Uri Weinstok
Partner and Specialist in Competition and Regulation
Costa Rica
uweinstok@blplegal.com

Since the 1990s, the consensus is that competition benefits society more than state planning of the economy. Thus, consumers will be better off as long as companies have a permanent incentive to offer lower prices, better quality and service, and more innovation.

The main concern in promoting competition is that companies with market power do not abuse it. Those who exploit their market dominance often limit consumers’ choices, offering lower quality products at higher prices than if they had competition. For this reason, the Competition Law is asymmetric since some of its rules apply only to the dominant organizations, while the less powerful must not obey them. The possibility that strong companies may abuse their power without consumers having recourse to other alternatives justifies this difference in treatment.

This approach does not mean that companies with market power should stop competing aggressively. On the contrary, all commercial enterprises, large and small, should seek to meet consumer preferences to safeguard their existence.

Nevertheless, in recent years large companies have been attacked solely because of their size. Regulations or administrative actions to limit the power of big business are supposed to guarantee the survival of less potent companies without considering that their possible exit is due to reasons of inefficiency.

Competition implies a fight for consumer preference. Those who offer good products with the best conditions will win customer favor, while those who fail to do so risk leaving the market. Thus, the statutory intent is not to penalize success, but rather to protect the competitive process so that consumers can choose winners and losers. Punishing or prohibiting aggressive (but legitimate) actions of dominant companies would do precisely the opposite of the goals of competition laws, as companies would raise their prices or decline to compete aggressively to avoid penalties. This, clearly, directly harms consumers that the law is supposed to protect.

Thus, the protection and promotion of competition are not about the number of companies in the market or their size, but how they interact with each other, seeking to ensure competition on merit (with no undue barriers for new competitors to enter the marketplace or current ones to leave). Such principles favor the consumer without punishing a dominant company for being so, but only if it abuses its power. This concept is the maxim of all democratic states, according to which no one should be punished for what they are, but for what they do.

While competition can be cruel, forcing some companies out of the market, such departure under legitimate circumstances is precisely what the law protects and promotes. In this context, as the United States Supreme Court said in the Spectrum Sports case, “competition laws are not there to protect entrepreneurs from the functioning of the market, but to protect consumers when it does not function properly.”

None of the above means that you shouldn’t protect yourself from small and medium-sized businesses. On the contrary, a sound economic policy promotes entrepreneurship. However, such promotion is not by isolating companies from market forces but rather by creating the conditions for them to compete efficiently through access to technology and sources of financing, supplies, and knowledge. The proper conditions will ensure the sustainability of small or new market participants over time but not at the expense of consumer interests.

Originally published in the CR Hoy Noticias newspaper in the space of the Academia de Centroamérica.

Uri Weinstok
Partner and Specialist in Competition and Regulation
Costa Rica
uweinstok@blplegal.com