How European Markets Became Free: A Study of Institutional Drift

89 Pages Posted: 13 Jun 2018 Last revised: 22 Jun 2018

See all articles by German Gutierrez Gallardo

German Gutierrez Gallardo

New York University (NYU) - Leonard N. Stern School of Business, Students

Thomas Philippon

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

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Date Written: June 2018

Abstract

Over the past twenty years, Europe has deregulated many industries, protected consumer welfare, and created strongly independent regulators. These policies represent a stark departure from historical traditions in continental Europe. How and why did this turnaround happen? We build a political economy model of market regulation and we compare the design of national and supra-national regulators. We show that countries in a single market willingly promote a supranational regulator that enforces free markets beyond the preferences of any individual country. We test and confirm the predictions of the model. European institutions are indeed more independent and enforce competition more strongly than any individual country ever did. Countries with ex-ante weaker institutions benefit more from the delegation of competition policy to the EU level.

Suggested Citation

Gutierrez Gallardo, German and Philippon, Thomas, How European Markets Became Free: A Study of Institutional Drift (June 2018). NBER Working Paper No. w24700, Available at SSRN: https://ssrn.com/abstract=3194929

German Gutierrez Gallardo (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business, Students ( email )

NY
United States

Thomas Philippon

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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