Competitive Advantage and Competition Policy in Developing Countries
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Competitive Advantage and Competition Policy in Developing Countries

Edited by Paul Cook, Raul Fabella and Cassey Lee

The book discusses competition from different theoretical perspectives and examines the implications these viewpoints have for policy. The contributors assess competitiveness in domestic markets and the impact of foreign competition. They also review the experiences of a range of countries in developing competition policy and examine both the strengths and weaknesses of these policies.
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Chapter 15: Domestic Competition and Technological and Trade Competitiveness

Yuichiro Uchida and Paul Cook


* Yuichiro Uchida and Paul Cook INTRODUCTION In recent years both theoretical and empirical research has emphasized the productive and dynamic efficiency gains from competition (Baily and Gersbach, 1995; Nickell, 1996). Productive or technical efficiency is linked to productivity-enhancing innovations, which contribute to greater dynamic efficiency in the longer run. The role of competition in improving enterprise efficiency emanates through the incentives provided by the disciplining effect of market competition. This effect induces enterprises to introduce cost-reducing improvements in production and speed up innovation and technological progress. Competition also works through a process of selection, in which weaker enterprises give way or are replaced by more efficient ones, although the strength of competition between enterprises is not just a function of the behaviour between enterprises but also of the external environment in which they compete, the state of infrastructure, legal framework and the effectiveness of the financial system (Carlin and Seabright, 2001). In this dynamic setting, competition from new entrants in the market that experiment with new technologies become the driving force for innovation and in turn market incumbents are forced to innovate for their survival (Dasgupta and Stiglitz, 1980). It is argued that in industries characterized by rapid technological change, as, for example, in the telecommunications sector, competition for the market through standard-setting innovations is likely to be more significant than cost-reducing static efficiency (Ahn, 2002). The examination of the empirical link between competition and dynamic efficiency has tended...

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