The role of competition protection policy and the issue of current inflation

For a systemic solution to the problem of high inflation, it is necessary that all relevant state institutions in the system consider how they can contribute to market stabilization and establish adequate measures that will result in lower prices, especially in the food and beverage sector

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Disclaimer: The translations are mostly done through AI translator and might not be 100% accurate
Photo: Shutterstock
Photo: Shutterstock

The economy of Montenegro is small, open and based on services. Which has advantages but also disadvantages, especially in situations of global disturbances in the economy. Since 1990, a very important orientation of Montenegro has been the creation of a market economy, which in theory and practice has proven to be the best model of the economy in terms of economic development, increasing productivity and competitiveness.

During the economic transformation following the country's independence in 2006 and the consequent start of EU accession negotiations, gross domestic product (GDP) per capita more than doubled, from 3.443 in 2006 to 9.598 euros in 2022. However, during this period, the economy experienced significant episodes of boom and bust, particularly adverse developments in 2020 when pandemic slowdowns deeply affected business and employment and after the start of the conflict in Ukraine.

In line with its commitment to a market economy and membership in the European Union, Montenegro has developed competition legislation and policies to ensure that businesses can compete freely, which benefits consumers by providing them with more choice and better prices. Since 2006, Montenegro has gone through a significant transition in the field of competition protection and achieved significant progress in this area.

In order to fully understand the policy of competition protection, it is necessary to distinguish between the terms competitiveness and competition. When defining competitiveness, it is very important to determine whether that competitiveness refers to an individual company, a certain economic branch, a region or the entire economy of a certain country. Competition on the market exists when there are two or more economic entities that fight each other for the largest placement of their products, whether it is a price or quantity fight. That kind of struggle creates competitive pressure that boosts the economic efficiency of market participants. Competitive pressure is the main driver of economic progress, and therefore, where there is strong competition, there is also a strong economy.

The goal of competition protection legislation and policy is to promote economic efficiency and fairness by regulating the behavior of business entities on the market. This includes the prohibition of anti-competitive practices such as prohibited agreements, abuse of dominant market positions and mergers or concentrations that could lead to the reduction and restriction of competition. Also, opening the market and establishing opportunities for free market entry are vital for the sustainable economic development of the country.

However, as in any country, there are challenges that need to be overcome in order to ensure effective protection of competition and support sustainable economic development. The competition policy was established and the Government of Montenegro adopted economic policies that improve competition on local and national markets.

Global negative trends since the outbreak of the conflict in Ukraine, the unstable situation in the Middle East and other events had a negative impact on the economy of Montenegro. In particular, these disturbances had an impact on inflation and the standard of living. The rise in prices, both locally and globally, is caused by an increase in demand and a decrease in supply. Global events, the corona virus pandemic and the war in Ukraine, caused a huge energy and commodity crisis. Almost every country, rich and poor, is affected. Less strong and import-dependent economies, including Montenegro, received the strongest blows. The price of oil has increased by 21% since the start of the Russian-Ukrainian war. Grain prices skyrocketed as the war disrupted harvests and exports from Russia and Ukraine.

When it comes to factors and goods that influence the increased rate of inflation, we can talk about the following:

1. Disruption in the market of oil and its derivatives;

2. Other primary products and industrial raw materials. Their prices also recorded growth at the global level, parallel to the recovery of economic activities. This leads to a halt in production and supply, so the supply cannot meet the sudden increase in demand, which is confirmed by the prices of cereals, oil and other agricultural products;

3. The increase in the prices of unprocessed food (fruit, vegetables and meat) accounts for almost one quarter of the total inflation, and if we add the prices of processed food to that, food prices account for over one third of the year-on-year inflation;

4. The increase in inflation was also influenced by the increase in the costs of domestic food production, which are predominantly caused by the increase in import prices;

5. A large number of foreigners in Montenegro spend a lot of money on food, but also on apartments and other leases. So there is a high demand for many products;

6. Economic model. Low share of industrial production in GDP.

What can be done?

1. We must turn to our resources and our agriculture, tourism and work to increase the employment rate.

2. It is necessary to change the economic model in terms of greater self-sufficiency.

3. Government measures: social programs and work strategically on the measures listed under 1 and 2.

4. Instead of egoism in the behavior of trade chains, appeal to altruism.

High inflation in the food and beverage sector in Montenegro has affected most layers of the population. The question of the ethics of large wholesale and retail companies in Montenegro is increasingly being raised. The official financial statements of large retail chains show that the global turbulence did not affect the decrease in the profits of these companies, but on the contrary. Also, their margins did not fall, but grew.

The role of the Agency for the Protection of Competition

It is important to create a clear picture of the possibilities and competences in which the Agency can act when it comes to inflation, without going beyond the framework defined by the regulations governing the field of competition protection. The agency is not a sectoral regulator and cannot influence the formation and level of prices. What the Agency can do is analyze whether the price increase is the result of a prohibited or restrictive agreement between participants in a certain market. This means determining whether the companies entered into an agreement that has as its goal or effect an increase in prices, and ultimately, the maximization of their profits. Namely, all agreements by which competitors directly or indirectly determine sales prices or other terms of trade are considered cartels, which are prohibited by law. Hypothetically, if the existence of such an agreement is established on any market, the Agency conducts an investigation with the aim of establishing its existence and taking measures to eliminate the harmful consequences of such behavior of competitors for other market participants and consumers.

For a systemic solution to the problem of high inflation, it is necessary that all relevant state institutions in the system, from their respective angles and responsibilities, look at how they can contribute to the stabilization of the market and ultimately establish adequate measures that will result in lower prices, especially in the food and beverage sector. And trade chains and other economic entities in conditions of market instability to show ethical behavior and understand that it is necessary to show altruism and that it is good for both them and for consumers, because if we do not deal with high inflation, there will be greater market disturbances, decline standard of living and economic crisis.

The author is the director of the Agency for the Protection of Competition

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(Opinions and views published in the "Columns" section are not necessarily the views of the "Vijesti" editorial office.)