How EU Markets Became More Competitive than US Markets: A Study of Institutional Drift

Many European markets today appear more competitive than their American counterparts. We document this surprising reversal of history and propose an explanation. Our model of political support predicts that a supranational regulator enforces free markets beyond the preferences of any individual country. We find that European institutions are indeed more independent and enforce competition more strongly than any individual country ever did. Countries with ex-ante weaker institutions benefit more from the delegation of competition policy to the EU level. Our model also explains why political and lobbying expenditures have increased more in America than in Europe.

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