As former Mexican President Benito Juárez wisely noted: “It does not dishonor a man to make mistakes. What dishonors is perseverance in error.”
When it comes to competition policy, the Investigative Authority (AI) of the Federal Competition Commission (Cofece) of Mexico should learn from the mistakes of the United States. With the greatest respect for its admirable mission, Cofece is following inconsistent theories that misinterpret the competitive landscape, that punish those companies that reward the loyalty of their customers, and that choose winners and losers in the market. If this approach prevails, Mexican consumers will be left with the bill at precisely an inopportune time for the Mexican economy, when inflation rates worry Mexican authorities and when the International Monetary Fund has reduced its economic growth forecast. Mexico by 2024.
The AI of Cofece has carried out an investigation on the “electronic commerce market”, in accordance with article 94 of the Federal Competition Law, which allows the agency to carry out market evaluations and impose corrective measures to eliminate barriers to the competition. In a recent report, the AI found that two companies, Amazon México and Mercado Libre, together, had a high share in this market. The report also identified several “barriers to entry,” including the use of loyalty program services that are not related to e-commerce transactions, such as streaming, for example, Amazon's Prime Video.
Unfortunately, Cofece's report relies on several analytical flaws that, in the past, were common within US competition agencies. First, there is the problem of market definition. The investigation treats these two companies as if they were a single company that does not compete with each other. Furthermore, it describes the market in a limited way. In terms of competition, there is no such thing as an “e-commerce market”: consumers buy goods and services online and in person. They compare prices and options, look for deals, and often prefer to see and try a product before buying it. By omitting brick-and-mortar stores in its market analysis, the research overlooks 88% of retail purchases made in brick-and-mortar stores, a fundamental mistake that dramatically overstates the market share of a few companies. Furthermore, the report's analysis excludes new market entrants, predominantly Asian, that are gaining significant market share. Such is the case of Shein and Temu, who represent more than a third of the shopping applications downloaded in Mexico last year.
Second, Cofece's AI treats loyalty programs as a competition problem, when in reality such programs often help consumers. For example, a restaurant may offer regular customers a “free” dessert every four meals. It is true that these programs can make it difficult for other competitors to attract customers from the companies that offer these programs. But from the point of view of consumers – who should also be the focal point of the competition agency – these programs offer more options and better prices. By condemning such programs, the report essentially discourages companies from trying to innovate and diversify their offerings in ways that provide more and better benefits and options to their customers.
Third, the proposed recommendation would amount to treating two companies differently than their competitors and other companies in the economy. For example, many companies use membership and loyalty programs to gain and retain customers, however, the result of the research proposes to restrict the use of such tools only to the two companies analyzed. By subjecting these companies to special and onerous rules, consumers could consequently be denied access to certain products. A sound competition policy should promote consumer interests and treat all competitors equally.
U.S. competition agencies have learned these lessons the hard way. Until the 1980s, the United States sought to restrict the ability of large companies to compete, lower prices, and bundle goods and services. Under this public policy, US competition agencies effectively picked winners and losers in the marketplace, often under political pressure and usually to the detriment of consumers, innovation, and growth.
However, in more recent decades (and until very recently), a bipartisan consensus emerged that competition law should promote consumer welfare in terms of price, quality, and other competitive factors, rather than protecting competitors. individual. This policy is based on using competitive forces to monitor the market, avoid choosing winners and losers, and act only to ensure that the competitive process benefits consumers, through objective metrics such as low prices, high production, quality products and innovation of new products.
Any regulation that incorporates multiple objectives, such as trying to help individual competitors, is very likely to lead to higher prices and a less dynamic and innovative economy, because the government would be mandated to pursue numerous, often contradictory, objectives to the detriment of the diffuse interests of consumers. Resulting in a regulatory system that picks winners and losers, punishes investment and innovation, and discourages companies from lowering prices.
It took the United States many years to learn these lessons, and as proof that bad ideas never really die, some American politicians are unfortunately trying to return to the mistakes of the past. Mexico can and must choose a different path: one that prioritizes growth, innovation and the consumer. Finally, that is the mission of Cofece.
Senior Vice President, International Regulatory Affairs and Antitrust, Center for Global Regulatory Cooperation, US Chamber of Commerce.
