Competition impacts of a government-funded investment by a State-Owned Enterprise (SOE), 2020
Link Economics and Castalia co-authored a report that analysed the impact on competition of an investment supported by the Government’s Covid Response and Relief Fund. The investment was in an asset for an SOE to use in a competitive market.
We examined the state of competition in the relevant markets and discussed the types of competitive advantage that SOEs can have as a result of government ownership, such as captive equity, reduced threat of bankruptcy, access to preferential credit, informational advantages, and direct and indirect subsidies. Our survey of economic literature indicated that SOEs have a greater ability to engage in anticompetitive conduct and have a stronger incentive to raise rivals’ costs than privately owned firms. The report highlighted that economic stimulus should be provided in a manner that minimizes distortions on competitive markets. Recommendations were made on how to level the playing field between the SOE and the privately-owned firm.
The report was provided to the Minister of Finance.