Archive 2001

  • 24.12.2001

    Fostering Vertical Integration in Ukraine: Advantages and Dangers


    Competitive environment is an important factor of a sustainable economic growth. In countries like Ukraine the industrial structure had not undergone substantial changes before liberalization and privatization processes started. As a result, Ukraine initiated market reforms having serious structural problems in the manufacturing sector.

    Reducing horizontal and vertical dominance of incumbent firms in the industrial markets as well as reducing barriers to entry for new competitors remains an important issue of the competition policy in Ukraine. So far antitrust policy in Ukraine has been mainly focused on preventing and reducing horizontal integration among firms, while the problem of vertical integration has attracted less attention. In a transitional economy, weak institutional environment and soft budget constraints magnify firms’ incentives to integrate vertically, while potential negative effects of vertical integration on regulatory policy, privatization process and imposition of hard budget constraints are still in place.

    Taking into account that transitional countries in general, and CIS countries in particular, started their movement towards market economy with a heavy burden of vertical and horizontal dominance, which still remains high, the considerations of costs and dangers of vertical integration should gain a heavier weight in the discussions of the cases for potential mergers than the arguments in its favor. New vertical mergers in the industries with a high level of market concentration should be considered with a special caution in order to prevent increase in structural dominance.

    Clear and comprehensive merger guidelines need to include the policy parameters (criteria) that distinguish between pro-competitive and anti-competitive mergers considering both horizontal and vertical structural dominance. It is highly recommended to use similar EU experience in preparation of such guidelines. The prospects of integration into EU make it reasonable to maximize the compliance of the Ukrainian merger guidelines with those of EU.

    A wide public access should be provided to merger guidelines. This will help to make competition policy more transparent, credible and predictable contributing to anti-corruption campaign at the same time.

    Research spheres:  Real sector
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