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Product market regulations in OECD countries Paul Conway, Véronique Janod and Giuseppe Nicoletti Comments by David Spector Paris School of Economics, Ecole Normale Supérieure December 15, 2006 Main topics for discussion • To what extent is the increase in homogeneity from 1998 to 2003 driven by the European Commission? • Discussion about the interpretation of some variables – Market access – Antitrust exemptions and retail price regulation • Political economy of product market deregulation 2 Role of the European Commission? • Directives on energy – Accounting unbundling of the different vertically related activities (production, transportation, retail) • « Railway packages I and II » • Directives on the deregulation of postal services • Stricter implementation of State aid rules – Less easy to use public ownership as a means to channel funds to a specific sector or firm – Condemnation of State aid to Deutsche Post • « Maastricht-driven » privatization – So as to meet the debt/GDP criterion (though not the deficit one) 3 Regulation is not always competition-dampening • Market access – Sometimes: mandatory access to « essential facilities » – Vertical unbundling: may be anticompetitive (in the sense of decreasing consumer surplus) if vertical integration facilitates coordination of investments or eliminates double marginalisation • Maybe relevant in the case of railways – Conflict between short-run and long-run impact on competition • Example: mobile virtual network operators • Increases short-run competition • Dampens long-run incentives to invest by weakening property rights • Vertical restrictions – Resale price maintenance may facilitate collusion and raise prices – It may also facilitate the provision of incentives to retailers (Chicago school argument, by the way…) – Example: any study about the real impact of RPM for books (not only in France)? – Of course, there allowing restrictions is a long shot from making them mandatory 4 Political economy • Main questions – – – – • What drives product market (de)regulation? Belief in markets or interest group politics? Power of special interests Efficiency of transfers to special interests? Beliefs vs interest? – Important policy implications – How does one explain the French left’s mute acquiescence to retail regulation? • small retailers do not vote for them anyway • Interesting piece by Bertrand and Kramarz – Some apparently efficient and Pareto-improving reforms are not implemented • Example: purchasing cab licences – Very cost-effective job-creation policy, if one judges from the Irish precedent. – Do special interests wield greater influence in heavily regulated countries? • Empirically testable? Maybe with reference to voting rules – Is the problem the lack of more efficient transfers? • Testable: are regulations more easily lifted when targeted compensation is feasible? • Much focus so far on interplay between product and labour markets • Needed: a study of the relationship between product market regulation and the availability of compensatory lump-sum transfers 5