Competition Law as Market Discipline

Abstract

Since the early 1990s, numerous countries have adopted or strengthened competition legislation. In this paper we investigate the impact of competition law on markups of industries over time across a large number of countries. We find measures of external and internal competition (imports and the number of firms domestic firms) to be major sources of market discipline, whereas the direct effect of competition law is insignificant. However, competition laws do have a marginal effect, enhancing domestic competition when imports are small relative to domestic production. In addition, the effect of competition law is significantly stronger for large countries.

Keywords: Competition law, import penetration, industry markup, country size.

JEL Classification: F12, F13, L11, L40