Competition Policy Works: The Effect of Competition Policy on the Intensity of Competition - An International Cross-Country Comparison

Abstract

This paper explores the relationship between competition policy, experience of the application of competition policy, the intensity of local competition and the standard of living. Perception data from the World Economic Forum is used to measure the intensity of local competition. Richer and larger countries in general introduce competition policy earlier than smaller and poorer countries, and industrialized countries earlier than Latin American, African, transition and Asian countries, in this order. A regression analysis for a sample of 101 countries reveals that experience and overall government effectiveness explain a substantial part of the perception of the effectiveness of antitrust policy. During the first years of (new) competition legislation the effectiveness of application improves rapidly, whereas very old competition agencies make little further improvement of their application performance after a certain time. The effectiveness of antitrust policy has a significant influence on the intensity of local competition. The size of the economy also has a significant impact on the intensity of local competition, whereas external protection does not. These results indicate that competition legislation and experience of the application of competition legislation have a large impact on the level of competition in an economy, whereas the influence of external protection is not clear. In countries with a high intensity of local competition the standard of living is higher than in countries with a low intensity of local competition.