European Union Competition Policy in Light of Modern Theories of Economic Growth: A Necessary Review to Support the Private Sector's Contribution to Growth Through Investment in Technology

Abstract

Competition policy in the European Union is built on the principle that the exercise of market power is a source of inefficiency and as such should be prevented or eliminated. According to this doctrine, effective competition exempt from market power is the source of economic growth. Observation shows that the objective of the European competition policy is to unconditionally increase or at least maintain static competition intensity, irrespective of the market situation and the characteristics of industries, notably in terms of technological evolution. The European Commission acknowledges that the low productivity in the Union is mainly due to insufficient investment and innovation. However to restore investment it strives to increase competition to eliminate mark-ups over competitive prices. This interpretation of competition policy is specific to the European Union. Following the influence of the Chicago School, the US competition authorities consider that market power is both a necessary incentive to invest and a fair return on investment. It is well-established in economic theory that investment in innovation is endogenous to the market structure and that it might decrease when static competition exceeds an optimal level, a fact that European competition policy fails to take into account in its unconditional quest for the maximum static efficiency. A review of this policy, taking into account the outcome of the US approach and the lessons of economic growth theories appears necessary in order to tackle the structural weakness of productivity growth in the Union.