In a really interesting paper in NBER, authors Germán Gutiérrez and Thomas Philippon argue that US markets have gradually become less competitive and markets in the EU have seen the opposite trend.
In many cases, the EU markets exhibit lower levels of industry concentration and excess profitability, as well as fewer regulatory barriers to entry.
They suggest that divergence in market competitiveness between the U.S. and Europe is related to the powers granted to EU regulatory institutions at their inception. They note that both the European Central Bank and the Directorate-General for Competition were given more political independence than parallel institutions in the United States and thus have been able to pursue more aggressive antitrust enforcement in recent years.
In almost areas of competition law, they find that there was increasing enforcement in the EU and decreasing enforcement in the US, which has also seen more number of cases registered and higher penalties imposed in the EU. This has had a direct impact on consumer welfare in terms of prices. Prices for many products and services (such as broadband internet) which are under the scrutiny of the anti-trust authorities are significantly higher in the US than in the EU.
A large reason for this is also the lack of political independence for the regulatory authorities in the EU. They note that there is “higher levels of both lobbying and campaign contributions in the U.S. than in the EU. Political campaign contributions are 50 times higher in the U.S. than in the EU”.
Another important trend here is the level of profits for EU and US firms. US firms have had significantly higher profits, on average, than EU firms. My question is this: does the excessive regulation in the EU prevent profits for firms? Will this have a negative effect on innovation and new firms starting up?