Competition Policy and the Informal Economy

Different definitions have been employed in order to capture different aspects of the informal economy. It often comprises a substantial share of GDP in many developing countries. Many researchers are concerned that informal firms negatively impact an economy because they are typically less productive than formal firms. Informal firms which fail to comply with various economic regulations or which fail to meet their tax obligations are able to expand and take market share from formal firms, even when they are less efficient overall. Informal firms may also undermine the incentives of formal sector firms to innovate by counterfeiting and otherwise infringing intellectual property rights. Submissions reported that competition law usually has jurisdiction over all economic activity – including activity by informal firms. However, there are difficulties applying competition law with regard to informal firms. Many countries reported that the presence of the informal sector created issues for defining the relevant market and the computation of market shares. Competition authorities can play a useful role in attacking the underlying causes of informality by calling for wider government initiatives aimed at improving a variety of regulations that affect firms and competition in markets.