Volume 43, Number 170,
July-September 2012
Economic Competition in Mexico:
A Much Needed Debate
Rogelio Huerta
REGULATION OF COMPETITION AND ECONOMIC PERFORMANCE ( ...continuation )

And later, in the conclusion, he adds:

a part of the standard errors confirms possible bias and foresees results by suggesting that there is no impact on the price of non-merchantable goods that could be attributed to the presence of a competition law (Rodríguez, 2006: 170).

What Rodríguez does confirm is that in the 1970s in countries where the research was performed, it cannot be confirmed that pro-competition policies had an effect on price reduction. Competition laws, and consequently, national competition commissions, do not reduce the price of good that are not traded abroad (basically services) even when these laws and commissions work and apply their objectives, according to empirical research. To think that the mere destruction of monopolies or oligopolies to increase competition would bring about greater economic efficiency and higher levels of well being among communities would be like thinking that small companies have lower unit costs than large companies, and that self-employment and micro-businesses can develop and transform the current market system in a more dynamic way than large businesses, with their investment in new products, new technologies and the search for new markets.

What is clear is that the economic reality that Estrada idealizes refers to perfect competition markets, where products are homogeneous, there is free mobility of factors, information is perfect for all agents, companies do not engage in publicity, and competition is based in improving productivity, which leads to cost reduction. Cost reduction allows companies to reduce prices to compete with their rivals. This is the type of competition that, ideally, allows increased efficiency and is taught in textbooks. After studying and learning the model of perfect competition or general equilibrium, people believe that this model should exist in the real world, and that if it does not, then the real world is imperfect or that the economic reality has faults that must be corrected by promoting and fostering competition. The author failed to note a statement from Hicks on his own model of perfect competition: “The analytical error of Value and Capital is to treat an exceptional type of market as though it were common (Hicks, 1989: 212).

Perfect competition markets that ensure general equilibrium with greater efficiency in how economic resources are used are an exception in the real world. The norm is another type of market, closer to an oligopolistic kind. In reality, we have a world of monopolies and oligopolies that compete among each other and drive economic growth and transformation. From the beginning of industrial capitalism in England, companies like the Indies, which was a huge British monopoly for trade with the East, have been the main way to accumulate capital. Examples of these in the United States are Ford, General Electric and Sears; in Mexico, Pemex, Bimbo and beer breweries, to mention a few. Large companies, as Schumpeter says, are responsible for innovation in production, the design of new goods, the use of materials and obtaining new markets. Thus, large companies are not only the drivers of technological process, but they are also capable of accumulating capital to drive investment and growth.

It should be added that for Mexico, large companies have existed without being sources of new technology because they have become accustomed, since the beginning, to technology being imported. Thus, in Mexico we have two negatives together: production is highly concentrated in few companies and, at the same time, there is no process of technological innovation.

FINAL COMMENTS AND CONCLUSION

In the Final Comments of Estrada’s essay, he insists that, “economic theory and empirical evidence indicate that market competition reduces prices for consumers and drives productivity and innovation” (2010: 169). And what we can conclude, contrary to what Estrada says, is the following: (a) the profit margin is not reduced due to a fall in prices, but rather due to an increase in publicity expenses and other expenses to set the product apart, and this is ultimately what intensifies oligopolistic competition; (b) opening up to external markets, which increased the number of competitors for the domestic market, did not reduce prices, but rather reduced the quantities sold by each company, obligating these firms to maintain or increase their prices so as not to lose profits; (c) greater levels of competition do not necessarily lead to higher productivity, as its effects would be more felt in the long term if it were caused by technological innovations, but rather it is productivity increases, the result of dynamic strategies from large and medium-sized companies, that encourage increased market competition; (d) it has not been demonstrated that the introduction and development of pro-competition policies from national commissions in a variety of countries has reduced prices nor that these policies imply benefits for the consumers

Published in Mexico, 2012-2017 © D.R. Universidad Nacional Autónoma de México (UNAM).
PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 48, Number 191, October-December 2017 is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
CP 04510, México, D.F. Tel (52 55) 56 23 01 05 and (52 55) 56 24 23 39, fax (52 55) 56 23 00 97, www.probdes.iiec.unam.mx, revprode@unam.mx. Journal Editor: Alicia Girón González. Reservation of rights to exclusive use of the title: 04-2012-070613560300-203, ISSN: pending. Person responsible for the latest update of this issue: Minerva García, Circuito Maestro Mario de la Cueva s/n, Ciudad Universitaria, Coyoacán, CP 04510, México D.F., latest update: Nov 13th, 2017.
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