What Holds Effective Business Competition Back?

A free market economic system has been taken as a paradigm exposition for organizing and streamlining the relationship between state, private property owners and the community. Taking markets as a panacea to some of the gigantic problems that have bound the communities, such as production and distribution problems of goods and services to the community and consumers, the system got its apogee and acclamation after World War II. Before that, the theoretical base related with free market economic system was laid, in 18th century America.

Adam Smith, often called "the Father of Modern Economics", elucidated his economic thoughts in his seminal book - "An Inquiry Into The Nature And Causes Of The Wealth Of Nations". Here, he said that competition between the market actors is a driving force for harvesting the bounty of free market economic systems.

As such, the system is grounded on the simple rule - the demand and supply of goods and service is Pareto efficient enough to determine the price, quality and quantity of goods. Hence, competition between producers, wholesalers and retailers of goods and service has a huge force for determining the benefit accrued to the consumers. That is why some intellectuals enunciated the fact that 'as constitution is a sin qua non to the democratic state, competition between market actors is a magna carta to a free market economic system'.

The EPRDF-led government, after taking on some soul-searching endevours, has made some policy and strategic decisions related to the type of economic line it wants to follow, after 1991. The main theme of the economic journey that the government took is to have a vibrant and robust market-oriented economic system.

To do this, fiscal and monetary policy of the state has been reshuffled in a way that achieves that same objective. Among fiscal and economic policies and strategies that a government took were devaluing the currency, liberalising the market, lifting custom duties and so on.

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Merger: A culprit Behind Uncompetitive markets?

In a business world, business persons boldly strive to get the patronage or custom of consumers to survive and amassed the hefty of benefit in the market. As the business environment exposed to stiff and harsh competition market actors conclude various types of arrangements or agreement to be successful in the market. Among those business arrangements which business persons routinely entered, merger is the one.

Merger is a business arrangement entered between two or more legally registered independent companies or business organizations and which helps those companies to establish another fused and combined company or business organization. In effect, one business company would be swallowed by another company hence rights and obligations of two or more independent companies or business organizations would be transferred to the newly merged company. 

Merger arrangement could be carried out in different forms. Generally, merger could be materialized between companies who may have different line of relationship or companies who does not have any line relationship, what so ever. For example merger arrangement can be carried out when companies which are on the same production line, which is called horizontal integration, can merged and establish the new companies or it may be materialized among companies who are on different production line, which is called vertical integration. These ways of merger arrangement is streamlined between companies who are producing substitute goods or among input producing and input demanding companies. Other form of merger arrangement can be materialized when companies which do not have any any relation, which is called conglomerate, merged.

Merger arrangements have some identifiable benefits. Companies who produce substitutable goods could merge to enhance their market power and in effect could help merged company to decrease the production costs and realize the economy of scale. Hence, one of the benefits of competition,  which is called production efficiency, could easily be realized. Secondly, merger arrangement between input producing and output producing also enhances the merged company to carry out its production activity in a seamless way.

 

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Regional Market Under Siege

It is generally agreed amongst the international community, at least in principle, that liberalization of trade and allowing the free movement of goods, services and people, among countries that share common geographic boundaries and states situated at different poles of the earth, is a must.

In order to make the liberalization of trade a reality and to ensure the free flow of goods and services, states initiate various types of structures. The Common Market for Eastern & Southern Africa (COMESA) is Africa's largest economic community. COMESA was established by a treaty agreed in 1993 by 15 east and southern African states. Before this, some east and southern African states had tried to develop other structures. These include the sub-regional Preferential Trade Area (PTA) in 1978 and later the establishment of a Preferential Trade Area for Eastern & Southern Africa, in 1981. The latter became a stepping stone for the inauguration of COMESA.

This economic community embraces states with very differing economic, political and social experiences and legacies. Countries ranging from those with a large population size, such as Ethiopia, to countries with very small number of people, like Swaziland or Lesotho, are all members of this block.

Moreover, this block encompasses countries colonized by various European powers, such as Great Britain and France. This continues to test the vitality and stamina of African states to establish structures able enough to quench the interest of African minds and hearts. Hence, the difference of interests among member states of the common market makes the forum special.

Of course, the block is vital, in that its success or failure would help to test the capacity of African states to establish alliances ready to accommodate the differing interests of various states.

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The Invisible Hand - Why Ethiopia Needs Anti-Unfair Competition

The Wednesday’s news report, on Reporter News Paper Amharic version, about insurance companies restricting the commission paid to insurance agents is a dreadful, despicable thing. It shows what happens once a government fails to effectively and successfully to restrain firms.

I deliberately make this short essay provocative. I want the concerned parties to sit down and devise a long term plan to regulate unfair competition. Silence from all governmental bodies has a dire consequence in the future; everybody must be wary of its outcome: paralyzing the economy, huge amount of public and private corruption, suffocating entrepreneurs and new entrants, and creates unaccountable, strange and ill-transparent but powerful corporations.

Everything will be made behind the curtain and under the table. Invisible hands, to use the terms of Adam Smith, will pop out from every angle. Then, what is left for you and me? Nothing! We will be an escape goat to greedy people. The ambition to create a multi-cultural, consumer, middle income society will be like chasing a flying bird or following a wind.    

My readers should not be carried away by my sentiments. They must give me a chance to explain. However, I am always open for rebuttal. Firstly, competition law aims to eradicate abuse of dominant position, get rid of collusion/cartels, eliminates concentration of undertaking/mergers (modern competition laws intend to remove state aid and administrative monopolies.)

Fundamentally, competition law proposes fair society. Competition laws watches over economic efficiency and consumer welfare. For example, Article 1 of Chinese Anti-Monopoly law states:

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