How to Fight against Monopolies?

At the Government session on May 12 Hovik Abrahamyan, RA Prime Minister, mentioned in his well-known speech that the Government wasn’t consistent enough in total uncovering of the essence of monopolies and didn’t initiate well-timed open public dialogue.

“It’s time to correct imperfections,” he said and assigned the Ministry of Economy, RA State Commission for Protection of Economic Competition, to analyze existent monopolies in Armenia by engagement of all international structures in the country, their impact on free competitive conditions, and propose productive solutions, which can correct the existent situation.

Three weeks have been provided for the task, half of which has passed. Respective bodies for the time being are busy with implementation of the task, and it’s early touching upon the results. However, while they’re analyzing, we also attempted to analyze what should be done with monopolies and what should we expect from the Government?

What is a monopoly?

What is called a struggle should start with these issues and those originating from this. First and foremost, the Government should clarify for itself, against who it’s going to fight. Of course, we say everything is clear, and everybody knows Armenia’s monopolists and oligopolists. However, it’s not enough to undertake steps by state level. And frankly speaking, it’s nothing. The state, upon the claim of the Constitution should close these issues. It’s enshrined in the Constitution that permitted types of monopoly are defined by law.

This means, first and foremost, it should be clearly defined by law, what is a monopoly. Upon classic definition, monopoly is when there is one vendor in the market. However, probably, there are a few vendors in the market, and specific gravity of one of them is much bigger, than those of the others altogether. That is, clear dimensions are needed.

Against which monopolies one should fight?

After the dimensions a list should be made in which markets monopolies are permissible, i.e. develop legislation in accordance with the demand of the Constitution. Is gas a permitted monopoly?—OK. How about electricity distribution?—This is also included in the list. After the list is complete, it’s becoming much easier. It turns out, that any company with the monopoly position, activity of which is beyond this list, is prohibited.

And then separate companies by markets should be observed. Firstly, it should be decided whether they are monopolistic or not (upon definite criteria), and if—yes, whether they are permissible criteria or not. If not, we are coming to the third phase.

How to fight against prohibited monopolies?

This is a complicated issue as well. A clear-cut mechanism is needed in dealing with the companies, which have actual monopolistic positions, however, they aren’t included in the list of monopolies permitted by the law. As that mechanism, on the one hand, should really eliminate monopoly, and not undermine business.

Will fines be defined by some percentage (like presently in case of companies misusing dominant position)? Will they be deprived of licenses or separated?

For instance, Vardan Ayvazyan, RA MP, once said, they are ready to take the toughest way, i.e. to separate. However, these questions should become a subject for serious discussions.

These are three of the four main pillars of anti-monopolistic policy. The fourth one may be conditionally named “small points,” which, in fact aren’t small, and productivity of anti-monopolistic struggle depends on these very “small points.”

Competitive “points”

It has been mentioned in the three points above which succession should the process have. However, implementation of these steps is a really complicated job.

On account of high level of shadow economy, it’s difficult to understand who is a monopolist or an oligopolist. For instance, I’m selling X product by AMD 1000 and everything is being properly formulated. The other sells X product by AMD 5000, however, 4900 of which has been formulated under a cheaper product. Accordingly, to have the real snapshot of the market one should start from the roots—first link of pricing chain. Any violation of law should be excluded. Corruption should be eliminated from the customs formulation process up to the point of reaching to the final consumer.

Another instance may be brought as well. Tom is a monopolist in the market of X product. At certain point realizing that he may be punished for monopoly, he decides to open 5 different companies, de jure registers them by names of different people and shares the business among them. And it turns out, that 5 separate companies are functioning in the market, each of which possesses 20% of the market. Of course, the society knows that all the 5 companies belong to Tom, however, de jure Tom has nothing to do with the companies. Here we come to the institute of uncovering of interests. The Prime Minister touched upon it as well.

There are markets, where we have a duopoly (two suppliers), ore oligopoly (a few suppliers), negative influence of which doesn’t yield monopoly. Monopsony is also known (one buyer). It’s the case, when there is one buyer and a few suppliers.

For instance, imagine, there is only wine brandy factory in Armenia, and all the villagers provide their grapes to that very factory. It dictates price and game rules. Moreover, this referred only uncovering of already existing monopolies and steps to be taken towards them, i.e. up to now we were touching upon the implications. However, reasons are much more important. Besides settling the issues with existent monopolies mechanisms should be provided to prevent prohibited monopolies. Of course, it’s impossible to completely exclude it, it’s a market, where one will be able to attract the market with clever solutions and innovative means, however, the mechanism should control that process.

Everything is even deeper

It turns out that fight against monopolies, corruption, clash of interests and etc are interrelated. Thus, anti-monopoly policy presupposes in-depth systemic changes. One can imagine how much time, efforts and more importantly will is invested in this issue. It refers not fight against separate phenomena, but reform of the total system (including political and legal).

This is what our compatriot, well-known economist Daron Acemoğlu was touching upon, while saying our issues in their nature are not economic, but political ones.

Probably, the well-known words by an elder man repeatedly heard from one of the TV channels—unroot your country and build it again. In fact, the grandpa meant the only productive and simplest formula for fight against monopolies and other phenomena.

What will the authorities do?        

Yes, not only the Government, but the authorities together with their all wings. The issue is not only that of the Government. Will it initiate in-depth real changes? Hovik Abrahamyan stated, that they have enough political will for that. If supposed, that it’s so, what will be next?

The issue is complicated in a sense, that the society wants speedy and noisy reforms. As soon as the authorities start touching upon the abovementioned: politics, concepts and legislation, people will be disappointed and say—it’s another show. As prior to developing legislation and mechanisms, the society in its perceptions possesses the list of all monopolists. And waits for the state to initiate steps, separately touching upon each member of the list.

The society is waiting that a person at the highest position gets angry, and not one but a few people imported sugar or banana from the following day. Of course, it won’t occur. The authorities won’t undertake surgical methods. As on the one hand, those among social perception and those among the authorities are the same people. And secondly, tough decisions made on “sympathy” or other likewise factors may even worsen the satiation. Its implication will be the fact that one monopolist will substitute the other, and issues will remain unsettled.

The authorities are not in an envious condition. On the one hand, they should raise trust of the society towards them, taking speedy and sometimes tough steps. On the other hand, they need time for serious changes.

That’s why we consider, if authorities really intend to show political will and change the situation, they should act simultaneously in two directions.

On the one hand, they should improve legislation and quality of institutes, and on the other hand, from now on, adopt new rules for the game: no patronage, no bribery, no racketeering. Regarding scandalous cases and persons impartial investigation should be launched, even if a few are punished. And not make one or two of them a scapegoat. They know better—whom and how.

And what is the most crucial, the authorities should be honest to the public. Otherwise not a single prescription will cure our illnesses.

By Babken Tunyan