Regulatory Competition in the Single Market

Abstract

AbstractAlthough regulatory competition has been hailed in some quarters as a superior alternative to Council‐driven harmonization, little empirical investigation has been carried out to demonstrate how regulatory competition might work in actual EC practice, and therefore whether its expected benefits will, in fact, materialize.We construct a framework stylizing the iterative process of regulatory competition, and illuminate its emergence from five elements of the regulatory strategy of the EC‐1992 internal market programme.The framework presented shows that the process of regulatory competition is a complex and unpredictable one. Two case studies are provided to exemplify the difficulties. These practical limitations severely weaken the case for regulatory competition based on theoretical economic arguments. Moreover, a comparative cost‐benefit analysis of regulatory competition and harmonization suggests that, where relevant, regulatory competition and harmonization should be seen as complements, rather than substitutes. The demarcation between the two is best determined on a case‐by‐case basis according to the principle of subsidiarity.