Fair and Efficient Markets Drive Prosperity for All - Professor Otlogetswe Totolo

The Vice Chancellor of Botswana International University of Science and Technology (BIUST), Professor Otlogetswe Totolo, says one way to drive prosperity for all is by ensuring that markets are functioning well as they should because it is in the market where business happens, jobs are created, and incomes and overall social welfare is improved. Delivering the keynote address at the National Competition Symposium on 10th April 2019, Professor Totolo said the Competition Policy which is implemented and enforced by the Competition Authority, as the regulator, clearly lays out government’s facilitative role and firm commitment to ensuring that competition is encouraged in markets to ensure efficiency that firms become competitive through the raising of productivity and that social welfare is increased. 

“Competition in business is the activity or condition of striving to gain or win something by overcoming or establishing superiority over others when it comes to the provision of a good or service. Firms compete for survival in the market place and hence, they are constantly looking for ways to outfox rival firms”, he said.  

Professor Totolo said markets that embody attributes of perfect competition, having: many buyers and sellers, free entry and exit, symmetric information and producing similar goods amongst others, are widely accepted as being ideal for society. “They are good for sellers because they produce a wide variety of quality goods and services as efficiently as possible (or at the lowest cost); and, they are good for buyers because they can purchase a wide variety of goods or services at the lowest possible price. Resources, such as land, labour and capital are also allocated efficiently in the production of these various goods and services when there is perfect competition. Thus, a market where there is perfect competition is considered good for society because it maximises social welfare”, he observed. 

Professor Totolo was however quick to observe that markets do not always embody these attributes because as firms compete, each one attempts to outfox the other by differentiating their products and services to try and attract many consumers to itself as possible. 

“Information is asymmetric because a seller would not want to reveal their trade secrets to competitors. In some cases, there are few big firms that dominate the market co-existing with many others that are smaller and struggling to survive. The dominant firms undercut the smaller firms forcing them out of business. In some cases, the market size can only make it profitable for one, two or three firms to play in that space. Whenever there are a few big firms in the market, there is always the chance that they may collude overtly or tacitly to keep others out of business”. 

To avoid market failure, Professor Totolo said regulation is needed to ensure that businesses are not behaving anti-competitively as this leads to resource misallocation, consumer exploitation and an overall reduction in social welfare. “Avoiding such an outcome through regulation of markets is part of the mandate of the Competition Authority”.

Touching on vertical integration, he said the ability to integrate a business comes as the business grows and it is also a function of resources availability, access and capability of business owners.

 “When one looks around at our markets in Botswana it is easy to see that it is the well-established ones, the incumbents, who have: been around for some time; cultivated a niche for themselves and are resource rich (availability and access) who have the capability to integrate that have done so. So, we have few big well integrated businesses existing alongside small businesses which in some cases are start-ups. The question is do we want broad based development that touches everyone’s lives in Botswana? If we do, then we must do everything possible to support Small Micro & Medium Enterprises (SMMEs) and start-ups. More so now that we face challenges of unemployment and the working poor. In some cases, people are compelled to go into small businesses to supplement their incomes. But if there is no market for the goods and services that are produced by SMMEs what is the way forward?”

Editor’s Note: Professor Totolo’s full speech can be accessed here