The benefits to consumers from competition

Today is the European Competition Day under the current Irish Presidency of the EU. I firmly believe that vigorous competition drives growth in the economy, innovation in business and value for consumers. This market process rewards firms offering lower prices, better quality, new products and wider choice. However, if competition goes unregulated restrictive practices may prevent competition, harm consumers and damage the economy as a whole, thus nullifying the benefits of a liberalised market.

The liberalisation process of the Maltese economy had to necessarily be accompanied by sector regulation not only to protect consumers but also to empower them to be able to stand up for their rights. Moreover, it was necessary to control the behaviour of companies wielding market power so as to facilitate small operators and also to avoid exclusionary and exploitative conduct detrimental to consumers.

The Competition Act of 1994, which regulates competition and provides for fair trading in Malta, was enacted on December 23, 1994 and came into force on February 1, 1995.

The introduction of a competition regime in Malta was part of a larger framework of action embarked upon by the government in the early 1990s. This was a period of liberalisation, redefinition of the economy and generation of new structures that would redefine the government's role in the economy from being prime actor to that of monitor and motivator.

As stated in the White Paper Fair Trading - The Next Step Forward, published in November 1993, liberalisation of trade was triggered off to create a modern system consistent with the European Union rules establishing a framework for effective competition in Malta. The Competition Act provides legal certainty to undertakings in Malta by defining the parameters within which they may lawfully conduct their business on the Maltese market and will guarantee business and consumers the benefits of competition.

Where competition is absent and freedom of choice cannot be exercised, consumer protection laws and remedies lose much of their value and significance. This objective has required the devising of formal rules and structures for identifying particular unfair and anti-competitive business practices which adversely affect the economic interests of consumers. Such anti-competitive practices may consist of cartels and other concerted practices between commercial undertakings and of the abuse of a dominant position in the market. However, given the circumstances prevailing at the time, traders in the Maltese market were granted adequate breathing space in order to adapt to the new conditions. This led to a gradual approach to the introduction of the necessary framework.

The most important regulations of the Competition Act, section 5 and 9, are based on articles 81 and 82 of the EC Treaty and on European jurisprudence. The provisions in section 5 prohibit practices that hinder fair competition. These practices for example occur when companies agree on a specific price or agree to share markets between them. As a result of these practices consumers are unable to take advantage of competition between suppliers to obtain competitive prices. Such practices are legally prohibited. However, an exemption is possible if the practice promotes economic progress and proves to be beneficial to consumers.

Section 9 of the Competition Act prohibits the abuse of a dominant position. Such abuse occurs if a dominant firm exploits its position to stifle competition like, for example, charging exorbitant prices, or else lowers the price of a specific product in order to keep competitors of this product out of the market.

A number of amendments were introduced to the Competition Act in 2000 to bring it in line with the acquis communautaire.

Another important development was the issue of the Regulation on the Control of Concentrations (Merger Regulations). These regulations strengthened Malta's anti-trust framework and empowered the Office for Fair Competition to stop transactions that substantially lessen competition in the market. Whilst certain mergers between firms can be beneficial to consumers by promoting efficiency and reducing unnecessary costs, on the other hand mergers between competitors can increase the firms' market power and allow them to raise prices to the detriment of consumers.

The direct protection of consumer interests and the promotion of fair competition among traders can be seen as two sides of the same coin, guaranteeing industrial efficiency, quality and multiplicity of choice of products and services, and optimum prices for the ultimate benefit of the consumer.

It is the aim of my ministry to promote an active competition policy by improving the regulatory framework, disseminating information to both traders and consumers. We will strive to ensure that consumers will effectively benefit from fair competition in the market and at the same time protect small undertakings from possible abuse by bigger players in the market thus enabling them to compete on a level playing field.

Moreover, with Malta's accession to the EU tomorrow, the Office for Fair Competition has been designated as the National Competition Authority.

Thus, I believe, Malta is set to play its part, small as it may be, to ensure strong competition in the internal market which is encouraged and protected by EU competition policy and regarded as instrumental in achieving the competitiveness objective of the European Union under the Lisbon Strategy. This is a widely accepted fact that competitiveness is achieved when there is competition.

Mr Galea is Minister of Competitiveness and Communications.