Month: January 2016

The imprudent Evo Morales

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Evo Morales gave another unfortunate speech yesterday. According to this report from Los Tiempos, the Bolivian president called anybody using the telephone services provided by foreign companies in Bolivia, Tigo and Viva, “antipatriotas” (unpatriotic). He recommended that Bolivians use the services of Entel, the Bolivian public telecommunications company. Although this kind of ideas are too obviously absurd, let me just make three important points:

  1. The chauvinistic principle under which Evo’s argument rest is patriotism: the local or national always comes first. This principle is tremendously perverse and world’s history has shown how destructive it can be. There is absolutely no reason to favor local companies as a moral principle. Instead, the moral principle should be freedom: freedom to choose which company serves me better and freedom for foreign companies to compete on a level playing field (something that Bolivian companies also demand when they compete in foreign markets).
  2. Competition makes better companies. Entel benefits from the healthy competition with foreign companies and vice versa. The competitive pressure generates incentives for innovation, better customer service, etc. Blocking foreign companies with silly arguments like patriotism only generates inefficiency.
  3. As Los Tiempos also report, other public companies use the services of Tigo and Viva. Will Evo ask those public companies (like Papelbol) to cancel those service agreements. Why can’t the president exercise some prudence when he opens his mouth?

CBN sanctioned for anticompetitive behavior

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This is interesting. I just read in La Razon that Bolivia’s most important beer manufacturer, CBN, has been sanctioned by AEMP (the industry regulator in the country) for allegedly behaving in an “anticompetitive” manner. What was the sin committed? Apparently CBN priced their products below its competition (and supposedly below their own average cost) and used price discrimination for different geographical regions in Bolivia.

Why should CBN be sanctioned for charging less for their products? This is really weird. The idea, I suppose, is that by setting low prices, CBN can outcompete other beer manufacturers and potentially command a monopoly. If the prices set are below their own costs, regulators call it “dumping.” And this is seen as a terrible practice that distorts the competition in the market. I completely disagree. First, setting prices lower than the competition is what free market competition is all about. How you afford to set lower prices is completely up to your company and strategy. Second, if you set prices so low that you make a loss, how long can you sustain such strategy? Even if your bet pays off and your low prices outcompete everybody from the market only to be increased again once you are monopoly, how long can you sustain that monopoly? Wouldn’t the competitors you outcompeted (and new ones) be willing to re-enter the market once your prices are higher? In general, over time, dumping never pays off.

Regulators will never know better than the market what prices should be charged for a product.