A Step Ahead A Step Ahead Competition Policy for Shared Prosperity and Inclusive Growth © 2017 International Bank for Reconstruction and Development/The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved 1 2 3 4 20 19 18 17 This work is a product of the staff of The World Bank and the Organisation for Economic Co-operation and Development (OECD) with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent or those of the OECD or its member countries. The World Bank and the OECD do not guarantee the accuracy of the data included in this work. 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Contents Foreword ........................................................................................................................................... xi Acknowledgments .........................................................................................................................xiii Abbreviations ................................................................................................................................... xv Part I Competition Policy, Shared Prosperity, Poverty Alleviation, and Inclusive Growth: Empirical Evidence to Support Policy Action ............1 1. Introduction .............................................................................................................3 1.1 What Is Competition Policy? ..................................................................5 1.2 How Does the Degree of Competition Affect Poverty, Shared Prosperity, and Inclusive Growth? .............................................7 1.3 In Which Sectors Can Safeguarding Competition Maximize Benefits for the Poor? ............................................................................11 Notes ..............................................................................................................17 Bibliography ..................................................................................................18 2. Effects of Market Competition and Competition Policies ............................21 2.1 Direct Welfare Effects on the Level and Distribution of Household Welfare ................................................................................21 2.2 Dynamic Effects: Competition as a Driver of Productivity, Innovation, and Economic Growth .....................................................46 2.3 Further Research for a Policy Agenda ..................................................56 Notes ..............................................................................................................59 Bibliography ..................................................................................................62 Part II New Research on Competition Policies and Their Welfare-Enhancing Effects ...........................................................................75 3. Cartel Damages to the Economy: An Assessment for Developing Countries ................................................................................................................77 Marc Ivaldi, Frédéric Jenny, and Aleksandra Khimich 3.1 Introduction ..........................................................................................77 3.2 Collected Data: Cartels’ Profiles in Developing Countries .................79 v 3.3 Estimation of Price Overcharges ..........................................................84 3.4 Aggregated Cartels’ Effects ....................................................................89 3.5 Estimation of the Deterrence Rate .......................................................93 3.6 Conclusions and Policy Implications ...................................................94 Annex 3A: Major “Hard-Core” Cartels Prosecuted in Selected Developing Countries, 1995–2013 .......................................................96 Annex 3B: Questionnaire Submitted to Local Competition Authorities ....104 Annex 3C: Example of the Calibration and Estimation Procedure: Civil Airlines in Brazil ...............................................................................104 Notes ............................................................................................................107 Bibliography ................................................................................................109 4. Undermining Inclusive Growth? Effects of Coordination on Fertilizer Prices in Malawi, Tanzania, and Zambia .....................................111 Thando Vilakazi 4.1 Introduction ........................................................................................112 4.2 Inclusion, Cartels, and Recent Experiences in Fertilizer Markets in the Region .........................................................................114 4.3 Fertilizer Pricing in Malawi, Tanzania, and Zambia ..........................119 4.4 Changing Dynamics in Fertilizer Markets in Tanzania and Zambia .......................................................................122 4.5 Conclusions and Policy Implications .................................................127 Notes ............................................................................................................129 Bibliography ................................................................................................130 5. Market Power and Wealth Distribution ........................................................133 Sean F. Ennis and Yunhee Kim 5.1 Introduction ........................................................................................133 5.2 Model ...................................................................................................135 5.3 Data ......................................................................................................137 5.4 Calibration of Impacts ........................................................................138 5.5 Conclusions and Policy Implications .................................................151 Notes ............................................................................................................152 Bibliography ................................................................................................153 6. Distributional Macroeconomic Effects of the European Union Competition Policy: A General Equilibrium Analysis ..................................155