Working Paper: CEPR ID: DP835
Authors: Paul Klemperer; A. Jorge Padilla
Abstract: This paper attempts to give a meaning to the empty concept of subsidiarity. It examines various kinds of government activity with respect to the optimal layer of government in Europe at which these activities should be performed. The paper criticizes Europe's industrial policies and its protectionism, and it points to European-wide public-goods and redistribution problems which make centralized government actions a matter of necessity. The paper's main focus is on the free movement of goods, capital, labour and services. It is argued that these movements will induce a process of fierce fiscal competition in which an inverse redistribution from the poor to the rich will emerge, where consumer protection becomes eroded and environmental standards are overdrawn.
Keywords: product lines; shopping costs; switching costs; excess variety; foreclosure; competition policy; merger policy; sunday trading
JEL Codes: 043; L13; L41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Firms that introduce additional products (L19) | Firms capture business from rival firms (L21) |
| Firms that introduce additional products (L19) | Excessive product variety (L15) |
| Shops that open on Sundays (L81) | Capture weekday business from consumers (D16) |
| Shops that open on Sundays (L81) | Potential market foreclosure of competing shops (D43) |
| Shopping costs (D12) | Firms extend product lines excessively (L21) |
| Excessive product variety (L15) | Detrimental from a social welfare perspective (D69) |