The Dynamic Effects of Antitrust Policy on Growth and Welfare
43 Pages Posted:
Date Written: October 15, 2020
Motivated by concerns regarding the lack of dynamic considerations in models of antitrust, we develop and estimate the first general equilibrium model with Schumpeterian innovation, oligopolistic product market competition, and endogenous M&A decisions to shed light on the dynamic effects of antitrust policy on growth and welfare. The estimated model reveals that: (1) Existing policies generate moderate gains in growth and welfare. (2) Strengthening antitrust enforcement could deliver substantially higher gains. (3) The dynamic long-run effects of antitrust policy on social welfare are an order of magnitude larger than the static gains from higher allocative efficiency in production. (4) Current HHI-based antitrust rules leave the majority of anticompetitive acquisitions undetected, highlighting the need for alternative guidelines. Overall, our results suggest that the long-run impact on innovation policy and aggregate productivity growth should receive much higher consideration in the design of antitrust policies.
Keywords: antitrust policy, M&A, innovation, growth, social welfare.
JEL Classification: E20, G30, O30, O40
Suggested Citation: Suggested Citation