First, this study provides a comparative study of competition policy of some countries: United States of America and Japan, two developed market economies; Korea, a newly developed one and China, a transitional economies that have many similar socio-economic features as Vietnam.

Second, through study experience of other countries, this thesis will give some implications for Vietnam in building a competition policy. 

3. Scope and focus of the study

This thesis will focus on: (i) experience in some countries mainly through study the legal framework of competition policy in the selected countries; (ii) in Vietnam, the thesis studies the legal framework for competition, the real situation of competition environment and the monopoly situations in certain industries; (iii) after analysing competition environment in Vietnam and the experience of competition in other countries, the thesis will give some recommendations to build a competition policy in Vietnam.

4. Research questions

1.      What is competition policy?  What are major contents of competition law and policy?

2.      What is the competition policy in countries such as USA, Japan, Korea and China? 

3.      What is the real situation of competition environment in Vietnam?

4.      What are policy implications to build a healthy competition environment in Vietnam?

5.      Methodology of study

This thesis use mainly comparative analysis and deductive method to study competition policies in other countries. In Vietnam, descriptive method is used to analyze real situation of the competition environment in Vietnam. In Vietnam, the data about the competition in the economy will come from World Bank, General Statistic Office and other journals and articles.

6.      Structure of thesis

Besides an introduction, the thesis contain four chapters:

Chapter 1 presents a theoretical framework of competition, market structure and competition policy.

Chapter 2 presents a comparative study on competition policy in following countries: United States, Japan, Korea and China.

Chapter 3 gives answers to the of the real situation of competition environment in Vietnam  through presenting the legal framework, the monopoly in some major industries of SOEs and real practices of competition in market.

Chapter 4 gives conclusions and suggests some policy implications to promote competition in the economy and a base for building competition policy in Vietnam.

CHAPTER I: THEORETICAL FRAMEWORK OF COMPETITION AND COMPETITION POLICY

1.      Competition and market structure

1.1   Competition and economic efficiency

Competition is defined in Palgrave dictionary as: “Competition is a rivalry between individuals (or groups or nations), and it arises whenever two or more parties strive for something that all cannot obtain. Competition is therefore at least as old as man’s history, and Darwin (who borrowed the concept from Malthus) applied it to species as economists had applied it to human behavior.”

In market based economies, competition refers to a situation in which firms or sellers independently strive for patronage of buyers in order to achieve a particular business objectives, for example, profits, sales or market share. In this context, competition is equated with rivalry. Competitive rivalry may take place in terms of price, quantity, service or the combinations of these factors that customers may value. Competition between sellers in term of price and non – price to obtain the market share, for the patronage of buyers.

In market economies, competition among firms and among consumers provides incentive for firms and consumers to behave in a manner that leads to a efficiency. Competition forces firms to become more efficient and to offer a greater choice of products and services at lower price. Competition between firms promotes efficient allocation of society’s scarce resources, increases consumer’s welfare and gives rise to dynamic efficiency in the form of innovation, technological change and progress in the economy as a whole

Economic efficiency refers to situation in which resources are so allocated that no one can be better off  without making someone else worse off and participants in an economy make economic choice which accurately reflects the relative scarcity of goods, services and resources available for production and consumption

1.2.  Main types of market structure and market concentration

A market structure is the set of organizational features of the market, which have a significant influence on competition. These features are:

-         the extent of product differentiation,

-         the number of sellers and buyers and their relative sizes (concentration),

-         the extent to which new competitors can enter market and the barriers to entry (since  the barriers to entry slow down or prevent new entry they may contribute to more concentrated market structure)

-         whether production are economies of scale and how important they are ( the economies of scale can create the market  concentration)

-         the degree to which firms can vertically integrated and diversified

1.2. 1. Perfect competition

 Perfect competition occurs when five criteria are satisfied:

(a) There are many buyers and sellers.

(b) The quantity of the market’s products bought by any buyer or sold by any seller is so small relative to the total quantity traded that no particular market actor can affect market prices.

(c) The product is homogeneous.

(d) All buyers and sellers have perfect information about market prices and the nature of the goods sold.

(e) There is complete freedom of entry and exit in the market.

In perfect competition market, firms are price-takers and they try to minimize cost to earn normal profit. Perfect competition is thought to bring best utility to consumer and economy achieves economic efficiency.

1.2.2 Monopoly

Monopoly is at another extreme of perfect competition, when there is only one seller occupying the entire market, the product have no substitutes and the buyers are price-takers, substantial barriers to entry and exit. The monopoly leads to the inefficiency in production, the deadweight loss of society and consumer’s benefit are derived to monopolist.

1.2.3. Oligopoly

An oligopoly is a market consisting of a number of interdependent firms, the barriers to market entry is relative high. The interdependence of firms is that each firm is aware of the outcome of any each own decision depends on the initial actions and the consequent reactions of other firms. Oligopolistic interdependence creates uncertainty and rivalry which may result in price war. To avoid such risks and to increase market power, firms often enter into formal or informal collusive agreements. The collusive agreements can be explicit and formal (cartel) or tacit (price leadership). In perfect cartel, firms have agreement to set up price and output as the case of monopoly in order to maximize “joint profit”. The collusion therefore reduces competition and causes losses to consumers.

1.2.4 Market concentration

Market concentration refers to the extent to which production in a particular market is controlled by few firms. To measure market concentration, we have a number of indices in which concentration ratio (CRi) is widely used. Concentration ratio is the market share of the i largest firm in a market.

1.3. The “contestability” of market and Structure-Conduct- Performance Model

The “contestability” of market refers to the ease of enter and exit in market. A market is fully contestable if: (i) the suppliers are sufficiently numerous for none of them, acting alone or in collusion with other suppliers, to be able to raise prices above average cost, yielding supernormal profits; or (ii) entry into the market is sufficiently easy that, if incumbent suppliers tried to raise prices substantially, new entry would be likely to occur. The contestability  theory implies that barriers to entry and competition of potential competitors can affect the behaviors of incumbents, and market structure and  concentration are not sole factors affect the behaviors of firms and the performance of market.

The Structure-Conduct- Performance Model (SCP model)

The SCP model theory present that in a market, there are interrelationship between market structure, conduct of firms and performance of market. Therefore, we can affect to market structure-conduct to change the performance of market to achieve wanted result of market.

2.      The foundation of competition policy

Competition between firms promotes efficient allocation of society’s scarce resources, increases consumer welfare and increases dynamic efficiency in the form of innovation, technological change and progress in the economy as a whole. However, firms have motives to acquire market power to control price and other factors determining business transactions. To acquire market power, firms may have actions limiting competition, increasing barriers to entry, entering into collusive agreements to restrict output, increase price and engage in other anti-competitive practices. The monopoly, oligopolistic structure and cartel are examples of imperfect competition and market failures that result in inefficiency in allocation and erode the industry performance and consumer welfare. Therefore, the governments need to have competition policy and establish regulatory framework for the promotion and maintenance effective competitive process and ensuring economic efficiency.

2.1   Competition policy

Competition policy in broad definition consisting of two parts: the  first is commonly referred to competition law or “antitrust” law, and the second which  comprises micro industrial policies such as tariff and non-tariff policies,  economic regulation designed to prevent anti-competitive practices and governing business practices ( Khemani, 1994, p.1 )

2.2   The objectives of competition policy

2.2.1        The main objectives of competition policy

The most common  objective of competition policy that accepted in majority of countries is to protect and preserve competition as the most appropriate means of ensuring efficient allocation of resources. The main objective here is to promote economic efficiency through maintenance and protection the competitive process and/or free competition.

2.2.2        The other objectives of competition policy

The objective enhance consumers welfare were adopted as one objective of competition policy in many competition laws of countries. Besides that, the many socio-econmic objectives such as employment, pluralism, regional development, preserve free enterprises system and promoting small and medium enterprises are ascribed to competition policy. 

2.3 The duty of competition policy

The major duty of competition policy are:

-         Review and regulate the structure of market to prevent the structure that can anti-competition (review the merger)

-         Review the conduct in market and prevent anti competitive conduct (cartel, agreement in price and output that reduce competition)

-         Encourage the competitive process (e.g. increase the innovation and the transparent of market)

-         Define the exceptions (basically sectoral) and exemptions in the applications of competition policy

-         Direct regulation on the price and output of monopoly enterprise and or dominant firms.

2.4  The contents of competition policy

Most competition policy encompasses many instruments that are conventionally categorized as either structural and behavioral. The competition policy deals with the structure of market, through control of mergers and monopolies, oligopolies or the dominance of a firm’s market position. The conduct instruments deals with the behavior of enterprises by prohibiting restrictive business practices such as horizontal agreements, price fixing, and other collusive agreements, vertical restraints and the abuse of dominant market position.

2.4.1. Horizontal agreements

Horizontal agreements are coordinated agreements between competitors, implicitly or explicitly, that restrict competitor’s ability to act independently. These agreements encompass a broad range of conducts such as joint venture, joint advertising or marketing, price fixing and output restraints. The competition policy and law prevent agreements that constitute restrains such as price fixing, output restraints, market division and customer allocation that can be expected to reduce or eliminate competition and reduce the economic efficiency.

2.4.2 Vertical agreements

Vertical agreements are agreements between suppliers and purchasers in separate upstream and downstream markets, which may in some circumstance to be anti-competitive.  There remains controversy over whether particular agreements are anti-competitive or pro-competitive. Some vertical agreements may at first sight appear restrictive of competition but are in fact beneficial to economic efficiency. Vertical restraints are therefore not treated as per se offences. Rather it should be analyzed the particular restraints in the context of overall market structure to see whether their impact on competition is positive or negative. Vertical agreements that have negative effects to competition include: Retail price maintenance agreements, the supplier sell to distributor on condition that the retail price is fixed by the supplier or the floor price is imposed

-         Exclusive distribution agreements, whereby distributor s are assigned within a specific area or over particular types of customers

-         Exclusive dealing agreements, whereby the distributors are prohibited from dealing with competing producers or distributors.

-         Territorial restraint, the supplier sells to distributors only on condition that the distributors do not sell product outside a specified territory.

-         Predatory pricing, supplier sell product at very low price in order to drive competitors out of business.

-         Tied in sale agreements, producers force the downstream firms purchase a certain range of products as a condition to but a particular product.

-         Quantify forcing, the seller force the distributors to purchase minimum quantity of a product.

2.4. 3. Abuse of dominant position and monopolization.

Abuse of dominant position and monopolization referred to a circumstance in which single firm strategies may or are likely to have adverse effects on welfare.

The abuse of dominant position have two major characteristics: the dominant firm have ability to prevent effective competition in the relevant market and an appreciable influence three actors of market: its competitors, suppliers and consumers. There are three stages of analysis to determine whether a firm is abusing dominant position: define the relevant market, identify of a dominant position and identify whether the firm abuses dominant position.

2.4.4 Mergers and acquisitions

Merger and acquisitions are kinds of combination of enterprises in market. Merger is a situation when two independent firms are combined into one firm, resulting in strengthening of the new firm. However, through mergers, firms may increase their market power and cause negative effects to competition. A firm exercise market power can harm consumers by raising price higher than competitive price, reducing output and quality of product. Therefore, competition policy have merger control  to limit negative effects of mergers on competition in market.

2.4.5 Unfair competition

Unfair competition is also one major component of competition policy.  In the Article 2 of the Law for Countering Unfair Competition of People’s Republic of China, unfair competition is defined as “Unfair competition in this Law refers to acts of operators which contravene the provisions of this Law, with a result of damaging the lawful rights and interests of other operators, and disturbing the socio-economic order.” Le Viet Thai, in “ Competition policy in Vietnam”  defined unfair competition are illegal competition acts or   behaviors that are not accord with the custom and moral of a nation. 

Unfair competition may includes following behaviors:

-         Behaviors that have negative effects to benefit of competitors and consumers.

-         Misleading advertising and deceptive conduct

-         Predatory pricing to drive the competitors out of market.

-         Reduce the prestige of competitors through deceptive information.

-         Break the contracts of competitors illegally.

2.5  The interactions between trade and competition policy.

The linkage between trade and competition policy has been recognized (Wo and Chu, 1994) and become more important when international trade and investment among nations are liberalized. Trade and competition have the common principle: fair competition.  in the extend of trade policy, lowering barrier to entry of foreign goods will enhance competition in domestic market and bring more benefit to consumers, lower price and increase the quality of goods. However, all benefit that of loosen trade policy may be reduced if domestic competition is not preserved and enhanced. Therefore, competition  policy should be strengthen and accompanied with trade policy to enhance competition and bring economic efficiency, and increase the benefit of international trade.

Chapter II: The experience of competition policy in other countries

1.      The competition policy in United States

United States of America is a country with developed market economy. In the later haft of last century, the development of some industries such as railways, communications system, oil explorations, sophisticated financial market etc allowed big firms expand their businesses beyond the constraints of their immediate market and become major force in the US economy. However, the development of large business (trust) and their abuse of market power caused dissatisfaction in many groups in society and the pressure to form an antitrust law increased. The Sherman Act of 1890 was enacted, it was the first antitrust law of United States and expressed the competition policy of United States.

1.1 Objectives of competition laws and policy in United States

The main objectives of competition policy in US is preserving free and unfettered competition as the rule of trade. It bases on the premise that unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices and the highest quality and the greatest material progress. Other objectives of competition policy are promotion of economic efficiency and maximization of consumer welfare. Besides, competition policy in US also has objective prohibiting unfair method of competition. Unfair method now also means unfair to consumer that is it deprives of consumer the benefits of an open, competitive market place.

1.2  The contents of competition laws and policy in United States

Competition laws in US are complicated and effective.  Its provisions can reach all kinds of competition problems to permit greater market competition. The sanction toward violation includes high fine, damages and imprisonment. There are several competition laws in United States, they are the Sherman Act 1890, the Clayton Act 1914, the Federal Trade Commission 1914, the Robinson-Patman Act 1936, the Wheeler Lea 1938, the Celler- Kefaner 1959.

The Sherman Act 1890 has purposes to protect economic liberty and preserve free and unfettered competition as a rule of trade. The Sherman Act deals with monopoly, it forbids conducts that, by unfair means, achieve or maintains a monopoly, principally by excluding other efficient competitors. The Act also prohibits agreements between two and more firms that unreasonably restrains trade in any product and market.

The Clayton Act 1914 complements the Sherman Act, broaden the scope of antitrust policy by making certain mergers, price discrimination, tying and exclusive dealing contracts and interlocking directorates (where by competing company had common board members) are unlawful if they substantially lessen competition)

The Federal Trade Commission Act 1914 was passed to establish the Federal Trade Commission, an organization responsible for enforcing the competition laws in the United States. The Federal Trade Commission has the responsibility to protect the consumers from the false products, and deceptive advertising. The Section 5 of Federal Trade Commission Act states: “ Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful”(Trebilcock, 1998, p.91). The Federal Trade Commission has the mission to ensure that consumers can freely and effectively select from the options offered in the market.

The Robinson-Patman Act 1936 regulate price discrimination, prohibits predatory pricing to force out other competitors.

The Celler-Kefauver 1950 closed the loopholes of Clayton Act with respect to mergers. The law prohibits the merger or open market acquisition of competing firms if the merger or acquisition is likely harm competition or tend to create a monopoly. In US laws, the merger can be test in term of the likely future effect on competition.

Prohibit behaviors of anti-competitive practices: price-fixing, agreements of competitors in terms of credit & sales, allocate customers.

Prohibit possess & maintenance market power (a firm with market share > 70% is sufficient indicator of market power)

1.3. The competition policy institutions in United States

The United States has strong and well-established basic enforcement institutions in competition policy. In United States, there are two agencies responsible for enforcement of competition laws and policy.  They are the Antitrust Division of the Department of Justice and the Federal Trade Commission. The two agencies coordinate to enforce the competition policy. A clearance procedure between the two agencies ensures that the same parties or conduct are not subject to investigation by both agencies at the same time.

2.      The competition policy in Japan

Japan’s competition policy has been in place for more than half of century, since the Antimonopoly Act was enacted in 1947 with a view to promoting free and fair competition. In past, competition policy has played a subordinate role in Japan’s regulatory policies, and the interventionist approach to regulation such as controlling and guiding investment and permitting cartels, contradicted to the principles of competition policy. However, the attitude toward competition policy in Japan is changing. The role of competition policy in ensuring the efficiency, investment and innovation as well as consumer welfare has been recognized

2.1 The objectives of competition policy in Japan

The objectives of competition policy in Japan stated in competition laws are to promote free and fair competition, to stimulate the creative initiative of entrepreneurs, to encourage business activities of enterprises, to heighten the level of employment and people’s real income, and thereby to promote the democratic and wholesome development of the national economy as well as to assure the interests of consumers in general.

2.2. The contents of competition policy in Japan

The Anti Monopoly Act (AMA) 1947 is the main competition law in Japan. The AMA deal with the following issues of competition:

Horizontal Agreements

AMA prohibits all forms of anti-competitive agreements, horizontal agreements to control price or limit output.

AMA prohibit trade association from substantially restrain competition

Vertical agreements

AMA section 19 describes  6 classes of  unfair trade practices in terms of dealing between business as illegal: discrimination pricing; inducing or coercing other business’s customers; dealing on terms that restrict other’s business activities; using bargaining power; interfering in other business transaction or management.

Practices explicitly illegal: collective refusal to deal, “ unjust low price sales”, resale price maintenance

Monopolize: AMA prohibits monopolists refers to substantially restrains of competition by a single firm thorough exclusionary or controlling conduct

Merger AMA prohibits mergers that effects substantially restrain competition( two firms market share > 25% , single firm market share >15%)

Competitor protection rules against unfair trade practices such as deception, abuse bargaining power and interference with contract or other business relations. All these rule to protect competitors in market.

Consumer protection: Competition protection laws provide regulation indicators on product’s quality and feature; and regulate “ false and exaggerated indications”

2.3. Competition institutions in Japan

The Fair Trade Commission is national agency charge of implementing the competition policy and settle all works relate to competition issues. This Organization act independently of Government and other Ministry in making decision.

3.      The competition policy in Korea

The competition policy in Korea was formed in 1980s to limit the overwhelming of chaebols- giant conglomerates in Korea- and to promote a more competitive market mechanism in the Korean economy. As the first step to build competition policy in Korea, the Monopoly Regulation and Fair Trade Act (the Fair Trade Act) was enacted in 1980 forming the legal framework of fair trade rules and regulations. The enactment of the Act set a comprehensive new “rules of game” of the market: free and fair competition.

3.1 The objectives of competition policy in Korea

The major objective of competition policy in Korea is to establish free and fair competition among enterprises by attacking on the concentration of economic power – cheabols in Korea; prohibiting abuse of market dominating power; encouraging innovative of business activities; protecting consumer’s right and interest and securing fair trade practices.

3.2 The contents of competition policy in Korea

The Monopoly Regulation and Fair Trade Act enacted in 1980 forming the legal framework of competition in Korea

Prohibits agreements of firms that harm competition on prices, condition of sales... that restrict competition.

Prohibits unfair trade practices.

Prohibits abuse of market dominant position (when market share of a firm > 50% or of 3 firms > 70% )

Restriction of business combination: restrict merger of firms with capital > 5 billion won or total asset exceed 20 billion won if such merger injure competition

Prevent economic power concentration: prohibit establishing holding company, direct cross-ownership within a designated business group, restrict cross investment of top 30 large business group.

3.3 The competition institution in Korea

The Korea Fair Trade Commission is a government agency in charge of enforcement of competition policy in Korea. The Fair Trade Commission has responsibility for handling matters under the Fair Trade Act independently, and investigate in violations under the Act on its own initiative. The Fair Trade Commission deals with regulation of abuse market dominant, limiting business combination and preventing the concentration of economic power, regulating unfair business practices and resale price maintenance and give policies to promote competition through consultation and coordination with respect to the Fair Trade Act.

4.      The competition policy in China

In the early of 1980s, China moved toward a market economy and permitted the development of the private sector. After transform into the market economy, the competition between sectors arose and many unfair competition practices arose. In 1993, the Law of People’s Republic of China (PRC) for Countering Unfair Competition was promulgated. It is the major law, which is aimed at the protection of competition and prevention of unfair competition practices in China. The promulgation and implementation of this law is a significant step toward the establishment a competition law as well as a competition policy in China.

4.1 The objectives of competition policy in China

The objective of competition policy in China is “Safeguarding the healthy development of the socialist market economy, encouraging and protecting fair competition, stopping acts of unfair competition and defending the lawful rights and interests of operators and consumers” (Article 1 in Law for Countering Unfair Competition).

4.2. The contents of competition law in China

In 1993, in China the Law of People’s Republic of China for Countering Unfair Competition was enacted as the first competition law in China. In this law, unfair competition refer the acts of operators to contravene the provisions of this law with a result of damaging the lawful rights and interests of other operators, consumers and disturbing socio-economic order. The Law of Countering Unfair competition  prohibits unfair competition such as deceive consumer by deceptive trademarks and deceptive advertisement, prohibits damage competitor’s reputation by falsehood, prohibits public utility enterprises to force others to buy goods or exclude other enterprises, prohibits local authority abuse their administrative power to force other to buy goods of designated enterprises.

4.3 The competition agencies in China

The State Administration for Industry and Commerce is an agency under State Council has responsibility for matters of unfair competition practices specified in the Law of Countering Unfair Competition. Besides, the State Development and Planning Commission is responsible investigation and correction for improper pricing issues in terms of anti-competition. At the county level, the administrative authorities for industry and commerce are authorities under their governments and in charge of administrative enforcement. They are responsible for enforcement of the Law for Countering Unfair Competition and some other laws such as Advertisement Law, Trademark Law.

The competition policy in China has no provisions of monopolization and abuse of dominant position, it also does not handle competition problems such as anti-competitive agreements. However, the experience of China to build the competition is a lesson for Vietnam in building legislation framework concern with unfair competition in market and create a healthy competition environment for partners to take part in the market.

Chapter III: The real SITUATION OF  competition  IN VIETNAM ECONOMY