On the Welfare Effects and Political Economy of Competition‐Enhancing Policies
Bibliographic Data
| ID | 9709954 |
|---|---|
| Authors | Philippe Aghion (0000-0002-9019-1677, Harvard University and CEPR), Mark Schankerman (London School of Economics and CEPR) |
| Year | 2004 |
| Volume | 114 |
| Issue | 498 |
| Pages | 800-824 |
| Publication date | 2004-10-01 |
| Peer Reviewed | Yes |
| Open Access | Yes |
| Type | ARTICLE |
| Venue | The Economic Journal (JOURNAL) |
| Journal identifiers | ISSN: 0013-0133 • E-ISSN: 1468-0297 |
| Publisher | Oxford University Press (OUP) (PUBLISHER) |
| DOI | 10.1111/j.1468-0297.2004.00244.x |
| OpenAlex | W3125402375 |
| Language | EN |
| Citations received | 8 |
| References cited | 30 |
We analyse the welfare effects of policies that intensify product market competition, and the channels through which they operate. Using a circular model of horizontal product differentiation with asymmetric costs, we study the effects of increased price competition on market selection among incumbent firms, cost reduction effort, and entry of new firms. The model also generates an endogenous demand for competition-enhancing or retarding policies arising from cost heterogeneity, and we demonstrate the possibility of a ‘low-competition ’ political economy trap. Simulations of the model illustrate that the selection effects we analyse, which traditional cost-benefit analysis is unlikely to capture, can be large. Major institutional reforms, such as the establishment of the single market in Europe, the creation of NAFTA, and the introduction of the single European currency, have often been advocated by policy makers as increasing efficiency and welfare by intensifying product market competition. Recent studies provide empirical support for competition-enhancing institutions or reforms. For example, in a recent study using industry-level panel data for nineteen OECD countries, Nicoletti and Scarpetta (2003) show that increased product and labour market
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| Unique citing works | 8 |
|---|---|
| Citations per year | 0,42 |
| Citation span | 2007 - 2025 (19) |
| Citation velocity | recent |
| Highly cited | No |
| Citation types | Neutral: 8 |