Free markets do not always create competitive environment, says CEA

Free markets do not necessarily create a competitive environment and it is the role of competition agencies and regulatory authorities to create conditions that can mimic the competitive environment, chief economic advisor V Anantha Nageswaran said on Friday.

Addressing the national conference on the economics of competition law, Nageswaran said that the regulators are often hesitant to intervene in the markets. “It is not just about prices remaining competitive or displacing monopolies. Competition agencies and regulators also have to keep one eye on the systemic welfare that the markets create or do not create.”

The CEA added that excess competition is undesirable in sectors such as banking, insurance, securities if it creates instability in these sectors.

He said regulatory actions can sometimes end up harming new entrants. In the technology space, for instance, regulators implement data and privacy norms, but users can end up choosing only large players since they place greater degree of trust in them. “This will ultimately lead to loss of competition across similar platforms…Competition agencies should be mindful of the unintended consequences of their action,” Nageswaran added.

He stressed on the scope of cooperation between regulatory authorities and competition agencies. “Regulators and competitive agencies must mutually agree upon exante and expost actions and balance the two to avoid producing outcomes that work against the action that either agency takes.”

Nageswaran said that competition agencies must remember that they are in forever competition with firms and markets.