Working Paper: CEPR ID: DP2214
Authors: Hanswerner Sinn
Abstract: Open borders imply systems competition. This paper studies the implications of systems competition for the national competition rules. It is shown that an equilibrium where all countries retain their antitrust laws does not exist, since abolishing this law makes it possible for a single country to establish a cartel that successfully appropriates foreign business profits. Instead of such an equilibrium, a deregulation race is likely to emerge in which all but the last country repeal their antitrust laws. The deregulation race results in a chain of Stackelberg leadership positions taken over by national cartels that renders lower profits and higher consumer rents than would have been the case with harmonization of the antitrust laws.
Keywords: systems competition; deregulation; oligopoly
JEL Codes: D43; H70; L43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| repeal of antitrust laws by one country (K21) | incentivizes other countries to repeal their antitrust laws (K21) |
| repeal of antitrust laws by one country (K21) | deregulation race (L51) |
| repeal of antitrust laws by one country (K21) | firms can form a cartel with binding quantity commitments (L42) |
| repeal of antitrust laws by one country (K21) | occupies a Stackelberg leader position over foreign competitors (D43) |
| simultaneous abolition of antitrust laws by all countries (L49) | Cournot equilibrium may emerge (C72) |
| deregulation race (L51) | lower profits for firms (D22) |
| deregulation race (L51) | higher consumer rents (R21) |
| deregulation race (L51) | total quantity sold may be larger and price level lower (L11) |