The purpose of competition law is to prohibit illegal restrictions and to regulate the behavior of economic agents, ensuring that they compete in a fair and healthy manner. Its pillars or axes are (1) anti-competitive agreements, (2) abuses of a dominant position, (3) mergers that may harm competition and (4) the prohibition of state aid, so that agents can compete freely.
Competition refers to rivalry between companies to ensure their commercial superiority. The greatest benefit of regulations that protect it, is creating markets in which agents compete for clients, generating lower prices and innovation. Protecting competition therefore entails protecting consumer welfare.
The worldwide proliferation of the SARS-CoV-2 or Covid-19 virus, has caused many governments to enact prevention measures, such as the lockdown of healthy people and traffic restrictions, with a serious impact on the dynamics of some markets; contraction in trading of goods and services; tension in the value production chain, particularly for companies that do not have liquidity; increased perception of business risk and; a slowdown or disruption in some markets, such as tourism and hospitality.
This has hurt many companies and strengthened the market power of others. An example of this could be retail companies (or retail consumption) in the face of the drop in on-premise consumption (in establishments); or the position of companies with local offer, compared to others with national, regional or global offer; or companies that compete in one market, compared to others that are diversified. Companies that continue to earn income from areas or markets not affected by prevention measures, can better subsidize costs of competing in affected areas or markets.
Although one of the ways of competing is the ability to adapt to change, and there are companies with better design, structure or talent to face these crises, liquidity is a vital factor and a competitive advantage to survive periods of low income.
In Costa Rica, the Commission to Promote Competition (Coprocom) has issued some communications in defense of competition, intrinsically linked to the new realities generated by Covid-19, which make even more evident the need for an entity that protects and promotes free competition. One of these refers to the offer of travel insurance for foreigners who wish to enter the country, which can be found at the following link: Coprocom - Travel Insurance Offer. In summary, the statement indicates the following (not quoted verbatim):
- the reactivation of the economy must be based, among others, on promoting competition, which contributes to healthy rivalry between companies,
- validation of modifications adopted by the Government to allow all insurers authorized by SUGESE to offer this service,
- there must be equal treatment to all companies, state or privately owned, without granting advantages to state-owned enterprises,
- a foreign tourist must have the possibility of acquiring this type of insurance outside of Costa Rica,
- the Government must analyze the reality of international tourism and insurance and support the reactivation and competitiveness of the country, favoring the acceptance of foreign insurance policies.
Regarding the monopoly in the production of alcohol, Coprocom considered imperative to eliminate it and that the National Production Council (CNP) and the National Liquor Factory (FANAL) should increase their sales quotas to reach more Costa Ricans. The communication is available in the following link: Coprocom - Alcohol Sales, and indicates the following (not quoted verbatim):
- FANAL holds the monopoly of alcohol production and has limited production capacity,
- other companies with the capacity to produce alcohol in gel, disinfectants, or similar products, could not do so because they did not have enough raw material,
- the need to eliminate this monopoly that forces the national industry to depend on concessions and quotas granted by the CNP, has been repeatedly pointed out by Coprocom,
- there is no justification for the existence of the monopoly and the current crisis shows the need for greater competition in that market,
- while the law that allows the monopoly is eliminated, Coprocom asked CNP and FANAL to take actions to increase the quotas for the sale of alcohol to the national industry.
The role of Coprocom in promoting competition in Costa Rica and the interpretation of regulations about this and other matters, is essential. In this sense, the work of the Commissioners is worthy of recognition. However, the institution faces a budget crisis as a result of cuts decreed by the Ministry of Finance, which prevents it from complying with Law 9736, for the Strengthening of Competition Authorities in Costa Rica (the Strengthening Law). Regarding this, statements by the President of Coprocom can be consulted at the following link: Coprocom - Budget versus OECD Recommendations.
According to what was expressed by the President of Coprocom, despite the fiscal crisis, the promotion of competition is important for economic reactivation and the Government must provide the institution with resources to comply with the Strengthening Law, and with the recommendations of the Organization for Economic Cooperation and Development (OECD).
In conclusion, governments should seek a balance between budget cuts and investment in defending and promoting competition, which will help promoting competitive markets and a better distribution of production sources, which is most necessary in times like the present, in which, due to their market power, some agents may restrict or condition their offer or negotiate disproportionate conditions with their customers and suppliers. As a regulator and guarantor, Coprocom faces the challenges of the moment, and of fulfilling its purpose while complying with the Strengthening Law and the recommendations of the OECD, despite those budget limitations.
