Competition Politics: Interest Groups, Democracy, and Antitrust Reform in Developing Countries

Abstract:     
This paper examines the political origins of business regulation. Specifically, I study the influence of interest groups on regulatory reform using a new dataset of competition (or antitrust) enforcement agencies in 155 developing countries. I extend existing research highlighting the effects of competition on prices in product markets by considering the labor market implications of antitrust. The analysis predicts cross-class coalitions with contending regulatory preferences. An alliance of incumbent producers and affiliated labor (“insiders”) opposes competition policies that threaten its existing rents. A pro-competition coalition of consumers, unorganized workers, and entrepreneurs (“outsiders”) favors the price and employment effects of antitrust enforcement. I argue that governments’ commitments to competition policy reflect the congruence of interests among economic insiders and the electoral incentives present in democracies. Consistent with the argument, I find that organized insiders slow the reform process and significantly weaken governments’ commitments to regulatory effectiveness. Democracy exudes offsetting effects: while it favors outsiders on average, it also appears to facilitate the capture of regulatory institutions by powerful interest groups.

Number of Pages in PDF File: 39

Keywords: Competition Policy, International Political Economy, Political Institutions, International Business, Rent-Seeking, Antitrust

working papers series