Transcript Slide 1

Komisi
Pengawas
Persaingan
Usaha
Competition Policy and Economic Development
Dr. Ir. Benny Pasaribu, M.Ec
Commissioner, KPPU, INDONESIA
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Outline of presentation
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The presentation tries to show a preliminary study focusing on the
impact of fair competition on economic development. The study is
conducted by the University of Gadjahmada, Jogyakarta, in 2010,
in cooperation with KPPU-RI. This presentation shows that the
improvement in fair business competition will have a positive
impact on the performance of the relevant industries, hence the
economic development, ceteris paribus. However this study needs
to be followed by a more comprehensive research with the
improvement on the economic modeling and collection of primary
and secondary data and information.
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The presentation consists of:
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Current development of competition law in Indonesia;
The impact of fair competition on economic development;
Conclusion.
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Objectives of the Law (article 3)
To safeguard the interests of the public and to improve
national economic efficiency as one of the efforts to improve
people’s welfare;
To create conducive business environment through the
stipulation of fair competition in order to ensure the
certainty of equal business opportunities for large-, mediumas well as small-scale businesses;
To prevent monopolistic practices and or unfair business
competition that may be committed by business actors;
To create effectiveness and efficiency in business activites.
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THE LAW prohibits:
Agreements;
Business activities; and
Dominant Position, that may potentially cause the
occurrence of monopolistic practices and unfair
business competition;
These may include prohibitions of cartel, price
discrimination, abuse of dominant position, and
merger and acquisition, that may potentially cause the
occurrence of monopolistic practices and unfair
business competition.
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Principles of The Law no.5/1999
Business activities in Indonesia must be based on
economic democracy, with due observance of the
equilibrium between the interests of business actors
and the interests of the public;
Guarantee fair price of goods and services with
adequate quality and supply, and qualified services.
Promoting innovation, efficiency, and productivity.
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KPPU-RI
KPPU is an Independent Commission established
according to Law no. 5/1999;
KPPU as the Competition Authority supervises the
implementation of the Law;
KPPU has a number of authorities, including to impose
sanctions, though administrative sanctions, against
business actors violating the law.
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Development of Indonesian competition law
A. Reports Received
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Reports
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Fair Competition for Welfare of the Society
There is positive
trends of increased
number of reports
from public;
The implication will
be: an increase of
public awareness.
Development of Indonesian competition law (2)
B. Initiative Cases
Cases
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Number of case
initiative is increased
compare to average
number on the first five
years.
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The increased case
initiative is one of
KPPU’s efforts to
conduct enforcement
activity on anti
competitive behaviors
that harms consumers.
Fair Competition for Welfare of the Society
Development of Indonesian competition law (3)
C. Decisions
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51
190
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Penetapan
Statement
Putusan
Decision
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Saran
Recommendation
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Berjalan
Process
Fair Competition for Welfare of the Society
Between 2000-2010, KPPU
issued 245 outputs;
51 statements on behavioral
changes and the in-existence
of unfair business competition;
KPPU issued 190 decisions on
competition violation;
Some of which are abuse of
dominant position by Carefour,
SMS cartel, cooking oil cartel,
fuel surcharge, and cartel in
pharmaceutical;
KPPU also issued three policy
recommendations, related to
specific cases.
Development of Indonesian competition law (4)
D. Objection in District Court
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Menang
Affirmed
PN
There are 78
objected decisions;
In district court level,
34 decision is
affirmed (43.6%),
while 29 decision
(37%) is annulled by
the court.
Annulled
Kalah
PN
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Proses
Process
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Fair Competition for Welfare of the Society
Development of Indonesian competition law (5)
E. Cassation (Supreme Court)
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31
12
Menang
Affirmed
di MA
Annulled
Kalah
di
MA
There are 59 decision
applied for cassation to
the Supreme Court;
31 decisions is affirmed
(53%), while 12
decision (20%) is
annulled. Currently
there are 16 decisions
under cassation
process.
Proses
Process
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Fair Competition for Welfare of the Society
Development of Indonesian competition law (6)
F. Policy Recommendations
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Recommen
dations
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As part of advocacy, KPPU
issued policy advice to the
government with increasing
trend, especially since 2006;
Some advices dealt with
policy in several sectors,
namely energy and natural
resources, transportation,
telecommunication, retail,
cooking oil, fuel surcharge,
and agro-industry.
More than 50% of advices
gained positive response by
the government through
policy adaptation.
Fair Competition for Welfare of the Society
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Price
Conceptual Background (1)
Note:
D = Demand
S = Supply
Pc = Price Competitive
Pm = Price Monopoly
Qc = Quantity Competitive
Qm = Quantity Monopoly
DWL = Deadweight Loss
DWL
Pm
S
Pc
D
Qm
Qc
Quantity
MR
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Fair Competition for Welfare of the Society
Conceptual background (2)
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A study by Marcin Przybla and Moreno Roma in 2005 found
negative correlation between competition and inflation.
Similar finding also identified by Jonsson in 2007;
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A study by Griffith, Harrison and Mc Cartney in 2006 found
negative correlation between competition and
unemployment in an optimal labor market institution.
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A study by Dutz and Hayry in 1990 indicated correlation
between law enforcement and competition policy with longterm economic growth.
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Conceptual background (3)
Lower inflation
Poverty reduction
Normal Price
Increased
competitiveness
Fair
competition
Increased
Quantity and
Quality of goods
and services
INCREASED
WELFARE OF
THE SOCIETY
Reduce
unemployment
Economic growth
Better services
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Conceptual background (4)
Concentration;
Company size,;
Entry and exit condition,;
Product differentiation,;
Vertical integration;
Pricing strategy
Production strategy
Marketing strategy,
R&D
Profitability;
Efficiency;
Product quality;
Technical improvement;
Welfare;
Employment;
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Structure
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The basic concept of the
research is to follow classic SCP
(Bain, 1957), where market
structure will affect behavior
and thus will affect performance
in a simultaneous way.
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Last theoretical development
showed interactive SCP pattern
where variable SCP will affect
one another.
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In a fair competition condition,
market structure will not be
concentrated, which affect to
the innovative and competitive
behavior leading to more
efficient performance. This will
create positive multiplier effect
on other economic parameter,
such economic growth,
employment, and inflation.
Behavior
Performance
Fair Competition for Welfare of the Society
Model
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Joint research by KPPU and the University of Gadjah Mada
(2010), several approaches and quantitative analysis is used to
estimate competition impact on economic growth, inflation, and
unemployment. This research used data from KPPU decisions and
researches from 2000-2009 and from Statistical Bureau.
ln PDRBijt   0  1 ln CI ijt  uijt .
 PDRB 
ln
   0  1 ln CI ijt  eijt
 PDD ijt
ln deflatorPDRBijt  0  1 ln CI ijt  vijt
ln UNP   0   1 ln CI ijt   ijt
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Variables used:
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GDP (PDRB), GDP per Capita (PDR/PDD), GDP deflator,
unemployment (UNP), and competition index (CI)
Independent variable: Competition Index (CI)
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Competition index of an industry can show balanced condition of
resources allocation and SCP’s interaction in national and local
areas.
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CI is not merely reflecting the structure, but also behavior and
performance of an industry (Interactive SCP)
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Competition index of an Industri (“i”) in a region/city (CIirt) is
calculated using this equation (Glaeser et al., 1992: 1138; Mody
& Wang, 1997: 301-2; Kuncoro, 2001: chapter 5):
( firm / output)
CI  ( firm / output)
ir
irt
iINDO
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S
P
Industries observed:
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Milk industry
Cooking palm oil industry
Flour industry
Sugar industry
Single artificial fertilizer industry
Mixed artificial fertilizer industry
Pharmaceutical industry
Tire rubber industry
Cement industry
Automotive industry
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Data
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This study used secondary data as follows:
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Large and medium industry statistic from Indonesian Bureau of
Statistics. The survey provided data on manufacture’s level of
large and medium scale manufacturer with more than 20 labor
forces, which can be classified according to their industry and
local codes, that consist of 20,000 companies, 27-33 provinces,
and 300-400 regions from 1998 to 2007.
Economic Census 2006, especially for large and medium industry.
National Social and Economic Survey 1998-2007, especially for
welfare’s indicators.
Macro-economic performance indicators, especially inflation
(consumer price index and large trading price index), economic
growth, and job opportunity.
THE RESULTS OF THE STUDY
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Table 1. Competition Impact on GDP Growth
Industri
Regions
Cooking
Oil
NAD
SUMUT
SUMBAR
RIAU
JAMBI
SUMSEL
Milk
Wheat
Flour
0,108
0,899
0,160
-0,291
-0,029
-0,103
BENGKULU
0,111
LAMPUNG
DKI
JABAR
JATENG
DIY
JATIM
BALI
NTT
KALBAR
KALTENG
KALSEL
KALTIM
SULUT
SULTENG
0,127
-0,112
0,019
0,273
0,077
Sugar
1,085
Single
Artificial
Fertilizer
-0,076
-0,101
Mixed
Artificial
Fertilizer
0,012
Pharmaceutical
Tire rubber
0,127
-0,060
-0,149
-0,161
Cement
0,095
-0,543
-0,109
-0,021
-0,060
0,280
0,019
-0,019
0,023
-0,013
-0,511
-0,150
-0,049
0,054
0,064
0,343
-0,056
0,109
-0,216
0,266
0,019
-0,104
-0,209
-0,013
0,031
0,055
0,037
0,014
-0,048
-0,062
0,136
0,014
0,303
-0,058
-0,110
-0,133
0,010
0,097
0,354
0,047
0,059
-0,038
-0,212
0,057
0,174
-0,079
-0,508
0,013
0,129
0,122
-0,095
0,229
-0,155
-0,115
0,263
-0,545
-0,115
-0,199
Positive elasticity indicates increase number of company (or competition) will increase output of other industries, vice versa.
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Otomotives
-0,354
Table 2. Competition Impact on GDP per Capita
Industri
Regions
NAD
SUMUT
SUMBAR
RIAU
JAMBI
SUMSEL
Cooking
Oil
Milk
Wheat
Flour
0,127
0,870
0,135
-0,233
-0,037
-0,089
BENGKULU
0,086
LAMPUNG
DKI
JABAR
JATENG
DIY
JATIM
BALI
NTT
KALBAR
KALTENG
KALSEL
KALTIM
SULUT
SULTENG
0,110
-0,068
0,034
0,368
0,066
Sugar
1,031
Single
Artificial
Fertilizer
-0,063
-0,096
Mixed
Artificial
Fertilizer
0,010
Pharmaceutical
0,107
-0,047
Tire
rubber
-0,147
-0,122
Cement
0,114
-0,513
-0,074
-0,013
0,002
0,367
0,015
0,003
0,047
0,035
-0,515
-0,192
-0,042
0,035
0,051
0,213
0,015
0,162
-0,183
0,263
0,009
-0,081
-0,186
0,035
0,030
0,065
0,019
0,013
-0,050
-0,070
0,116
0,070
0,340
-0,049
-0,072
-0,104
0,005
0,093
0,462
0,047
0,051
-0,053
-0,118
0,036
0,251
-0,066
-0,430
0,011
0,071
0,104
-0,058
0,252
-0,115
-0,090
0,174
-0,355
-0,061
-0,406
-0,275
Positive elasticity shows increased competition that causing the increase of GDP per Capita, vice versa.
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Otomotives
Table 3. Competition Impact on unemployment
Industri
Regions
Cooking
Oil
NAD
SUMUT
SUMBAR
RIAU
JAMBI
SUMSEL
Milk
Wheat
Flour
0,407
0,355
0,273
-0,440
-0,216
-0,217
BENGKULU
0,763
LAMPUNG
DKI
JABAR
JATENG
DIY
JATIM
BALI
NTT
KALBAR
0,188
0,194
0,162
0,514
KALTENG
KALSEL
KALTIM
SULUT
SULTENG
0,071
Sugar
0,420
Single
Artificial
Fertilizer
0,219
0,008
Mixed
Artificial
Fertilizer
-0,017
Pharmaceutical
0,392
0,031
0,021
0,090
Cement
0,299
-0,245
0,267
0,819
1,151
-0,072
-0,211
0,238
0,561
-0,008
-0,285
0,018
0,148
0,586
-0,514
3,016
0,268
-0,346
0,423
-0,002
-0,086
0,175
0,561
0,044
0,131
0,146
-0,068
-0,072
-0,069
0,196
-0,098
0,410
-0,536
-0,428
-0,683
0,027
-0,002
0,694
0,025
0,069
-0,109
0,087
0,023
0,484
-0,237
-1,079
0,046
0,324
0,588
-0,306
-0,670
Otomotives
-0,050
-0,996
-0,226
-0,384
Positive elasticity shows increased competition that will raise unemployment, vice versa.
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Tire
rubber
0,921
Table 4. Competition Impact on Prices
Industri
Regions
Cooking
Oil
NAD
0,857
SUMUT
0,356
SUMBAR
-0,568
JAMBI
-0,090
SUMSEL
-0,160
LAMPUNG
DKI
Wheat
Flour
Sugar
Single
Artificial
Fertilizer
Pharmaceutical
Tire rubber
-0,167
0,566
-0,042
Cement
Otomotives
0,680
0,011
0,140
-0,035
-0,312
-0,122
-0,238
-0,129
-0,038
-0,064
0,455
0,025
-0,043
0,043
0,326
0,202
-0,030
-0,030
-0,089
-0,895
0,215
JABAR
0,070
-0,377
-0,034
0,557
0,067
JATENG
0,810
-0,104
0,365
-0,027
0,146
-0,170
0,089
-0,068
-0,017
DIY
0,115
JATIM
Mixed
Artificial
Fertilizer
0,326
RIAU
BENGKULU
Milk
0,168
0,457
-0,562
0,191
0,164
-0,080
-0,089
0,673
0,850
0,123
0,088
-0,148
-0,089
0,103
-0,160
0,579
-0,245
-1,040
0,040
-0,182
0,326
BALI
-0,656
0,024
NTT
0,318
KALBAR
0,310
-0,329
KALTENG
KALSEL
0,660
KALTIM
-0,182
SULUT
-0,235
SULTENG
0,893
-0,639
-0,113
-2,110
-0,201
Positive elasticity indicates increased competition that lead to inflation or increasing cost industry, vice versa.
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Summary of estimation result
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Table 1: for most of Java, increasing competition in cooking oil, single fertilizer,
and outer-inner tire as well as automotive industries, created positive effect on
GDP growth. For out of Java Provinces, increasing competition created negative
effects, especially in cement, tire rubber, and single fertilizer industries.
Table 2: for most of Java and Sumatera, increasing competition created positive
effect on GDP per Capita, especially in cooking oil, sugar, single fertilizer, and
automotive industries. For others, increasing competition created negative
effect, especially in cooking oil, mixed fertilizer, pharmacy, tire rubber, and
cement industries .
Table 3: in most regions, increasing competition can reduce unemployment,
especially in mixed fertilizer, pharmacy, cooking oil, and flour industries. For
automotive in Java, increasing competition will lead to increase number of
unemployment.
Table 4: for inflation sensitive products (cooking oil, sugar, flour, milk, and
cement), increasing competition will reduce inflation. For mixed fertilizer and
automotive industries in most of regions studied, increasing competition tends
to lead to inflation or price increase.
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KPPU Research: simulation of income savings due to
price cuts
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Income savings made by consumers from 4 products
due to price reductions after KPPU’s decisions:
Commodity
Price Decrease
Income Savings (in total IDR)
Min
Max
Sugar (2009)
4%
851.760.000.000
2.298.400.000.000
Flour (2009-2010)
1%
20.280.000.000
253.500.000.000
Bulk cooking oil (2009)
16%
3.075.800.000.000
9.599.200.000.000
Packaged cooking oil (2009)
4%
767.260.000.000
2.092.220.000.000
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Income saving for consumer from SMS
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Using similar methodology,
KPPU’s research shows that
after the decision on SMS
cartel, consumer’s income
saving is estimated to increase
by +/- IDR 20 trillion/year.
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Conclusions
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Fair Competition is part of the implementation of Indonesian Constitution, hence
a vital and strategic instrument in Indonesian economy;
The study shows more intense and healthy competition, will lead to positive
impact on industry performance, inflation, unemployment, and economic growth;
Income savings from SMS, cooking oil, sugar, and so forth, are part of the
people’s welfare improvement. Income savings are made possible when there is
a price reductions of monopolistic practices by business actors after the KPPU’s
decisions. The decisions of KPPU can be made according to the verdicts of the
KPPU’s court and/or prevention and/or recommendation to relevant institutions;
As preliminary study, the findings may be valuable. However, I must aknowledge
that the study may contain several weaknesses, especially on the limitation of
the economic models and available data/information. More empirical and
comprehensive research is necessary. Applying Computable General Equilibrium
(CGE) model will provide highly useful findings, hence very much recommended.
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References
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Dutz, M. A and Hayri, A. 1990. Does more intense competition lead to higher
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Jonson, M. 2007. Increased Competition And Inflation. Economics Review, 2nd
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