Reason Foundation

Reason Foundation

Competitive Neutrality

Ensuring a Level Playing Field in Managed Competitions

William D. Eggers
March 1, 1998

Executive Summary

Increasingly when governments decide to test the market for providing services, in-house units are also given the opportunity to bid for providing the service. This model of public-private competition is often referred to as “managed competition.”

While managed competition has brought competition to many jurisdictions where public services had long been the exclusive domain of public monopolies, increasingly private providers are crying foul, arguing that the playing field is usually tilted against them in public-private competitions. Their complaints run the gamut: the public units fail to include all their costs in their bids; a performance guarantee is required from the private bidders, but not from the public providers; risk assumed by the private sector is not valued and; the private bidders must pay taxes and comply with regulations for which the public sector is exempt.

A competitively neutral competition policy requires that in-house units of government should not enjoy a net competitive advantage over their private-sector counterparts simply by virtue of public-sector ownership. At the same time, to the extent possible, institutional constraints that hamper the public-sector unit’s ability to increase productivity, and therefore effectively compete with the private sector, should be eliminated.

Currently, there are no real guidelines that lay out how governments should conduct fair public-private competitions. This study is an attempt to set out a series of policies to guide governments in setting up competitively neutral programs of managed competition.

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