Fostering Product Market Competition

As outlined in the 2003 Economic Survey, pro-competitive regulation of product markets can contribute to improving productivity performance, in part through stimulating innovation (see Chapter 5). Recent empirical evidence also shows that a regulatory stance conducive to product market competition increases investment, as producers in competitive markets have stronger incentives to expand production capacity when product demand increases.93 Competitive product markets, by reducing monopoly rents, also encourage wage moderation, especially in countries with unionised wage bargaining, such as Germany. The government has embarked on a number of reforms since the previous Economic Survey, notably in the handicrafts sector, which move the economy towards a more pro-competitive stance. However, scope for improvement remains. In the network ...