Working Paper: CEPR ID: DP12983
Authors: Thomas Philippon; German Gutierrez
Abstract: Until the 1990's, US markets were more competitive than European markets. Today, European markets have lower concentration, lower excess profits and lower regulatory barriers to entry. We document this surprising outcome and propose an explanation using a model of political support. Politicians care about consumer welfare but also enjoy retaining control over industrial policy. We show that politicians from different countries who set up a common regulator will make it more independent and more pro-competition than the national ones it replaces. Our comparative analysis of antitrust policy reveals strong support for this and other predictions of the model.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Establishment of a common regulator in Europe (G18) | More independent and pro-competition regulatory environment in the EU (L59) |
| Independence of the European Commission (DG Comp) (L40) | More competitive market environment in the EU (L19) |
| Political motivations of EU politicians to avoid capturing the regulator (F55) | Greater independence of DG Comp (L49) |
| Delegation of antitrust enforcement to the EU level (K21) | Benefits for countries with initially weak institutions (O17) |
| Political and lobbying expenditures in the US (D72) | Rising concentration and market power in the US (D49) |
| Relative enforcement in Europe (F55) | Lower concentration and profits (L19) |
| Relative enforcement in Europe (F55) | Faster future productivity growth (O49) |