Disruptive innovations and new business models: The role of competition policy advocacy

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Despite the persistent low-growth environment, the benefits of the digital era are within our grasp to help reignite the growth engine.

Digital trade is the fastest-growing component of trade, and 4.4 billion people globally are yet to come online. In the first quarter of 2015 and in major U.S. cities, an average of 46 percent of all total paid car rides were through Uber. In Kenya, the digital payment system creates additional income for more than 80,000 small business owners. The Chinese e-commerce sector has created 10 million jobs. The Internet of Things, self-driving cars and 3-D printing have now arrived as part of the so-called Fourth Industrial Revolution.
These benefits will materialize faster if competitive dynamics allow and drive innovation. Disruptive innovation has a great potential to shake up markets, increase productivity and bring benefits to consumers. And yet, if there are government-imposed rules that close markets and unjustifiably protect incumbents from such competing new solutions, these benefits do not materialize. Cities around the world have blocked Uber from offering services. The debate on President Obama’s Executive Order to boost competition has centered around a pending decision by the communications regulator on whether to open the market for TV cable set-top boxes to allow for competition.
Conscious of such challenges, forward-looking competition authorities around the world are advocating several measures that will allow consumers and businesses to benefit from disruptive innovations and new business models. A new World Bank Group publication on competition advocacy tools highlights examples of successful initiatives to promote pro-competitive regulatory reform in markets subject to disruptive innovations.

In Israel and South Africa, for example, authorities pro-actively assessed potential competition issues in specific banking and financial-services markets to understand the need for regulatory intervention and the potential benefits of easing restrictions. This brought to light the fact that certain upstream charges in payment systems needed to be regulated to open markets for final payment services to consumers and businesses. Israel’s advocacy for changes in the area of debit-card payments will help reduce inefficiencies in the payment market that cost the economy an estimated US$100 million a year.
Competition authorities are also actively shaping the design of regulatory policies for disruptive innovations. Two Mexican cities have already adopted regulations that allow Uber to operate – as a result of the advocacy opinion by its competition authority. Similar interventions have been spearheaded by the Brazilian competition authority. In Singapore, the competition authority pointed out the potential benefits for taxi drivers from linking taxi networks through third-party booking platforms, which convinced the transport authority to legalize those platforms.

Success in boosting competition depends more on how advocacy tools are used by competition authorities. Competition champions have promoted regulatory reform through clever strategies, even without binding opinions or the mandate to overrule existing regulations. Successful advocacy strategies measure the gains from competition, rely on long-term relationships with industry and regulators, use technological solutions to mobilize civil society, target narrow problems or align with political cycles and economic trends.
The gains from boosting competition that have already materialized are substantial. Changing the rules on how to allocate spectrum in Colombia allowed for one additional telecom operator and gave 22 percent more Colombians access to mobile internet.
Competition policy thus has a key role to play to allow all citizens to benefit from a more interconnected and a more digital world


Anabel Gonzalez

Consultant on Trade and Investment, World Bank

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