Economics Department

Economic Survey - Hungary 2004: Product market competition and economic performance

 

What are the strengths and weaknesses in competition legislation?

The examination of competition legislation and its enforcement in the special chapter of this Survey underscores that many features of this area of law and its application compare favourably with average OECD practice. Nevertheless, two areas of legislation are identified as requiring attention. First, individuals should be given the right to initiate actions in certain circumstances without having to go through the competition authority. This would avoid complications due to differences with European Union legislation and may also improve overall enforcement and reduce the workload of the competition authority. Second, introducing sanctions against individuals in hard-core cartel cases would likely improve the competition authority’s effectiveness in this area provided that any new sanctions do not interfere with the current framework of enforcement. Procedural and organisational changes, supported where necessary by legislative changes should be explored with a view to freeing resources and improving the competition authority’s ability to prioritise. In particular, the formation of a unit specialising in consumer fraud is recommended along with a number of reforms in procedures.

How intense is the level of competition?

While broad indicators do not suggest Hungary suffers from endemic monopoly and cartel problems, there are clearly some problems in specific sectors. Entry restrictions and price setting in professional services are particularly stringent and competition law should be given greater powers through reductions in the scope of overriding legislation. In retailing, the prohibition of sales below costs and credit rules for certain food products aimed at protecting producers, traditional wholesalers and small retailers should be removed. Overall, estimated productivity gains from pro-competitive regulatory reform could be considerable and more efforts should be made to reduce entry barriers and enhance competition in areas which are serving the domestic market and are lagging in productivity.

How to further develop competition in network industries?

Despite partial liberalisation further steps are necessary in developing competition in network industries. One problem is that the industry regulators do not have final authority in some key areas, a prime example being in the setting of retail household prices for gas and electricity where the government has the final word. These price controls should be phased out and prices allowed to reflect market rates. Welfare concerns about energy costs for low-income earners should be resolved by alternative means. A reduced role of government is also needed in the determination of access charges and in the independence of network operators. Dominance of markets by the incumbents needs to be tackled more vigorously in the gas and electricity sectors and long-term contracts in electricity markets need to be monitored.  Postal services are being liberalised in accordance with the European Union Directives in this area. Within this context, the authorities need to confront more rigorously the problem of over-staffing and non-viable rural post offices.

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The complete version of the OECD Economic Survey for Hungary is available from :

 

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