Antitrust, Regulatory Capture, and Economic Integration

Effective competition constrains the exercise of market power: it efficiently allocates goods and services to consumers, rewards productive firms that have lower costs of production and increases incentives to invest in new technologies. These claims are supported by a large body of evidence.

The design of competition laws and institutions to promote competition should consider the constraints that imperfect information imposes on actual policy implementation and should explicitly consider the cost of failing to prevent inefficient conduct/transactions (type II errors) against the cost of misguided intervention (type I errors), which might reduce the incentive to compete and thereby compromise the ultimate objective of competition laws. Great care is thus required in designing competition regimes in terms, inter alia, of the scope of their intervention, the standards that they implement, the powers granted to them, the procedures under which they operate and the objectives that are assigned to them.

While most economists agree that the ultimate and only goal of antitrust should be to maximise total welfare, which aggregates consumer welfare and firms’ profits (or producers’ surplus), not everyone agrees on how to achieve that goal. In particular, many economists believe that total welfare is likely to be greater when competition authorities are instructed to intervene in order to maximise consumer welfare. In other words, when they are required to ignore the impact of their decisions on firms’ profits (at least in a static sense and acknowledging that incentives to further innovate may have to be preserved to ensure dynamic efficiency). These economists fear inter alia that the adoption of a total welfare standard will lead to enforcement in which the interests of firms are given greater weight than the interests of consumers, in part because the firms have a greater capability to influence decisions, while consumers face collective action limitations.

In practice, competition regimes typically consider a series of competition and non-competition goals and make no explicit reference to any welfare measure. Competition laws may thus be used to achieve political objectives other than the protection of competition. In the EU, for example, competition law is meant to contribute to the creation of a single market. A number of jurisdictions allow for a ‘public interest’ test, with few constraints on the considerations that can be appealed to in the implementation of the test and little guidance on the relative weight that should be given to these considerations.

Tag: Commercial Frictions & Uncertainties, Competition Policy, Dispute Settlement, Regional Trade Agreements, Regional/Bilateral/Plurilateral, Regulation, System Legitimacy