The literature on firm dynamics in different developing countries is not
conclusive, however research seems to converge in some areas. What is certainly
clear is that these markets have significant structural differences from each
other and especially from developed countries. Starting from the very first developmental
stage in countries with very low levels of GDP and very high barriers for
growth we consider the type of competition policy that may be appropriate in
relation to market structure. If it is indeed the case that these economies are
characterized by overly high levels of entry and of poor quality entry, such as
necessity entrepreneurs, followed by low levels of productivity and size
growth, we could conclude that the main goal of any policy should be to promote
growth of the motivated and somewhat innovative firms and deter low quality
entry to prevent distortions and too intense competition for resources in the
post-entry market. It is possible that agglomeration of the more productive
firms is desirable, which would indicate a very relaxed merger policy or even
the absence of one at least in markets with many small firms.

 

Secondly, we should consider the policy on collusion. Since resource
constraints are so large, the policy on horizontal coordination such as joint
marketing or research joint ventures should not be prohibited. Hard-core
cartels may also be a necessary evil. If competition for resources is extremely
high, it may be a better option for some firms to collude and use the higher
profits to push out the less efficient firms from the market and gain better
access to resources. It is unlikely that a certain type of competition policy
can have a positive effect on firm growth, since by its very nature antitrust
imposes prohibitions rather than compels action. It is, however, possible that
the wrong type of policy may be harmful to growth and market development.

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Unfortunately, that is a difficult question to answer, since we need examples
of competition policy being implemented in least developed countries and
considering that they have only recently adopted it and are not enforcing it
very effectively, these market structures exist in the absence of competition
policy. If we could conclude that cooperation is desirable competition policy
could only prevent it rather than encourage it.

 

A more difficult scenario is when many small firms and few large ones
characterize a market. Considering some evidence that large firms are more
productive, it may be that the existence of an abundance of small firms
prevents resources from being concentrated in the large firms and that large
firms face too much competition not in the sense that its market share is at
risk, but in that resources are not flowing to them. If large entrants are
indeed more productive and stagnate because of resource misallocation it may be
detrimental to prohibit them from accessing those resources in “uncompetitive”
ways. However, if the larger incumbents are not productive and are using their
market power to prevent resources from flowing to small productive firms then
it would be beneficial to stop them from doing so. 

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