The effect of privatization and government policy on competiton in transition economies

Abstract

Recent studies have emphasize how important role competition is for enterprise productivity in Eastern Europe and Central Asia. This paper looks at the effectiveness of government policy in promoting competition in these countries. Improving enforcement of competition law and reducing barriers to trade increase competition. Firms are considerably less likely to say that they could increase prices without losing many customers when competition policy is better enforced and when tariffs are lower. In contrast, there is little evidence that privatization increases competition in of itself. State-owned enterprises face no less competition than other enterprises and the overall level of competition is no lower in countries with more state-owned enterprises. Although privatization might have other benefits, there is little evidence that it will increase competition unless governments take complementary actions such as reducing trade barriers or enforcing competition laws.