Session 7 Flashcards
What were the 4 steps of European economic integration?
Liberalization
Defragmentation of the market
Pro-competitive effect
Industrial restructuring
What’s a mark-up?
The difference between price and marginal cost
How is the number of firms determined?
A first upward curve represents the Break-Even, that is the higher the mark the more firms can survive
A second downward curve represents Competition that means, the more firms, the lesser the market power of each firm and so the less the mark up
What was the impact of liberalisation?
It meant that firms could move between home and foreign markets.
What was the impact of defragmentation?
The break even shifted to the right, which means that the number of firms in the home market increased (multiplied by two)
What was the impact of pro-competitive effects?
As the number of firms increased, the mark-up decreased, it created a new point A that is not on the Break Even curve.
What was the impact of industrial restructuring?
Because point A was not suitable for the long term equilibrium, we moved instead to E’’, with firms disappearing, and profitability restored at a higher mark up
In short what is the economic logic behind market liberalisation?
It leads to an industrial restructuring, in which prices decreases and so some firms are no longer profitable. These firms disappear.
What are the long term consequences of market liberalisation?
The remaining firms have enlarged output, are more efficient and markups can rise again so profitability improves.
What are the risks posed by bigger, fewer more efficient firms?
- risk of collusion between firms
- risk of few firms becoming too strong
- risk of member states influencing the process
What do first generation studies say about EU manufacturing markups?
They decreased after the introduction of the single market and the EURO (between 1980s and mid 2000s)
What do second generation studies say about EU markups?
An increase of markups after 2010 but i’s a short time series so it’s fairly uncertain.
What do we say about US and RoW?
We see a long term upward trend for markups driven by the largest firms.
Give two different interpretations of European concentration in the last 10 years.
Positive interpretation: winner takes all
Negative interpretation: decrease in competition and increase in market power
Which phenomena are associated with European concentration?
- Strongly and positviely associated with changes in sector level productivity . This is driven by the most productive firms.
- Use of modern production technologies and productivity enhancing reallocation processes
What are the three pillars of the European Competition Policy?
Anti-trust
Merger control
Regulation of state aid
Define Anti-trust
It’s the prohibition of agreements and concerted practices between firms restricting competition. Horizontal and vertical agreements are prohibited.
It is the prohibition of abuse of dominance
Define merger control
The obligation to submit mergers and acquisitions for clearance
Define regulation of state aid
State aid is allowed only if he aid does not distort competition between companies in EU countries.
How did European Competition Policy start?
In the 1960s, it targeted firm-initiated restrictive practices, and then it started tackling state aid.
What happened in the 1970s around European Competition Policy w/ respect to state aid?
The Commission relaxed its position towards the grant of state aid, by recognising the need for national measures against unemployment and failing industries.
In the 1980s why did the Commission expand its role on cracking down anti-competitive behavior?
New economic thinking, dynamic political leadership by the commission and a new framework emerged.
What kind of control do EU merger review have?
Ex-ante control meaning that merged are only allowed under certain conditions.
On what kind of mergers can the EU exert it’s control?
Only large mergers with an EU dimension that could Significantly Impeding Effective Competition
When there’s a trade-off for EU Consumers btw efficiency gains and loss of competitiveness
