The Redisrtibution of Market Power in Mexico

For much of its history, Mexico's markets have been the very opposite of competitive. In an attempt to solve the problem, past Mexican governments created the Federal Competition Commission (CFC). However, until just recently, the commission has little success in boosting competition, even failing to have a firms that controls90% of the landlines market as being dominant. So it is good to hear that, in addition to cracking down on drug cartels, the new Mexican government is working to make promoting competition more easy, and is showing signs of success in doing so.

The monopolies, oligopolies, and cartels are as harmful as they are blatant. As we've learned in class, the artificially high prices which firms with market power can secure themselves ultimately damage the economy by reducing the size of the economic "pie" by allowing firms to make more money by producing less goods, ultimately resulting in less overall economic activity. Whats more, in addition to reducing the size of Mexico's economic "pie", the presence of firms with excessive amounts of market power redistributes the remaining wealth in a highly unfavorable fashion. To quote the economist, "The poor are particularly hard hit: a recent study by Carlos Urzúa of the Technological Institute of Monterrey found that Mexico’s poorest families devote 7% of their spending to overcharging by firms with market power." Essentially, inequality is amplified, as the owners of monopolistic firms are able to pocket more money from consumers, while simultaneously having to produce fewer goods and therefore hire less employees.

There are numerous reasons why the CFC has had so little success in making markets competitive. Class action suits are illegal in Mexico, so bringing monopolistic firms to court is more difficult than it would otherwise be, and violators of anti-competition laws cannot be tried in courts. Moreover, the way that government agencies operate has invited price-fixing, as most government agencies must buy certain goods regardless of cost Finally, the maximum fine of $7 m for violators makes it potentially more profitable to violate competition laws even if the firms are caught doing so.

With this in mind (probably) the Mexican government has taken steps to make it easier for the CFC to enforce competition laws. The CFC can now force suspect to open their books (accounting books, that is) to CFC inspection. The government has promised immunity to whistle blowers, creating incentives for people to inform the government of competition law violations. And some government agencies have been allowed to bid online, making it harder for cartels to charge artificially high prices. The Mexican economy, correspondingly, is showing signs of increasingly competitive markets. The Mexican National Health Service has, in response to CFC recommendations, saved $3 billion in three years by switching to online bidding. Also, The CFC has openly accused a cartel of drug firms of rigging insulin prices for the National Health Service, a ruling that indicates a growing intolerance such blatant;y uncompetitive activities.

Hopefully, the push for more competitive market will continue in Mexico, as more competitive markets would represent clear advantages for the majority of Mexican society. Personally, I think that the Mexican government is moving in the right direction in trying to achieve this goal. What do you think? Is the Mexican government doing all that it can to make its markets more competitive? What else could it be doing? And should the Mexican government even be seeking the sort of competitive markets described in our textbook at all?