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Private Law and Competition Policy in the Global Economy

40 Pages Posted: 2 Jun 2009 Last revised: 27 Feb 2014

Gralf-Peter Calliess

University of Bremen - Faculty of Law

Jens Mertens

University of Bremen - Faculty of Law

Date Written: June 2, 2009

Abstract

In this paper we criticize the so-called 'more economic approach' to European competition law for its disregard of the importance of a functional system of private law. The more economic approach presumes that vertical integration is an economically efficient governance-mechanism. This assumption is based on the availability of market governance as an alternative mode of governance for organizing transactions. Since the enforcement of cross-border contracts by state-organized systems of private law, however, is insufficient, 'make or buy'-decisions in international commerce are prejudiced against at arms' length transactions on markets. Consequently international transactions are integrated vertically into firm-structures to a higher degree than it is economically sensible for comparable domestic transactions, which take place in the shadow of an effective domestic system of private law. The resulting over-integration of world markets leads to reduced competitive incentives and high bureaucratic costs. Contrary to the fundamental assumptions of the 'more economic approach', vertical integration does, therefore, not per se foster consumer welfare in the global economy. Being an economically inefficient reaction to the deficits in state protection of cross-border contracts, this excess of cross-border vertical integration, however, cannot be countered by a strict world antitrust law, but only by establishing legal certainty in the enforcement of cross-border contracts. Thus, international private law policy currently seems to be the instrument of choice in promoting competition in the global economy.

Keywords: private law, contract enforcement, cross-border contracts, transnational corporations, intra-firm-trade, competition policy, vertical integration, more economic approach

JEL Classification: D23, F23, K12, K21, L14, L22, L42

Suggested Citation

Calliess, Gralf-Peter and Mertens, Jens, Private Law and Competition Policy in the Global Economy (June 2, 2009). Indiana Journal of Global Legal Studies, Vol. 18, No. 2, 2011. Available at SSRN: https://ssrn.com/abstract=1413257 or http://dx.doi.org/10.2139/ssrn.1413257

Gralf-Peter Calliess (Contact Author)

University of Bremen - Faculty of Law ( email )

Universitaet Bremen
Fachbereich Rechtswissenschaft
D - 28353 Bremen
Germany
+49-421-218-66207 (Phone)
+49-421-218-66212 (Fax)

HOME PAGE: http://www.handelsrecht.uni-bremen.de/

Jens Mertens

University of Bremen - Faculty of Law ( email )

PO Box 330440
Bremen, 28334
Germany

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