Competition and competition policy have a central role to play in the development of markets in transition economies. Competition in product markets can bring about efficiency in production, improve management and augment the range and quality of products supplied. Given these weaknesses in formerly planned economies, competition has an enhanced function in assisting and promoting the process of transition. Although the restructuring of large state enterprises and the encouragement of private enterprise assists the development of markets and competition, these may not be sufficient, especially given the legacy of monopolization and collusive behaviour that is inherited from central planning. In these circumstances, competition policy is an essential ingredient to the transition process. Competition policy is therefore the central theme of the latest CEPR book ‘Competition Policy and the Transformation of Central Europe’, written by John Fingleton (Trinity College and CEPR), Eleanor Fox (New York University), Damien Neven (Université de Lausanne and CEPR) and Paul Seabright (University of Cambridge and CEPR), published in August 1996. By specifying rules on the conduct of enterprises, competition policy can prevent monopolists from foreclosing entry into markets, cartels from agreeing prices or preventing entry, and competitors from merging so as to restrict competition.

An analysis of the experiences of the Czech Republic, Hungary, Poland and Slovakia (the Visegrád countries) offers insights into the extent of the transition in the different countries, the role of competition policy, and the future development of competition policy in these and other countries. The Report is published against the background of the EU Association Agreements with these countries, which require the approximation of competition laws, and their enforcement, to those of the EU. The 1995 EU White Paper on Enlargement goes even further by envisaging a stricter version of this approximation as a criteria for eventual membership.

The Report outlines the progress that the Visegrád countries have made in de-monopolizing their markets and stimulating competitive behaviour. The political economy of competition policy is investigated as well as the reasons for its introduction. The report analyses the statutes of the countries, comparing them with each other and with those of the EU and describes the institutional aspects of competition policy. The output of the competition offices and the standards of competition determined in the case law is evaluated. The authors assess the overall performance of policy, including its credibility, its efficiency and its independence from the political process and make recommendations for institutional changes and especially changes in the enforcement of the law.

The authors find a striking gap between the very weak state of product market competition and the task it is expected to perform. Privatization, restructuring and other corporate reforms have had a much smaller effect on improving the structure and performance of markets. Thus, monopolistic market structures and collusive behaviour are still a matter of concern. This leaves much of the transition process to be driven by competition in the product markets, where competition policy must play a key role.

At the outset of transition, the adoption of competition policy was relatively uncontroversial, but this consensus is now disappearing. At the outset, competition policy may have meant different things to different groups: in particular, some may have expected it to protect them from the market. The Report found that the initial consensus is now dissipating, especially as interest groups realize that competition policy may prevent transactions of benefit to them, tempting them to bring pressure to bear on decision-makers. This may prevent competition policy from developing to meet the challenges required of it.

The Visegrád countries have made considerable progress in the implementation of competition law and policy. Their statutes incorporate the main features of EC competition law. The offices that implement the law are well-resourced and active, with clear and transparent procedures, and have produced a large volume of case law. The competition policy authorities are constantly increasing their technical proficiency and support and encourage this learning process.

The study’s analysis of the case law suggests some cause for concern. In particular, much of the time of the competition offices are devoted to cases which have only a minor impact on competition, and in which fairness and industrial policy concerns are criteria for deciding cases. The study argues that Visegrád competition policy should place greater emphasis on abuses of dominance that restrict entry, provide better enforcement against cartels, and demonstrate more concern with de-monopolization in merger analysis. It should make a clear distinction between fairness and efficiency. The study proposes the publication of clear guidelines for the business community and the imposition of more severe fines for egregious violations (to create credible threats). Decisions, and the basis on which they are taken, should be made more public.

The study proposes institutional changes to improve transparency of competition policy and to guarantee the political independence of the competition offices. For transparency, it is recommended that trade, industrial and competition policy decisions be taken by separate institutions, with clear written reasoning for decisions so that the economic trade-offs may be clearly observed, debated and evaluated. To enhance political independence, the study proposes that the individuals who decide on cases and the heads of the competition offices should be appointed in a manner designed to insulate them from external pressure. This is necessary to ensure that neither the selection of cases for investigation nor the decision-making process is distorted by political or other pressures. The competition offices should also be made financially independent, in order to insulate them from political pressures exerted via the budgetary process.

The detailed analysis of the statutes and case law leads the authors to conclude that the competition policy of the four Visegrád countries approximates to that of the EU in the sense used in the Association Agreements and the White Paper. The authors argue that the remaining differences between the law and its application in the Visegrád countries and in the EU are not ones that matter for the integration of factor and product markets nor for the readiness of the countries for EU membership. Thus, further forced approximation of the detail of the law might not be beneficial and might even reduce the overall readiness for membership of the countries concerned. It might also deflect attention from the more serious challenge: ensuring that the application of competition law and policy should remain reasonably objective in the face of the substantial political pressures to distort it for the private advantage of particular interest groups.