The Americas
Competition in Chile
The shine comes off
Feb 2nd 2012, 14:02 by G.L. | SANTIAGO
CHILE likes to see itself as a model of free-market efficiency in a region hamstrung by protectionism and collusion. That makes a ruling on January 31st by the country’s anti-trust regulator particularly embarrassing. After a three-year investigation, the regulator concluded that the pharmacy sector, supposedly a free market, was nothing of the sort. For four months from December 2007 to March 2008 (and perhaps for years before that) Chile’s three big pharmacy chains, which between them control 90% of the market, fixed the prices of 222 medicines, the regulator found. They included treatments for serious chronic diseases like epilepsy and diabetes. On average, the price of the drugs rose by 48% during the four-month period, while the cost of manufacture rose by just 1%. Some of the medicines tripled in price.
The regulator fined two of the companies, Cruz Verde and Salcobrand, $19m each, the heaviest penalties it’s ever imposed for price-fixing. The firms deny any wrongdoing and will appeal. The third company, Farmacias Ahumada, accepted a $1m fine in 2009 after turning whistleblower and providing evidence to damn its rivals. The companies are now likely to face a barrage of compensation suits from angry customers claiming, quite rightly, that they were overcharged for everything from anti-depressants to contraceptives.
Apologists may try to paint this as a one-off case, but that seems unlikely. In December state prosecutors asked the regulator to investigate alleged collusion between the country’s three biggest poultry producers, Agrosuper, Ariztía and Don Pollo, which breed 93% of the chickens eaten in Chile. The prosecutors say the companies agreed on quotas, deciding how much meat they would each supply to market. The companies deny the charges. And Three weeks after the alleged “chicken scandal” came to light, the regulator fined four bus companies for price-fixing. Others were accused of colluding to prevent new operators entering the market.
The government welcomed the antitrust ruling, saying it was proof the regulator was doing its job. “The social market economy that we’re building only makes sense…if the sacred rights of the consumer are respected,” said Sebastián Piñera, the president. But the proliferation of such cases will probably erode confidence in the private sector. Most Chileans take medicine, eat chicken and travel by bus. They can surely be forgiven for wondering if they’re being ripped off every time they do so.
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Chile is a great and admirable country. But many in the neo-classical school have used it to show their policies work. the facts are that most of the things that worked and actually made chile the success it is happened when the state intervened, either as a regulator, a stimulator or expressly as an actor. This story highlights what happens when the state does not do its job properly. Private business does what it knowsd best, ie. maximize its profits at the expense of others.
Looks like the regulatory agencies are finally starting to do their goddamn job. I find it hilarious that all of this is happening under a "pro business" right-wing government while market collusion went unhindered and unnoticed for 20 years of centre-left government. So much for stereotypes.
I dont see what is the relation between the success of the antitrust regulators (FNE and TDLC)with any antitrust policy made by this government. This is way far from being an achievement of Piñera's presidential period. On the contrary, dont forget what Longueira (minister of economy) did with the fishing quotas, openly inviting the industry to collude...that was a hard slap in the face for the antitrust agencies!
http://w2.df.cl/la-mejor-captura-pesquera-el-estado/prontus_df/2011-11-1...
Good for Chile. They are fixing and punishing the wrondoings of these companies.
Isn't this just the tip of the iceberg? Chile's regulatory system has only been patched and fixed without been updated correctly. Anti Trust issues, badly issued banking licenses to retail firms ripping off consumers (refer to the latest La Polar scandal), more than one stock exchange for a small market where equity of the exchanges goes against market principles by being private, financial regulators not coordinating their work with patchy arrangements, poor implementation of Anti Money Laundering standards below of what is required to be a full FATF member (whereby the local FIU is a mere information collector with not great performance, and where no all proceeds of crime are classed as money laundering), etc. Chile's regulatory system has failed to deliver what Chile needed in the last 15 years -and this is by no means political criticism, but technical one - where if Chile is going to deliver, then changes need to be made.
all market economies face challenges, the chilean government seems to be doing its part to minimize these types of problems.
While the article attempted to show Chile in a bad light, it pretty much did the exact opposite.
The article is in no way trying to do that. All economies have market failures. It is a fact that Chile has more than most due to a history of nepotism during the dictatorship and an inherited colonial social structure. Calm that nationalism down.
As a center-left Chilean, I recognize that the Chilean system has many faults, several originating in the dictatorship, but "history of nepotism" simply does not describe the Pinochet regime. If anything, its startling how little nepotism took place (although Pinochet did steal several million dollars, there was never a hoarding of government jobs for his family or anything like that). And while the "inherited colonial social structure" does cause problems, it is decidedly less than in other parts of Latin America. We should not simplify the country's problems to the dictatorship or the colonial past.
Diego
I have lived in Chile for over 30 years and as such seen the governments of Pinochet and the 20 years of the left. Every time anyone in Chile discovers corruption or whatever people rush to blame Pinochet and conveniently forget the 20 years that the left wing coalition had to fix things, Pinochet left at the end of the 80's and new governments get a one or at most two year honeymoon. It would be just as fair to say that the civilian government inherited a future full of economic promise and that despite their attempts to discredit Pinochet by destroying it Chile is still in the overall OK.
Which is not to say that Pinochet was a brilliant economist or wise statesman. The crisis in 1983 was almost entirely manufactured by the Dictatorship's naive monetarism. I'll concede that in the following period, the government showed remarkable growth and is partially responsible for the "Chilean miracle".
In my opinion, there are two cardinal sins for the junta. First, it did nothing to break up Chile's extremely unequal distribution of wealth. In fact it aggravated it, which leads us to today's uncompetitive, incestuous business environment. The other is, of course, the wholesale murder and torture of political dissidents and innocent bystanders, poorly justified by the imaginary threat of a communist takeover.
Well at least their antitrust regulator is doing its job, price collusions are everywhere, the hard part is finding them....
One has to remember that in Argentina they speak Spanish, but culturally they are Italian.
Which is the relationship between the article and argentines being culturally similar to italians?
I dont understand your post.
he probably means that since argentinians are italians, they are naturally dishonest mafiosos. at least that's how some people in chile try to explain argentina's economic woe.
he probably means that since argentinians are italians, they are naturally dishonest mafiosos. at least that's how some people in chile try to explain argentina's economic woes.
Anyway, I still dont understand why a discussion of monopolistic sectors in Chile, directly leads to a comparison to Argentina's general economy (not how competition or antitrust regulation works in Argentina, that MAYBE could make more sense). Argentina's GDP could be falling 15%, and this would not be related to main discussion here.
Besides, if the comparison between argentines and italians you are saying is what he meant in his post, then that would not be a very clever comparison. Italy is less corrupt than Argentina, and they are all 100% italians.
It is nice to see Chile's economy going in the right direction here in contrast with its neighbour Argentina.
Are you sure Chile is going in the right direction?
Take a look at this:
http://ciperchile.cl/2011/06/06/%C2%BFen-que-pais-vivimos-los-chilenos
Elect someone who is willing to shake things up then! If the political class thinks it can't get punished, they will abuse the system.
Chile's right-wing, "pro-business" government is actually clamping down on corporate abuse not because they want to, but because they know that the electorate will punish them otherwise. Democracy only works when the electorate thinks, remembers, and is willing to work for a cause.