COMPETITION POLICY
ECONOMICS OF PUBLIC POLICY – TIMOTHY WESSEL, JOHAN VAN DE VEN, GEORGE GAY
Table of Contents
◼ Definition & evolution
◼ Benefits & costs
◼ Where we are today
◼ Implications
◼ Case comparison
◼ Continued evolution
Definition
◼ According to the World Bank, competition policy means “open markets & level
playing fields” that can lead to “prosperity and innovation” rather than “fewer
choices & higher prices”
◼ Policies implemented to support ideals of perfect competition:
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Large pool of buyers and sellers so that none can individually impact market
Lack of barriers to market entry & exit so resources remain mobile
Free exchange of relevant information to business decisions
Product homogeneity
◼ Enforcement institutions vary by region but relevant examples include the US DoJ,
the US FTC, & the EU Directorate General on Competition
◼ Techniques: coalition-building, rule creation, education, investigation, legal action
BENEFITS & COSTS
Consumer Benefits
◼ Lower prices
◼ Greater choice
◼ Higher quality
Consumer Costs
◼ Diminished economies of scale
◼ Innovation?
Business Benefits
◼ Level playing field for all
◼ Efficiency driver
Business Costs
◼ Punishes “success”
◼ Innovation?
◼ Prisoner’s dilemma
Trust Busting’ - 1900 to the 1970s
◼ Competition policy was born in response to the “Robber Baron”
age with the Antitrust Movement in the late 1900s
◼ Led by Teddy Roosevelt & sympathetic Supreme Court
◼ Core regulations:
◼ Sherman Antitrust Act, 1890
◼ Federal Trade Commission Act, 1914
◼ Clayton Act, 1914
◼ Notable antitrust decisions:
◼ Northern Securities vs US, 1904
◼ Standard Oil Co. of New Jersey vs. US, 1911
◼ US vs. American Tobacco Co, 1911
◼ Implementation of competition in Europe, Treaty of Rome, 1957
Consolidate to Compete - 1970s to 2010s
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Rise of foreign competition leads to Chicago School free-market theory on competition policy
Larger firms and increased consolidation necessary to compete in globalized economy
Economic Theory of Regulation (Stigler); idea of capture by interest groups & government
Defang regulatory bodies in order to promote economies of scale and remove red tape
But...
Source: US Census Bureau, Business Dynamics Statistics
Industry Concentration
◼ How many firms provide production in an industry?
◼ Less firms producing more = more concentrated
◼ Measures
◼ Four firm concentration ratio
◼ Production of four largest firms
◼ Herfindahl-Hirschman Index
◼ Squares market share of fifty largest firms
◼ Ratios range from near 0 to 10,000
◼ Justice Dept considers < 1500 competitive
◼ 1500-2500 moderately concentrated
◼ > 2500 highly concentrated with mergers creating moves of 200 points raising antitrust concerns
◼ Limitations to Measures
◼ Foreign Production - Ease of Entry - Elasticity of Demand - Imprecise Definitions
◼ Concentration could be good for economic coordination
Increasing Concentration
Causes of Concentration
◼ Regulation serving as a barrier to entry
◼ Can be reversed
◼ Network Effects
◼ More people using a product, the better the product becomes
◼ Significant for tech giants but also normal retail
◼ Internet and logistics improvement
◼ Information and goods moved faster
◼ Shares of profits shift to largest in industry
EMERGING ISSUES
◼ Tech monopolies: comparing regional approaches
◼ National champions: anti-competition policy?
TECH MONOPOLIES: DEBATE
◼ World’s top 5 companies by market cap: Microsoft, Apple, Alphabet (Google), Amazon, and Facebook
◼ Dominant position? Google has 88% of search, Facebook & subsids. 77% of social, Amazon 74% of e-book
◼ NYT: “It is impossible to deny that Facebook, Google, and Amazon have stymied innovation on a broad scale
◼ Responses:
◼ Bar M&A with other major tech companies (Snap or Spotify)
◼ Regulate Google as a public utility
◼ Remove Safe Harbor clause in 1998 Digital Millenium Copyright Act
◼ But: unending competition between Big 5
◼ All compete for advertising revenue, Amazon faces retail competititon from b&m sector, Apple no monopoly
◼ Vibrant start-up market: $20 billion IPO for Snap, Facebook trying to copycat - despites losses
◼ Cloud computing price war
TECH MONOPOLIES: RESPONSES
US: USA vs. Apple cases finds that Apple fixed e-book prices, violation of Sherman Act. Case on app stores still in
progress but likely to be thrown out.
EU: Raft of cases against Google - abuse of dominant position
Russia: Google cannot use dominant position in mobile OS market to block competitors
China: Foreign companies with dominant position forced to license technology
NATIONAL CHAMPIONS: ANTI-COMPETITION POLICY?
❏ Received wisdom: competition helps new entrants, makes economy more dynamic, boosts wages, encourages
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movement of capital
Some governments have moved against this logic
China: “National Champions” policy since 2004
Financial support for State-Owned Enterprises
Other supporters: Russia, France, Germany, UK - a truism?
Logic: advance national interest
Shanghai lawyer: “Chinese industrial policy is the lens through which anti-monopoly law is interpreted
Can there be a middle ground between national champions and competition policy?
THANKS! QUESTIONS?