The Impact of Competition Policy Enforcement on the Functioning of EU Energy Markets

Abstract

We investigate the impact of competition policy enforcement on the functioning of European energy markets, and how sectoral regulation influences these outcomes. For this purpose, we compile a new dataset on the European Commission’s (EC) and EU member states’ competition policy decisions, and combine it with firm- and sector-level data. We find that EC merger policy has a positive and robust impact on (i) the level of competition; (ii) investment; and (iii) productivity. This impact, however, only shows up in low-regulated sectors. Other competition policy decisions – EC state aid and anti-trust interventions; as well as all individual Member State policy variables – do not have a uniform effect on energy markets’ functioning. Our findings are consistent with the idea that the EC’s merger policy actions have been used to overcome significant obstacles to a well-functioning EU energy sector and may well have shaped the overall development of gas and electricity markets in Europe.