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Economic Impact of Competition Policy: A Look Beyond Consumer Surplus

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Abstract

Competition authorities try to mitigate negative distortionary effects on the markets by tackling abuse of market power or cartels and by controlling mergers. This study attempts to assess the impact of these endeavours by going beyond calculations of lumpsum effects on consumer surplus. We revise the simulation of Van Sinderen and Kemp (Economist 156(4):365–385, 2008) who use a cut in income taxes as a modelling device to simulate the impact of anti cartel policies. Our approach avoids attributing effects caused purely by changes in taxation to market power and uses changes in the Lerner index as the impuls. We have updated the model to enable simulating the impact of competition policies on productivity and R&D in order to get a balanced view on the effects. We find that the re-distribution of surplus from producers to consumers supported by ACM in this new setting is likely to have a positive effect on productivity, GDP, wages and consumption, and a small positive effect on employment. This differs from the outcome of Van Sinderen and Kemp, who did not find a positive impact on productivity, due to an overestimation of the employment growth.

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Notes

  1. Hence, we do not make assumptions about the products being close substitutes and non-existence of entry and exit barriers which are vital for “efficient” long-run equilibrium in classical models of monopolistic competition (Chamberlin 1933; Robinson 1933).

  2. We obviously ignore that the tax revenue can be used to produce other positive effects on the economy in this static situation. In MESEMET these differences in expenditure can be included. This lies however outsite the scope of this article.

  3. Disregarding the difference in slope of the demand curve.

  4. It is possible that business-to-business prices are primarily affected. We assume that the effects are always translated into consumer prices and hereby, we disregard eventual intermediary effects.

  5. To measure the overall size of this departure stimulated by ACM, the cases from multiple years are added up.

  6. For example, we disregard deterrence effects which could be sizable.

  7. The coefficient of 0.75 was chosen so that the prices P, Py and Pf would cancel out in the original model.

  8. To check for sensitivity of the results to the development in exports, we modified the elasticity of exports with respect to the relative price from 2 to 1. The results remain qualitatively comparable to those presented.

  9. Harberger (1954) comes up with an estimate of 0.1%, for example.

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Authors and Affiliations

  1. The Netherlands Authority for Consumers and Markets (ACM), Postbus 16326, 2500 BH, The Hague, The Netherlands

    Jan Sviták & Jarig van Sinderen

  2. Erasmus University Rotterdam, Rotterdam, The Netherlands

    Jarig van Sinderen

Authors
  1. Jan Sviták
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  2. Jarig van Sinderen
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Correspondence to Jan Sviták.

Additional information

We thank two anonymous referees for their valuable comments on earlier versions of this paper.

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Sviták, J., van Sinderen, J. Economic Impact of Competition Policy: A Look Beyond Consumer Surplus. De Economist 166, 23–40 (2018). https://doi.org/10.1007/s10645-017-9312-9

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  • DOI: https://doi.org/10.1007/s10645-017-9312-9

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