Theory of Competition for Economic Policy

In Russia, there is already strong tradition to apply macroeconomic models and institutional analysis in order to assess the effects of recent and prospective reforms. One rarely applies microeconomic models for this objective, in spite of the fact that impact of prospective reforms on the incentives of market participants might be substantial. An article lists three examples of economic policy issues, where microeconomic analysis might explain important effects of reforms. These are price remedies for large exporting companies, alternative methods of tariff regulation and models of procurement, and liberalization of domestic natural gas market. In the first and the third case the rules that were designed to enhance consumer benefits and promote competition, paradoxically can support anticompetitive market strategies. In the second case, the intention to narrow the rules of procurement in favor of more competitive ones, is able to suppress the incentives to increase productivity that is the basis for competition.