The Price of State Involvement

Organisational and procedural measures have been suggested that include appointing or creating a special authority to carry out the public pricing policy in the area of monopoly and non-monopoly types of activity. The legal base has also been provided for. For instance, discussions are being conducted about a new Federal Law “On pricing in the Russian Federation”. The need for this law is due to the fact that the current arrangement cannot sufficiently affect the behaviour of market entities with respect to pricing and, consequently, cannot prevent the anti-competitive practices of an unjustified increase in prices, which have lately become particularly frequent. For instance, a direct prohibition on establishing and maintaining a monopolistically high price, which is provided for in article 10(1)(1) of Federal Law No. 135-FZ “On protecting competition” dated 26 July 2006, as this type of behaviour constitutes an abuse by the entity of its dominant position.

Further to an expert review of this reform it may be concluded that these measures are not only ineffective, but may even be detrimental to the competitive ability of the national economy.

The contentious nature of this initiative is mostly due to the negative effects that may be caused by its implementation and by it being applied to economic relationships in the course of entrepreneurial activity: including the fall of supply on the market of goods (services), a reduction of investment activity and a return on investments. In addition, it has not been decided how the new pricing law will correlate with the current system of regulatory acts in the area of the state pricing policy in the context of legislation on natural monopolies, antimonopoly regulation, as well as pricing regulation of certain categories of socially significant goods of which the list is limited.

At the same time, the conceptual approaches do not give sufficient economic and legal grounds proving that the tools being discussed of control over prices on competitive markets will be effective, given the critical market situation in the country. In view of the above, we believe that it is pointless to introduce additional tools without being certain that it will not have an adverse effect on the already vulnerable system. Moreover, the issues of the reform of the pricing policy in the context of tariff regulation and gradual de-monopolisation of a number of industry sectors still have not been resolved. Until there is certainty in these aspects there is no reason to make new steps towards the improvement of the state pricing policy.

In the approaches that are being studied there are no detailed clarifications on how to introduce and implement measures aimed at creating conditions for a self-regulating market based on the rules of the state pricing policy. There are no particular areas of good practice where a price balance has been attained as a result of such tools being applied in foreign countries, so it is impossible to fully assess the prospects of a similar reform in the long term. The formation of prices on competitive markets can happen naturally and even spontaneously under the influence of external circumstances, which does not attest to the fact that any growth of prices in this situation will mean that companies are conducting business in bad faith and that such growth should be strictly repressed by establishing control over aspects of pricing.

In our opinion, the requirements contemplated by applicable law are in line with the current market rules and are sufficient for proper control over the formation of a pricing policy. It appears that the suggested measures will not help public bodies to react promptly to certain breaches connected with prices being overstated. Legislation in this area should remain flexible so that the interest of businesses is observed and there are no unjustified restrictions in entrepreneurial activity.

Source: Competition and Law