, 2) Structural barriers, 3) Behavioral and strategic barriers.

Legal or regulatory barriers

State measures that restrict market entry or raise its cost, such as permits, licenses, and legal monopolies.

Structural barriers

Market-specific characteristics allowing existing firms to produce at lower costs compared to entrants.

Examples of structural barriers (5)

Economies of scale, economies of scope, network effects, first mover advantage, vertical integration.

Economies of scale

As the number of product units sold increases, the cost of production of other units decreases.

Economies of scope

The cost of production for a product is lower when the undertaking produces other related products.

Network effects

Consumers' rating of a product increases with the number of users of the same product.

First mover advantage

Advantages gained by the first undertaking to enter a market, such as strong brand loyalty.

Vertical integration

An undertaking operating at different levels of the industry (production, distribution, or retail) has advantages over those at one level.

Strategic or Behavioral Barriers

Practices and characteristics of existing undertakings that limit the entry and expansion of competitors.

Examples of strategic/behavioral barriers

Anti-competitive practices post-market entry (exclusivity, predatory pricing) and advantages enjoyed by current undertakings (e.g., technological achievement).

Market structure analysis purpose

To assess the market power of existing market players.

Determining market structure

Assessing the number of market players and their market shares over a sufficient period.

Relationship between market share/market power and state measures

Greater market shares/power and fewer players make it more likely the state measure will affect competition.

First category of anticompetitive effects

Rules that Reinforce Dominance or Restrict Market Entry.

Definition of dominance (Article 4 ECL)

The ability of a Person holding a market share exceeding 25% of a relevant market to have an effective impact on prices or volume of supply, without competitors having the ability to limit it.

Practices prohibited for dominant players (Article 8 ECL)

Refusing to deal without justification

Harm of state measures that enhance dominance/restrict entry

They can result in enabling a dominant person to carry out prohibited practices under Article 8 ECL.

(A) Monopoly rights and absolute bans for entry

State measure limits the number of concessions, licenses, or permits to enter a market without justification.

Example of monopoly rights/absolute bans impact

Assessing auditors' registry conditions found they were a legal barrier for small/medium firms, favoring large ones.

ECA recommendation on auditors' registry

Amend rules to take into consideration the nature and size of all market players, enabling equal opportunities.

(B) Relative bans for entry and expansion

State measures set limits on permits, licenses/fees, minimum distances, limited geographic areas, or restrictive rules for granting/transferring licenses.

Example of relative bans impact

Steel rebars market: ECA recommended encouraging new integrated factories and removing import barriers (custom tariffs, technical specs).

Result of ECA recommendations on steel rebars

Imports market shares increased from 1% to 23%, prices decreased by 49% between 2008-2010, new companies entered.

(C) Requirements for registry

Restrictive registration requirements when approvals are needed from multiple entities, or cancellations/renewals are unjustified/restrictive.

(D) Participation of existing market players in entry decisions

Unions, chambers, and associations create standards or prerequisites and grant authorization for new entrants.

Example of participation in entry decisions impact

Export system decision entrusted a board of competitors to create an inspection system, excluding small/medium exporters and reinforcing market power.

Second category of anticompetitive effects

Rules conducive to collusion or that increase the costs to compete in the market.

Why cartels are most harmful

They increase prices, decrease innovation and quality, limit consumer choices, and negatively impact economic growth.

Prohibited activities under Article 6 ECL

Agreements between competitors fixing prices

(A) Rules that facilitate agreements among competitors

Rules that allow/encourage prohibited agreements, make trade association membership mandatory, or give associations regulatory powers.

Example of facilitating collusion impact

Export system board enabled major undertakings to access strategic/confidential info of competitors, facilitating collusion and excluding smaller competitors.

(B) Price Controls

State measures that set/suggest prices or restrict availability of low-cost goods/services, facilitating collusion.

Third category of anticompetitive effects

Rules that are discriminatory.

Harm of discriminatory/discretionary rules

Provide advantages to certain players unrelated to efficiency or product quality.

(A) Discriminatory application of rules

Applying measures to favor existing players, granting them concessions/benefits, or creating discriminatory conditions excluding alternatives.

(B) Lack of objective criteria

State measure does not state clear/specific conditions for licenses, no ex post control, or possibility of discretionary cancellation/revocation.

(C) Lack or limitation of competitive neutrality

State measure grants preferential treatment to state-owned or private undertakings over others.

Examples of non-discrimination impact

Transport sector (favoring SOEs), travel agencies (subsidies through one agency), public procurement (non-objective specs favoring a specific company).

Impact of discriminatory public procurement

Causes discrimination, breaches competitive neutrality, and raises costs for the administrative authority.

Impact of tax exemptions on competition

Exemptions in special laws granted to specific undertakings restrict competition

Next step if analysis shows state measure restricts competition

Assess whether objectives can be achieved using less restrictive regulatory or non-regulatory alternatives.

Market failure rationales for state measures (4)

1. Allowing competition in natural monopoly markets. 2. Ensuring quality where there is information asymmetry. 3. Addressing unequal bargaining power. 4. Addressing externalities/spillovers.

Other rationales for state measures (4)

1. Solving equity/distributive concerns. 2. Protecting/promoting national industries for strategic reasons. 3. Allocating scarce commodities. 4. Addressing externalities/spillovers.

Principle 1 for designing alternatives

The most appropriate solution addresses the policy objective and minimizes competitive restraints.

Example of Principle 1 (ensuring product availability)

Granting exclusive rights (most restrictive) < partial exclusivity < offering incentives (least restrictive, no entry barrier).

Principle 2 for designing alternatives

Market-oriented measures are generally preferable to direct controls.

Example of Principle 2

Removing entry barriers to attract competitors (lowers prices) is preferred to direct price controls (may disincentivize production).

Principle 3 for designing alternatives

State measures targeting outcome are generally preferable to those targeting design.

Example of Principle 3

Setting objective quality standards (allowing firms to decide means) is better than detailed rules regulating product design (limiting innovation).

Principle 4 for designing alternatives

Where failures arise from inadequate/asymmetric information, remedies increasing information availability are most effective.

Example of Principle 4

Ensuring more information to guarantee consumer quality is less restrictive than anticompetitive rules restricting market entry.

Principle 5 for designing alternatives

State measures must only tackle the activity level where there is a market failure, not all levels.

Ex ante assessment

Assessing the content/form of a state measure before enactment to mitigate potential anticompetitive impact.

Ex post assessment

Evaluating the technical/practical feasibility of adopting less restrictive measures for regulations already in force.

Factors to consider in ex post assessment

Legal status of restrictive regulations, authorities/procedures for reform (short/medium term), social repercussions (beneficiaries/affected parties).

ECA Recommendations (3)

1. Authorities should follow these guidelines to reduce anticompetitive effects. 2. Coordinate and request ECA's opinion on decisions/policies/laws affecting markets. 3. Circulate the guidelines to all relevant authorities.