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Regulatory Leveraging: Problem or Solution?

27 Pages Posted: 25 Aug 2016 Last revised: 29 Sep 2016

William E. Kovacic

George Washington University - Law School; King's College London – The Dickson Poon School of Law

David A. Hyman

Georgetown University

Date Written: August 22, 2016

Abstract

Worldwide, there are approximately 130 jurisdictions with competition laws. The governmental entities charged with enforcing these laws are typically called “competition agencies,” but many of these entities do things other than competition law. Of the 36 agencies listed in the Global Competition Review’s 2015 annual review, half have responsibilities beyond their competition portfolio. Assume a competition agency that has significant regulatory power, such as the right to review certain mergers before they are consummated. Pursuant to this authority, the agency determines how quickly mergers are cleared, or whether they can proceed at all. This regulatory power is the functional equivalent of the market power that some private firms enjoy. Further assume that the agency has responsibilities beyond its competition portfolio — say, with regard to privacy and data security. A firm seeks the approval of the agency to merge with another company. What should we think if the agency uses its regulatory power in policy domain A (i.e., merger approval) to extract concessions with respect to policy domain B (i.e., privacy and data security)? Is that a good idea or a bad idea? Does your response differ if the agency is using its regulatory authority in policy domain A to obtain concessions that it could not obtain, or could realize only with great difficulty, if it focused solely on the behavior of the firm in policy domain B? What if the agency is using its regulatory authority in policy domain A to obtain concessions in policy domain B that would be unconstitutional if it sought to impose them directly? Does it make a difference if the agency has no regulatory authority over policy domain B? Stated bluntly, is regulatory leveraging a troublesome problem — or a useful solution? We describe leveraging in the private and public sectors; analyze four case studies of public sector leveraging; consider the costs and benefits of regulatory leveraging; and offer several suggestions for increasing the likelihood that leveraging is used for pro-social ends. We also briefly describe the leveraging of regulators.

Keywords: merger review, leverage

JEL Classification: K00, K21, K23

Suggested Citation

Kovacic, William E. and Hyman, David A., Regulatory Leveraging: Problem or Solution? (August 22, 2016). GWU Law School Public Law Research Paper No. 2016-41; GWU Legal Studies Research Paper No. 2016-41; University of Illinois College of Law Legal Studies Research Paper No. 16-30; King's College London Law School Research Paper No. 2016-38. Available at SSRN: https://ssrn.com/abstract=2817339

William E. Kovacic

George Washington University - Law School ( email )

2000 H Street, N.W.
Washington, DC 20052
United States
202.994.8123 (Phone)

HOME PAGE: http://www.law.gwu.edu/faculty/profile.aspx?id=1731

King's College London – The Dickson Poon School of Law

Somerset House East Wing
Strand
London, WC2R 2LS
United Kingdom

David Hyman (Contact Author)

Georgetown University ( email )

Washington, DC 20057
United States

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