Six Principles for Limiting Government-Facilitated Restraints on Competition
41 Pages Posted: 27 Sep 2010
Date Written: 2007
Regulation is an important tool to deal with market imperfections. Regulation might, however, sometimes go beyond what is socially justified and create undue restraints on competition. The problem of social engineering is thus to devise a system that will ensure that the optimum combination of competition and regulation is achieved.
This article suggests harnessing the comparative advantages of competition authorities to this task. It proposes six general principles that are aimed at creating a system of "checks and balances" which maintains adequate safeguards to ensure that competition will be limited only where socially warranted. Whereas much has been written about where to draw the line between regulation and competition, the question of what institutional role competition authorities and courts can play to ensure that these boundaries are not overstepped has generally received little attention. This paper attempts to fill this gap.
The first part of the article provides a basis for the discussion by surveying possible justifications and motivations for government-facilitated or imposed restrictions on competition. A dichotomy between two main types of restraints is suggested, based on their effects on social welfare. This dichotomy then serves as the basis for the discussion in the second part of the article, which focuses on the tools available to competition authorities and courts to combat welfare-reducing restraints on competition. Six general principles to achieve this goal are proposed. Some of these principles suggest that competition authorities should be allowed to venture outside their traditional confines and build upon their institutional comparative advantages in order to ensure that regulation increases social welfare. The third part of the article analyzes the existing EU law to evaluate whether, and to what extent, the proposed principles currently apply. It suggests several changes to the current system that have the potential to limit the existence of welfare-reducing restraints.
Keywords: Competition Authorities, Antitrust, Comparative Advantage, Regulation
JEL Classification: K21
Suggested Citation: Suggested Citation