July 25, 2023

The dichotomy between competition and market dominance and its impact on consumers has long been a topic deserving of meticulous examination in Singapore. While competition is often deemed the ideal model for low prices and high-quality goods, the unique circumstances of a small market like Singapore call for a closer examination. Professor Sumit Agarwal (NUS Business and Economics) delves into this complex dilemma in his article ‘What’s best for S’pore consumers – competition or market dominance?’ (The Straits Times, July 2023).

The article argues that an oligopolistic market structure, characterized by a few dominant players, can offer advantages in sectors that involve significant infrastructure investment – such as public utilities. However, Prof. Agarwal highlights that these advantages are contingent on the presence of effective regulation to ensure consumers are protected.

Prof. Agarwal then expands on the limitations of an oligopoly. The absence of competition can breed price hikes and reduced service quality, negatively impacting consumers. The article cites examples such as cable television and the ride-sharing industry, where the lack of competition has led to escalated costs and limited choices, putting consumers at a disadvantage.

Conversely, a free market that encourages competition is a generally preferred model to protect consumer interests and promote innovation, affordability, and service quality. The article highlights the food delivery industry as an illustration of how competition can empower consumers by providing more choices and motivating companies to improve their services and enhance their offerings.

However, the article acknowledges that not all sectors require a competitive market structure. For one, Prof. Agarwal highlights that the consolidation of Singapore’s banking industry resulted in three strong local banks that were able to weather financial crises, which helped prevent dire financial consequences. Nevertheless, he also points out that certain charges, such as those for credit cards, remain high due to a lack of incentive for dominant players to lower them.

Drawing the conversation to a close, Prof. Agarwal underscores the paramount importance of regulatory frameworks to preserve consumer welfare, irrespective of market structures. He posits that these regulations create a level playing field, foster fair competition, and encourage new entrants to cater to consumer demands, which come together to bolster economic growth.

Read the article here.