Economic Survey of France 2005: Product market competition and economic performance

 

The following OECD assessment and recommendations summarise Chapter 4 of the  Economic Survey of France 2005 published on 16 June 2005.

Why does competition matter?

Restrictions on competition, such as those found in France, not only reduce productivity growth but also hinder the development of employment. Productivity levels in terms of output per hour are high in France - they are probably higher than in the United States - but this has a lot to do with the fact that the labour market excludes many low-skilled people. Thus, despite a high ranking in terms of output per hour, GDP per capita is lower in France than in many other OECD countries. Reforms to increase competition through injecting some dynamism into some over-regulated areas would allow higher GDP per capita by increasing both productivity and employment.
The general legal framework for competition enforcement is good, and although there was a period in which it seemed that enforcement policy was not very active, this has improved since the late 1990s. Available indicators nevertheless point to relatively weak competitive pressures in a number of sectors, particularly in sheltered service industries. Reforms in product markets should give more weight to general consumer welfare rather than protecting some relatively small vocal special interest groups.

Changes in product market regulation(1)

1. Sorted by 2003 values. The scale of indicators is 0-6 from least to most restrictive.
2. EU 15 (simple average).
Source: OECD, PMR indicators.

In merger control and in the operation of competition enforcement policy, there is room for greater transparency. For merger control, France would do well to follow the example of most other OECD countries, which have given responsibility for control of implementation of merger policy to the competition authorities rather than the government. France splits competition enforcement activity between two institutions, the Conseil de la Concurrence and the DGCCRF (a directorate of the French Ministry of Economy, Finance and Industry); unusually, the latter combines competition enforcement with other kinds of market regulation and surveillance, including active enforcement of laws about unfair competition. The competition framework should be strengthened either by fully transferring competition enforcement, and the necessary resources, to the Conseil de la Concurrence, or by a clearer separation of these functions and associated resources from responsibility for other market surveillance within the Ministry of Finance.

How can competition law work better for consumers?

The law contains general provisions against unfair competition, including predatory pricing, but in the retail sector extra layers have been added which impose detailed price related regulation on some areas, preventing consumers from reaping the full benefits of competition among producers and adding to annual inflation. The government has submitted a proposal for redefining the definition of selling below cost to parliament. While this goes in the right directions, a more fundamental reform should abolish the prohibition on selling below cost and increase competition by refocusing policies towards measures focussed on preventing harm to consumers. Current legislation has its origin in a desire to regulate relations between producers and distributors and to protect small "traditional" retailers in town centres. If such protection is felt to be necessary it should be through general zoning laws (without the current arrangements in which the representatives of current traders have a direct voice in granting planning permission for large retail outlets), or through direct and transparent subsidies from local government, but not at the cost of restriction on retail competition. Other measures to strengthen competition would be to remove regulated monopolies and continue relaxing relatively strict television advertising rules.

The state retains quite large shareholdings in a number of companies. Continuing privatisation and "capital opening" is encouraging but the state still maintains its position as the dominant shareholder too often. As a consequence, competition is insufficient in many liberalised network industries because of the dominant position of publicly-owned companies. It is also important to improve corporate governance in public enterprises. "Capital opening" should be a prelude to full privatisation, not a means of raising capital to clean up the balance sheet or finance expansion. Sector regulators in these industries need to have sufficient powers and independence to secure non-discriminatory third party access to promote competition and consumer interests. Public service obligations were previously mostly undertaken by state-owned monopolies. As these market are being liberalised, new measures to secure such obligations are being implemented. To ensure effective competition policy must continue to see that these measures define these obligations as systematically and as clearly as possible and where possible subject them to public tender, taking into account all associated costs and benefits.

Many parts of the service sector are subject to specific regulations that have the effect of giving unnecessary protection from competition to existing service providers. For example, entry requirements to professions should be re examined, and those that do not focus directly on consumer protection should be removed. The practices of professions which are self-regulating should be subject to particular scrutiny. In France, as in many other European countries, services are fragmented and competition restricted by national regulations. Policy in this area should give more weight to the interests of consumers of services, recognising that excessive protection of national providers or professional interest groups generally reduces efficiency in the service sector and increases costs for the rest of the economy.

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A printer-friendly Policy Brief (pdf format) can also be downloaded. It contains the OECD assessment and recommendations, but not all of the charts included on the above pages.

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