Product Market and Competition

Eric Rougier


The effect of competition on economic development is a rather problematic issue. Although it is generally considered that more competition enhances market and firm efficiency,[1] both theoretical and empirical literature reveal that greater competition could have negative effects on firms and productivity, especially for the least developed economies. As underlined by Aghion and Griffith (2005: 1), under certain circumstances higher growth can be maintained through more protectionist and entrenched policies, whereas under other circumstances growth seems

  • 1 Product market deregulation, insofar as it triggers competition for incumbent firms, is widely seen as a key determinant of output and productivity growth in both developed (Nicoletti and Scarpetta 2003; Blanchard and Giavazzi 2003; Wolfl et al. 2009) and developing economies (Djankov et al.
  • 2002, 2006; Loayza et al. 2004, 2005).

to require greater competition and openness. This corresponds to the old Gerschenkron (1962) idea, according to which there may be several engines of growth that do not require the same institutions and policies in order to operate efficiently. Competition certainly has a positive effect when a country’s economic growth is mainly backed by technological innovation.[2] More competition may, however, turn out to be negative in the case of less developed countries since it can reduce investment for low productive firms. In other words, a low income economy, distant from the technological frontier, whose growth heavily relies on primitive accumulation, a small set of primary resources, low productivity manufacturing and rigid labour regulation, may not benefit from more competition on goods markets, and could even be harmed by it. Consequently, countries should move from less competitive to more competitive institutions throughout their path of technological development.[3]

As regards our aim in this chapter, that is, comparing the institutional systems underlying product markets, we can infer from the previous point that models of competition regulation may tend to be very different across countries and levels of economic development. But even within OECD economies, strong differentiation remains, notably with respect to competition intensity, the magnitude of regulatory constraints and of state control over the economy (Amable 2003: 115). Since most of them have not experienced a trend of deregulation akin to the one that has hit OECD countries since the mid-1980s, the odds are that the heterogeneity of product market regulation (PMR) is even larger for developing economies. Although a few developing countries, like Chile, have implemented deep market-establishing reforms over the last 30 years, the majority have chosen a much more incremental approach, and kept high levels of state control over goods markets. Even those which underwent structural adjustment programmes during the eighties and nineties followed very different trends of privatization and goods market deregulation (Berr et al. 2009). As emphasized by Aghion and Griffith (2005), the singularity of each national institutional environment has greatly conditioned the product market regulation trajectories of change over the last three decades, thereby maintaining high diversity across developing countries.

This chapter presents a comparative analysis of developing economies’ product market governance systems. We start by examining how these systems are assessed, before going on to identify the main differentiation patterns of these competition regimes, then presenting the specific typology generated by cluster analysis.

  • [1] E. Rougier (*) GREThA, CNRS Research Unit, PESSAC CEDEX, France © The Author(s) 2017 155 E. Rougier, F. Combarnous (eds.), The Diversity of Emerging Capitalismsin Developing Countries, DOI 10.1007/978-3-319-49947-5_6
  • [2] Ever since Schumpeter (1934), it has been widely accepted that competition has two contradictory but complementary effects on growth. On the one hand, increased competition has an adverseeffect, by eroding the rents of the innovative firms, whose monopolistic position may be contestedby potential entrants. On the other hand, competition and entry also have a positive impact oninnovation, since they produce strong incentives for incumbent firms to find new products or toreduce their costs so as to temporarily escape competition.
  • [3] This point has received empirical support by Acemoglu et al. (2006) on the basis of cross-sectionalaggregated data. Amable et al. (2010), who tested the assumption of a non-linear competitioneffect on productivity using sector-based data, have been less supportive of this point.
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