Abstract
The European Union has experienced weak economic performance over the past 15 years, compared to the United States. In order to restore investment, innovation, and therefore growth, the European Commission seeks to raise the level of static competition in all markets. The Commission’s economic policy is largely determined by its competition policy. This policy is derived from its doctrine on competition law, which regards the exercise of market power as a source of inefficiency and advocates that its effects should be banned. By contrast, the United States competition authorities, under the influence of the Chicago School, consider that market power is a necessary incentive to invest and a fair return on investment. Recent findings in economic growth theory, which state that increased competition intensity may harm endogenous innovation, provide a theoretical basis to support the United States approach and call for a review of European doctrine.
Highlights
The European Union has experienced weak economic performance over the past 15 years, compared to the United States
The third section presents recent findings in the fields of economic growth theory and innovation economics, which show that market power is both a necessary incentive and a fair return on investment and that a systematic increase in the level of static competition might end up discouraging endogenous innovation
The results presented in this subsection support the view that investments in technologies and capital goods that incorporate technologies are likely to be discouraged when static competition is too high, and need either concentrated market structure or market power to occur
Summary
In its most recent Report on Competition Policy, the European Commission (2015a) outlines a primary objective of its competition policy, which consists in being ‘vigilant that manufacturers of important input products do not acquire the power to raise prices above competitive levels through mergers’. By contrast, according to Marty and Pillot (2012), the US Supreme Court stated that for industries where there is an ex-ante regulation, such as network industries, the enforcement of antitrust to tackle market power of an upstream firm is not necessary: ‘when there exists a regulatory structure designed to deter and remedy anticompetitive harm, the additional benefit to competition provided by antitrust enforcement will tend to be small, and it will be less plausible that the antitrust laws contemplate such additional scrutiny’ This difference in antitrust enforcement relates to the different doctrines adopted in the US and in the EU, where the post-Chicago approach recommends eliminating the effects of market power in upstream markets in order to prevent dominance being exercised in downstream markets, advocating a strict control of vertical restraints and vertical mergers. The European practice of competition law tends to limit the strategic autonomy of the dominant firms, because its objective is to promote the access of its competitors to the market rather than to maximise efficiency
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