Economy, Domestic Economy

Competition in Iranian Market

Competition in Iranian MarketCompetition in Iranian Market

Last week, President Hassan Rouhani reappointed Reza Shiva as head of the Competition Council and director of National Competition Center.

After six years from the establishment of such institutions in Iran, it is time to assess the efficiency of competition regulations and the performance of competition authority, as well as achievements and setbacks.

But before that, it should be asked: Why is competition regulation needed in the first place?

Competition leads an economy to the best possible economic results; with fixed input, firms produce more goods and services, at higher quality and at lower prices. This not only promotes the welfare of customers in the domestic market, but also boosts exports.

As Michael Porter put it, “Firms that do not have to compete at home, rarely succeed abroad.” Therefore, more and more states attempt to promote competition in their economy.

Of course, this does not preclude government intervention in certain economic sectors to avoid market failure. These mainly include public services and infrastructures, such as transportation, health, telecommunications, mail, and utilities (water, electricity and gas). Nevertheless, such interventions shall remain an exception and not turn into the dominant policy in all markets.  

Although competition is in the interest of consumers, it infers an increase in risks, which may result in loss of profits. Therefore, firms try to restrain competition by forming cartels, executing mergers and acquisitions, and abusing the vantage point of market dominance.

Accordingly, competition regulations and authorities are brought in to prohibit such actions. They should protect not only competition as institution, but also the freedom to compete for individuals and corporations.

Developed countries have a longstanding literature and track record of competition (for instance in the US, the Sherman Act is a federal statute in the history of United States antitrust law (or “competition law”) passed by Congress in 1890).

In Iran, however, regulation of competition is a new concept and still in its first decade. The Bill of Competition in the Market was drafted as part of “Amendments to Article 44 of the Constitution”, and despite opposition of the Guardians Council, it was approved by the Expediency Council.

It was fully adopted in 2008 as a set of executive rules and regulations, and the Competition Committee was formed a year later by the Ministry of Economy and Finance.

A glance at the Executive Rules and Regulations of Article 44 of Chapter IX of the Constitution to Facilitate Competition and Prohibit Monopoly reveals that the statute encompasses a broad and comprehensive set of provisions on this concept.

Clauses 43 to 52 of this legislation extensively elaborate on basic restraints on competition in the market, such as pricing mechanisms, collusions, abuse of dominant market positions, and mergers and acquisitions. Then clauses 53 to 68 set out the rules for formation of the Competition Committee and its duties. It also constitutes the board of appeals as the higher authority that can reconsider the decisions of the Competition Committee. Finally, clauses 72 to 84 set out the sanctions and penalties for possible breaches.  

The breadth and specificities of this statute illustrate that the legislature has furnished an adequate legal vehicle for addressing a wide range of competition-related issues and cases. Therefore, not much is lacking on the legislative side, at least for now.

However, these regulations have not yet been fully implemented in the economic arena. In fact, on several occasions, the competition authorities have expressed dissatisfaction with the current status. This shortcoming in implementation can be attributed to several reasons.

First and foremost is the lack of adherence to the competition authority by ministries and governmental bodies. Although the head of the Competition Council and the National Competition Center is appointed by the president, the competition authority is perceived as a bothersome newcomer by other governmental officials who consequently try to avoid its rule and authority to the extent possible.

Evident examples of such an attitude can be seen in the defiance of the Ministry of Industries, Mining and Trade to resolutions of the Competition Council on the pricing of domestic cars; the ministry has constantly argued in favor of major national car producers, thus undermining competition and welfare of consumers.

In this respect, support of high-ranking officials in favor of the competition authorities could prove to be useful, which until now has not been provided.

Another cause is the lack of deterrents for infringements. Generally, breach of competition rules and resolutions should face serious penalties, as stipulated in clauses 72 to 84 of the statute. Yet such penalties have not been enforced satisfactorily, thereby shifting competition rules and resolutions to the position of moral guidance, rather than strong and unquestionable regulations.

In this regard, the intensified cooperation of competition authorities with enforcement bodies such as the judiciary can revive the deterrent function of competition regulations.      

Last but not least is the lack of general knowledge and awareness on the notion of competition. Players in the economic arena, both individual and corporations, have little or no understanding of competition concepts and regulations.

Unfortunately, this is common to all types of players, such as producers, traders and consumers. Hence, if the stakeholders are not acquainted with competition, how can they be expected to respect it, employ it and promote it?

In this respect, an informative initiative has to be presented on the national level, with the aim of increasing the general awareness of all stakeholders on this subject.

All in all, the competition institution in Iran is still in its primitive phase and faces many basic challenges. Yet the pace of competition regulation and enforcement should be increased, as it will increase the welfare of consumers and also facilitate integration with the international economy, both of which are a top priority of officials in the current administration.