Page 41 - Azerbaijan State University of Economics

THE ROLE OF COMPETITION ADVOCACY IN TRANSITION AND DEVELOPING ECONOMIES

Operation of local government authorities
In some emerging market economies, especially those in transition

from centrally planned economies, economic reforms result in ownership
by local governments of communal service facilities, such as water

supply services and public transport. A conflict of interest exists in this
situation, since the authorities are both the owners of these assets and the

representatives of citizens' interests. As the owner, the authority is
interested in the profitability of its business, which can be enhanced by

increases in prices and lessening of quality of services; but such actions

clearly may be contrary to the interests of the citizens whom the
authorities represent. In most countries (the countries of the former

Soviet Union are a notable exception) the competition authority cannot

legally intervene against local and national government authorities under
the competition law. Thus competition advocacy is the means by which

these anticompetitive practices are addressed.
In this situation the competition agency may recommend

privatization of the productive assets and the introduction of competition
wherever possible. If elements of natural monopoly exist, competition

can be introduced through competitive bidding for selection of the most

efficient service provider. In other situations public authorities may
interact with private enterprises. For example, public transport may be

provided both by the local authority and private enterprises. Competition
advocacy should attempt to ensure that there is no discrimination in

favor of the public authority in the granting of subsidies. When the
public authority is in control of an essential facility, competition advoca-

cy should attempt to prevent participation by the authority in potentially

competitive upstream or downstream markets. When such integration

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