The State Incentives to Oligopoly in Face of Small and Medium-sized Enterprises in Latin America

Latin American economies rest on small businesses: according to data cited in the chapter, 99 percent of firms in the region are micro, small or medium-sized enterprises, and around half of them operate informally. Yet the markets in which they compete are increasingly dominated by a handful of conglomerates. This chapter, written for the CUTS International volume on competition and regulatory reform for the Sustainable Development Goals, argues that this concentration is not simply the spontaneous outcome of market forces. To a significant degree, it is encouraged by the State.

The argument identifies three policies that produce and sustain oligopoly in Brazil and across much of Latin America. The first is the theory of national champions, under which public investment (in Brazil, notably through BNDES loans since 2002) is used to turn large domestic firms into global competitors. The second is the indirect pressure governments exert on antitrust authorities to treat mergers leniently when they serve a political or economic agenda. The third is the absence, in merger review, of criteria grounded in social justice and human dignity, replaced by a narrowly economic notion of welfare. The result, in a formulation the chapter draws from the author’s earlier book, is a privatisation of the State itself.

The evidence comes from the three economies that lead the region’s outward investment. In Argentina, the competition authority authorised 94 percent of the 489 concentrations it analysed between 1999 and 2006 and denied less than one percent. In Brazil, a study of 19 sectors found 14 in which the four largest firms held more than 60 percent of the market, while CADE judged 192 mergers between January and July 2015 without blocking any. In Chile, three companies held 98.7 percent of the telecommunications market in 2013. Notification thresholds, the chapter also shows, are set so that only very large operations come under review at all.

The conclusion proposes three lines of action: stricter ex ante control of concentrations; the explicit incorporation of human rights and of the dignity of the human person into antitrust analysis, through proportional balancing; and support for small and medium-sized enterprises through information sharing by oligopolistic groups, supervised by the antitrust authority, to narrow the technological and logistical gap between them.

The chapter condenses, for an international audience, the thesis developed in the book O Oligopólio no Estado Brasileiro de Intervenção Necessária (2015). The national champions policy is examined in depth in Campeões nacionais: o BNDES e o mandamento constitucional do Estado brasileiro (2015), and the structural dynamics of oligopolistic markets in Reprodução e comoditização: dualidade no ambiente oligopolista (2016), both in Portuguese.