Monopolies in Ukraine: is there any room for discussion in their favor?

30 03 2018

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Though they have been recently calling more and more for fighting monopolies, it is rather difficult to give clear answer to the question whether the monopoly is such evil as it is believed to be. Any business strives to make a unique product or use unique processes, that is, to have monopoly merely in view of the fundamental principles of the market economy. Moreover, some even think that it is the monopolies that are flagships leading the technological progress since, to preserve one's monopoly position and enjoy the benefits the monopoly offers, they usually must invest huge money in innovations and development of their products. Jean Tirole, who received the Nobel prize for his analysis of market power and regulation in 2014, says the same.

However, the monopolies in terms of the Ukrainian market development have their specifics, which are, as matter of fact, that most of Ukrainian monopolists were granted such a status due to transition from the administrative command economy and then being "successfully" supported by the government granting preferences and benefits and setting restrictions for the other market players at the same time; the latter did not survive and left the market. Among Ukrainian monopolies there are no our own Facebook, Google, Apple or Amazon, which are investing and innovating to keep their market power. Definitely, such an approach does not have and may not have any positive effects and instead leads to reducing the welfare of the entire society: a monopolist has no incentives to keep the production efficient. Moreover, such conditions give rise to abuse by monopolies usually manifesting themselves in overestimated prices to make more profits and having product of poor quality, while new players offering good quality products are squeezed out of the market.

It is the Antimonopoly Committee who is committed to fight such negative effects. The latter is not only to stop the abuse manifesting itself, but to take care that this will not occur in future by, among other things, controlling mergers of companies, market assets, incorporation of new companies, appointing persons to supervising and executive bodies, etc. According to the Committee, last year, 795 abuses of monopoly positions were abated and 11 cases on economic concentration were instituted under 666 applications filed for the concentration to prevent from monopolizing, but in all of such cases, the Committee issued the relevant permit for concentration. Last year's high-profile cases were the case against Tedis Ukraine (previously known as Megapolis Ukraine) and, of course, the case against Russian Gazprom relating to the transit of natural has by the main pipelines throughout Ukraine. In both cases, the mentioned entities were accused of abusing the monopoly position, one acting on the tobacco product distribution market and the other acting on the market for such services as natural gas transit by the main pipelines throughout Ukraine; in both cases, fines were record high.

It should, however, be understood that the Antimonopoly Committee is fighting only against the abuses of the “negative and artificial” form of monopolism we are observing today in Ukraine, while the introduction of a new competitive policy aimed at the demonopolization of the economy in its form existing today must become a priority task for the Sate as a whole.

Among others, a Ukraine’s new legal institution of government assistance monitoring and control can become an effective mechanism for maintaining a competitive balance. It is known that significant, if not all, subsidies, privileges, guarantees and other benefits of all kinds that are provided from the budgets of all levels are provided to state-owned monopoly companies. It is, however, obvious that in a market economy the status of state monopolies should not be supported only using state resources. From now on, if a governmental authority decides to support a particular enterprise, or industry, by granting benefits, writing off debts, or in any other similar manner, then such an initiative must be first agreed upon with the Antimonopoly Committee, which may find it inadmissible.

Thus, a fight of the Antimonopoly Committee against different aspects of abuse of market dominance, being a very logical effect of those economic model that has been formed for years or decades, is not enough. The introduction of the balanced export/import and effective tax policies, a flexible lending system, programs incentivizing the establishment of new enterprises and encouraging the enterprises operating in other industries to produce monopolized products – all of these must become an integral part of the reforms that are announced by the State for the fourth running year.

Published: Kyiv Post Legal Quarterly, 30 March 2018

Author: Anna Sisetska