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New study underlines the benefit of competition for the poorest countries in the world

On Tuesday 27th July, Karen Ellis and Rohit Singh will launch the results of a major new Overseas Development Institute (ODI) study at an event entitled When markets don’t work – is policy or the private sector to blame?

The research has shown huge differences in market performance across countries, caused by both differences in policy and private sector behaviour. Markets characterised by more competition, with more players, more dynamic entry and exit, and more intense rivalry for customers tend to deliver better market outcomes, including lower prices, better access to services for consumers, and improved international competitiveness.

Speaking ahead of the event Karen Ellis (Head of Business and Development Programme, ODI) said:

“The cement industry provides a good example of the benefits of competition. In countries with many players, such as Bangladesh which has 34 players, prices are much lower and there is more potential for exports and growth. In Zambia, which had only two cement producers in 2008, prices were as much as three times higher than in Bangladesh. But since the entry of a new cement plant in Zambia in 2009, prices have dropped by almost ten percent, while prices in other countries have risen.” Cement is an important input for construction and infrastructure development, which are often paid for out of the government budget, and which underpin growth and industrialisation. Thus the price and availability of cement is important. The impacts of competition are clear in other markets as well. For example in Kenya, mobile phone tariffs fell by as much as 50% following the introduction of two new entrants into the mobile phone market in 2008, which should make the use of mobile phones more affordable for many poor people. She continues:
“Unfortunately, there are often powerful interest groups in both government and business, who do very well out of heavily monopolised and profitable industries, and who want to keep the market stitched up, and prevent any entry by new players. But competition authorities in Kenya and Zambia have taken proactive steps to change this. Their initiatives have built awareness of the costs of uncompetitive markets for the average person. This has armed the consumer movement with the evidence they needed to demand fairer treatment. The existence of an effective competition authority can reduce abuse by dominant firms, who fear the consequences (bad publicity at the very least) if they infringe the law.”