Competition law enforcement in informal markets in Latin America and the Caribbean

Executive summary

Informal markets account for a significant share of economic activity in Latin America and the Caribbean (LAC) and play an important role in shaping competitive dynamics across the region. Informality may affect competition where informal firms compete directly with formal firms, where rivalry takes place within informal markets, and where informal actors participate in vertical supply chains as suppliers, buyers or workers. For competition authorities, ignoring informal market activity can create a “blind spot” in competition analysis, particularly where informal players exert meaningful competitive pressure, influence market shares or affect entry conditions. At the same time, informality can distort competition where firms avoid regulatory, tax, labour or other compliance obligations, allowing them to compete on terms unrelated to efficiency or innovation.

This paper examines the specific challenges faced by competition authorities in LAC when enforcing competition law in markets affected by informality. It focusses on informal business activities that could potentially be formalised if the costs and benefits of informality were different, rather than activities that are illegal by nature. Building on previous OECD work and selected enforcement experiences from the region, the paper shows that informality is not only a social, fiscal or labour-market issue, but also a competition enforcement issue. Competition authorities increasingly need to determine when informal firms should be included in relevant markets, how informal actors affect market power, and how anticompetitive conduct can be investigated and sanctioned where firms lack formal registration or reliable records.

Recurring enforcement challenges in informal markets

First, informality may complicate the definition of relevant markets and the assessment of market power, particularly in merger review cases where informal suppliers may (or may not) constitute effective substitutes for formal firms. Experiences from Argentina, Brazil, Barbados, Paraguay and Peru show that authorities have taken different approaches depending on the characteristics of demand, supply and available evidence.

Second, investigations involving informal markets may face procedural obstacles, including difficulties in identifying market participants, serving process, locating legal representatives and ensuring due process.

Third, the collection of evidence can be more difficult where firms operate mainly through cash transactions, oral arrangements or informal associations, and where accounting records, invoices, contracts or professional communications are limited or absent.

Finally, the calculation and enforcement of fines also raise particular challenges in informal markets. Where undertakings lack legal personality, tax registration, reliable turnover data or identifiable assets, authorities may struggle to impose proportionate and deterrent sanctions. Enforcement experiences in Mexico, Colombia and Brazil illustrate how authorities have used proxies, public statistical information or alternative legal bases to address these constraints.

At the same time, informal actors are not always infringers. In some cases, they may be victims of anticompetitive conduct, particularly where fragmented informal suppliers face powerful formal purchasers. This issue is illustrated by a recent enforcement experience in Chile concerning buyer power in the king crab market, where informality increased the vulnerability of artisanal suppliers to alleged collusive conduct by formal buyers.

Practical tools for improving enforcement in informal markets

Despite these challenges, certain practical tools can help competition authorities improve enforcement in markets affected by informality:

• the use of official datasets, statistical proxies, market studies, digital evidence, field investigations and closer co-operation with tax authorities, statistical offices, licensing bodies and other public institutions that hold relevant information

• market studies and advocacy opinions can also help authorities identify regulatory barriers that unnecessarily increase the costs of formalisation, reduce market contestability or prevent smaller firms from growing into more effective competitors.

Experiences from Argentina, Chile, Paraguay, the Dominican Republic and Guatemala show that advocacy and institutional co-operation can complement enforcement by improving the evidence base and supporting broader policy reforms.

Competition authorities in LAC should be mindful of informal markets when enforcing competition law, while adopting interventions that are proportionate, pragmatic and targeted. Informality does not exempt market participants from competition law, but it requires authorities to adapt their analytical and procedural tools to the realities of markets where formal records, registration and institutional visibility may be limited. By better accounting for informal market dynamics, competition authorities can improve the accuracy of competition assessments, strengthen deterrence, protect vulnerable market participants and support better market functioning. Although competition authorities cannot address informality alone, they can contribute to the transition towards greater formalisation by promoting regulatory frameworks that reduce unnecessary barriers, foster competitive neutrality and allow firms to grow, innovate and compete more effectively.