Response to Parakkal’s Comments

• Author: Stephen Weymouth
• DOI: 10.1177/0003603X16644124
• Published date: 01 June 2016
• Date: 01 June 2016

Article

Response to Parakkal’s Comments

Stephen Weymouth*

I thank Raju Parakkal for providing provocative commentary on my article.

My article develops an interest group explanation for the emergence of competition policy insti-

tutions in developing countries. I argue that big firms in concentrated industries (those in which a small

number of firms account for a large share of the market) will oppose competition reforms, since these

reforms threaten the ability of firms to continue to extract monopoly rents. Where industries are highly

concentrated and labor market institutions promote rent-sharing with organized labor, competition

policy reform will be slow and relatively ineffective. Where outsiders gain political strength through

democratic institutions, effective reform will be more likely.

The question of who benefits from antitrust enforcement in developing countries is not explicitly

addressed in my paper. However, recent experience suggests that the benefits to consumers—should

those benefits accrue at all—will not be immediate.

Mexico provides an illustrative case. Mexican industries are notoriously concentrated: oligopolies

and near-monopolies exist in telecommunications, cement, and banking (among others). Corporate

insiders in these industries have long resisted antitrust reforms; and their opposition is not surprising

given the exorbitant profits found in concentrated sectors. For instance, Telecom service providers,

dominated by Carlos Slim’s Ame´rica Mo´vil, have been able to charge 45%more for home landlines

and 63%more for business lines compared to the OECD average. For basic broadband, prices have

been nearly ten times more than in the rest of the OECD.

1

As Mexico’s democracy strengthened, the public push for stronger antitrust enforcement followed.

The Comisio´n Federal de Competencia Econo´mica (COFECE), Mexico’s antitrust agency, was estab-

lished in 1992. Reforms in 2006, 2008, and 2014 all moved in a more consumer-friendly direction.

But until very recently, the competition authorities were unsuccessful in taming the monopolistic

practices of the major corporations. In 2007, COFECE lost a long court battle to declare Telmex, with

over 90%market share, dominant in fixed-line telephones. As another example, it took COFECE

nearly seventeen years to levy its first judgment against cartel behavior. Finally, in 2010, COFECE

said it had uncovered schemes involving six firms to rig the bidding to provide health services—

behavior viewed by many as ‘‘standardpractice’’ in public contracting. Part of the problem was that the

*McDonough School of Business, Georgetown University, Washington, D.C., USA

Corresponding Author:

Stephen Weymouth, McDonough School of Business, Georgetown University, Washington, D.C. 20057, USA.

Email: stephen.weymouth@georgetown.edu

1. Mexico’s Economy: Making the Desert Bloom,THE ECONOMIST (last visited July 17, 2015), http://www.economist.com/node/

21526899#033vHUzjREio3W92.

The Antitrust Bulletin

2016, Vol. 61(2) 320-322

ªThe Author(s) 2016

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DOI: 10.1177/0003603X16644124

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