The Correlation between Innovation, Competition, and Regulation - Literature review Example

Competition, Innovation and Regulation Name Professor Institution Course Date Competition, Innovation and Regulation The correlation between innovation, competition and regulation has over the years been researched in an endeavor to comprehend and analyze their impact on the growth and wealth of the nations (Bento 2013).  The study of relationship between the three factors has been prompted by increase in globalization and international trade. Ghani (2011, p.2) stated that trade liberalization and globalization has seen more companies across borders to invest in new markets, win more customers and increase shareholders’ return. Despite of being a good thing to companies, it has also its shortcoming which is high competition. Ghani (2011, p.5) argued that increased competition is threat to fair practices because companies can every means to win customers from other market players. As a result, young companies may not grow and customers may be treated unhealthy products. The negative impact of competition has been detected by countries as companies infiltrate their markets with surplus products. Australia is one the countries which enacted competition law to penalise a company which had abused its market power with "intent" or “purpose” of limiting competition (Australian Competition Law 2016). However, Livingstone (2016) claimed that the law was not strong enough to control competition, making the federal government to alter Section 46 which could prosecute companies if their conducts or operations have the "effect" or impact of reducing competition, even when they have no “ intent’, and had no relation with the market power. Observers have however, faulted the law especially on companies which genuinely use product innovation for competition (Livingstone 2016). Therefore, this essay will describe and analyse how competition, regulation and innovation has been discussed in Catherine Livingstone’s article “Effects Test Change Will Stifle Competition”. In business, competition is defined as the act by which different companies or businesses supply their services or products to market in order to win the same customers (Merriam-Webster Dictionary 2016). Companies often compete in terms of product features, price, place and promotion. In reality, numerous businesses compete on the marketing mix with the aim of outdoing their rivals in the market, but also satisfying customers’ value proposition (Johnson & Richard 2010, p.33). In most cases, companies use economy pricing where they lower their prices to attract customers. In the years in the business development, the market had few firms which genuinely compete for customers. However, with increase of businesses, Australia has witnessed an increase of several companies which compete for the same customers. The situation was even made worse when Australia adopted trade liberalization. Ghani (2011, p.7) opined that that International companies have since flocked Australian market, and are offering similar products and service to those of local companies. Bento (2013, p.7) contended that while competition is not wholesomely bad it enable the firms to innovate and customer also benefit from high quality products, some firms may use some unfair practices to outdo each other in the market. In some cases, companies compete for a place; strategic distribution centres where their customers can easily access their product or service better than that of their competitor (Bento 2013, p.23). In addition, businesses or companies compete on promotion. Johnson & Richard (2010, p.16) posited that the effectiveness of advertisement is a key factor to gaining customer more than the competitor. However, there are sometimes where companies have gone overboard and use advertisements, which violate the value and ethics of the society. This is where government agencies have come in to regulate what should be communicated to consumers. Also, companies compete on product features. The product features include content and packaging. Johnson and Richard (2010, p.43) asserted that businesses use different colour, ingredients and general package to attract customers. However, with increase of competition in the market companies now innovate to make their products more unique to attract more customers. Competition has played big part in the economic growth of Australia. The competition in Australia market has made the companies to expand and increase the employment rates (Ghani 2011, p.12). Similarly, Australians now have quality of product and service in plenty to choose from. However, market competition has have its shortcoming at it harms most Australia businesses especially the young companies. Australian Competition Law (2016) pointed out that competition has seen some companies collude to fix market prices. In addition, some businesses have been misusing their powers to lessen competition. Lacking competition law also saw some company entering anti-competitive agreement which automatically locks some companies out of fair competition (Australian Competition Law 2016). One of the anti-competitive agreements is where one company gives something maybe a bribe to get tenders from another company. In addition, some companies have the tendency of acquiring or merging with the competitor to lessen competition in the industry. Also, when competitions are not there, cartels conduct like hoarding or hiking the prices can strongly affect competition. A business can also use its power to prevent another business from entering the market so as to avoid competition (Australian Competition Law 2016). For instance, ACCC conducted a research and published a report in 2008 on the competitiveness of groceries and strong implicated Woolworths and Coles in barrier to entry practices (Ausfoodnews 2009). The report actually noted that these two supermarkets had taken part in intentional strategies created to make sure they preserve restricted access to various prime sites like the shopping centres, which they fit for their future expansion to put off managers leasing out space to the competing companies majorly supermarkets. However, Ausfoodnews (2009) stated that the Australian Competition and Consumer Commission reached agreement with Woolworths and Coles to cancel their preventive lease agreements to allow for fair competition. A research by the government of Australia resolved that a free market business is left to determine how to operate would create unfairness to other business and could also hurt customers in terms of prices (Stucke, 2013, p.167). For instance, in an industry with a monopoly, one company can decided hike price in the quest to increase its profits. However, due to the fact that the industry has no better alternative, customers will still buy even if they are economically suffering. To mitigate such practices, Australia government passed competition law to regulate the industry and enable companies to conduct their business in fair and just manner. Particularly, of main interest has been misuse of power by business to avoid competition (Stucke 2013, p.168). The debate on misuse of power exposed the weakness of the law, prompting the federal government to alter Section 46 which could prosecute companies if their conducts or operations have the "effect" or impact of reducing competition, even when they have no “ intent’, and had no relation with the market power. Despite the change, the law on competition still has some shortcoming. Livingstone (2016) stated that one of such shortcoming is how to determine companies which innovate had the intention to use their powers to lessen completion. Two, why the law assumes that company with no market power can engage in anti-competitive conduct (Sims 2016). In standard perspective, innovation is described as a new idea, concept or new product (Crossan and Apaydin, 2010, p.1157; Lewrick et al. 2010, p.4). On the other hand, some research argued that innovation implies to development, embracing and using of the value-added actions in social and economic areas. Innovation can be a process or an outcome. Meaning, a new idea or concept can also be called an innovation (Crossan and Apaydin, 2010, p.1158). Innovation is a key aspect for growth and competitiveness. In the era of competition, company especially the established one now prefers to innovate to remain competitive. Innovation can be done by mean of creating new products, improving existing products, and even lower prices. The company can decide to lower their prices when production cost is lower. However, the new changes in law run counter the competition’s principle and innovative business can run into problem with Australian Competition and Consumer commission for engaging in act of innovation (Livingstone 2016). From this perspective the amendment of section 46 of competition law is viewed less efficient and reduces the competitive nature of innovative businesses. In a competition, there are often companies which conduct their business on ethical and in a fair manner and those that do not. In most cases, companies which good intentions cannot envisage whether their action might make less effective competitor shut down her business (Livingstone 2016). However, company’s innovation can now be taken to court if the commission thinks that company had “intent” with its action to less competition. Taking a company into court for innovation in relation with “intent” to prevent competition has two consequences. One, a company which is taken into court for illegal practices will likely have a bad image and could lead to boycott from customers whether the company wins or found guilty. Two, it will discourage the company and others in conducting innovation. Innovation is always a risk a business take and it incurs much money to develop new products, hence taking them to court for the new process is an added risk. Livingstone (2016) argued that companies will evaluate whether the innovation has significant returns provided that one can now easily be taken to court for the same. More studies claim that business is likely to resolve not to innovate and it might just lower economic growth that has been witnessed in Australia in the recent years. However, some writers like Walker and Featherston (2014) argued that through jurisprudence, one can easily know companies which genuinely engage in innovation and which do not. In fact, the federal government through Professor Ian Harper reviewed the section to include the degree to which the action of a business such innovation has a purpose or effect of raising competition within the market. In this context, innovation has been covered (Australian Competition Law 2016). However, the law has conspicuously assumed that company with no market power can engage in anti-competitive conduct (Sims 2016). However, in the market, even the small companies are in competition and are fighting to be recognized. To rise to the top, they can also use their “small” powers most if their owners are wealthy and influential to lessen competition (Bento 2013, p.43). For instance, a small company which is thought not to powerful can make computer application which captures consumer personal data like name, age and email address among other. The process is unfair because the company tries to get more customers through the wrong way. Similarly, Bento (2013, p.43) claimed the small companies deemed not to be powerful through collusion with established companies strike a deal which will lessen competition in the market. In conclusion, competition is always healthy for companies and economies which want to grow. Competition is good for the company because they ensure it maintains innovation, it produces quality products and services, it achieves great productivity and efficiency and companies attain stronger democracy. On the other hand, customer benefits from quality products, varieties of products to choose from and low cost hence the can save. However, most business have ignored the virtue of the competition hence it is in the best interest of a country to protect other companies and customers from unfair competition. Therefore, Australia must always review its competition laws to ensure they promote the common good competition and growth. Nevertheless, pertinent issues in competition which kills the spirit of growth such as innovation and influence f the small companies must also be put into consideration. References Australian Competition Law 2016, Section 46: Misuse of market power, Viewed 20th May 2016 from http://www.australiancompetitionlaw.org/legislation/provisions/2010cca46.html Ausfoodnews 2009, Woolworths and Coles agree to get rid of restrictive leases, Viewed 20th May 2016 from http://www.ausfoodnews.com.au/2009/09/18/woolworths-and-coles-agree-to-get-rid-of-restrictive-leases.html Bento, P 2013, Competition, Innovation, And Regulation: Accounting For Productivity Differences, University of Toronto, pp.1-64. Crossan, M.M & Apaydin, M2010, A multi-dimensional framework of organizational innovation: a systematic review of the literature, Journal of Management Studies, Vol. 47 No. 6, pp. 1154-1191. Ghani, G.M 2011, The Impact of Trade Liberation on the Economic Performance of OIC Member Countries, Journal of Economic Cooperation and development, Vol.32, No.1, pp.1-18. Johnson, G & Richard, W 2010, Competitive Strategy – Techniques for Analyzing Industries and Competitors, 3rd ed, Prentice Hall, London. Lewrick, M, Omar, M, Raeside, R & Sailer, K 2010, Education for entrepreneurship and innovation: management capabilities for sustainable growth and success, World Journal of Entrepreneurship, Management and Sustainable Development, Vol.6 No.1, pp. 1-18. Livingstone, C 2016, C Effects Test Change Will Stifle Competition, The Australian Financial Review, Viewed 20th May 2016 from http://www.afr.com/opinion/effects-test-change-will-stifle-competition-20160320-gnml2s Merriam-Webster Dictionary 2016, Competition, http://www.merriam- Viewed 20th May 2016 from webster.com/dictionary/competition Sims, R 2016, A new section 46 will boost competition – not kill it, The Australian Financial, Viewed 20th May 2016 from http://www.afr.com/news/policy/a-new-section-46-will-boost-competition--not-kill-it-20160321-gnnawe Stucke, M.E 2013, Is competition always good? Journal of Antitrust Enforcement, Vol. 1, No.1, pp. 162–197. Walker, J & Featherston, R 2014, ACCC’s section 46 change is not anti-competitive, The Australian Financial, Viewed 20th May 2016 from http://www.afr.com/opinion/our-writers/acccs-section-46change-is-not-anticompetitive-20140813-j82qv Read More