Basmati Rice And Divirticulits

VAT Court Competition: When institutions function

( Published in Journal Strategy March 14, 2008 )

Recently, the public learned of the decision of Falabella and D & S for not following the courts to reverse the decision of the Court of Defense of Free competition, which last January, did not accept the request submitted in June 2007 by the controlling shareholders of both companies. The rejection was based on that the operation would create a company -read-dominant monopoly in the retail, department stores, supermarkets, real estate and financial business partner. That is, they produce a substantial and lasting competitive conditions in a very important market for Chilean, with adverse effects on welfare in the price, quantity and quality of traded products.

Of course, not surprising, given the lukewarm attitude of the overwhelming arguments to hand over the Tribunal, the National Economic Prosecutor, who, while recognizing the legitimacy and substance of the issues raised by the Court, at the time chose not to reject the merger because, although identified serious risks to competition, proposed mitigation measures if such merger is accepted. The contradictory behavior that shows the Prosecutor, recommending to the same arguments that it was possible to merge, given the difficulties that exist in Chile for such important institutions, to prevent the creation of monopoly markets, to fulfill her role pressure or undue influence of economic power.

On the other hand, is funny and annoying at the same time, the argument advanced by the controllers of these companies, in that this merger will allow for economies of scale that would facilitate international competition, ie have reasons of efficiency. This argument about reinventing the economic theory of monopolistic market structures, as it seeks to convince us that the formation of monopolies lowering market prices and an increase of social welfare. Monopolies have the power to effectively lower their costs, especially when in the case of retailing in Chile, are both monopsony, that is, are major powers on the side of demand for raw materials and supplies. But rather than written and theorized that these cost reductions only increase their profits and are unlikely to benefit consumers. Marcel

claude, Economist.