How EU Markets Became More Competitive Than US Markets: A Study of Institutional Drift

Posted by Social Science Research Network

How EU Markets Became More Competitive Than US Markets: A Study of Institutional Drift

By German Gutierrez & Thomas Philippon

Until the 1990’s, US markets were more competitive than European markets. Today, European markets have lower concentration, lower excess profits and lower regulatory barriers to entry. We document this surprising outcome and propose an explanation using a model of political support. Politicians care about consumer welfare but also enjoy retaining control over industrial policy. We show that politicians from different countries who set up a common regulator will make it more independent and more pro-competition than the national ones it replaces. Our comparative analysis of antitrust policy reveals strong support for this and other predictions of the model.

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