Modelling the macroeconomic impact of competition policy : 2022 update and further development

This report models and analyses various aspects of the macroeconomic impact of competition policy interventions by the European Commission over the period 2012-2021. Based on information provided by the Directorate-General for Competition (DG COMP) on its merger interventions, cartel prohibitions and other antitrust interventions, the Joint Research Centre (JRC) has used two models to simulate the macroeconomic impact of such interventions: the QUEST III macro-model of the EU economy, which was developed by the Directorate-General for Economic and Financial Affairs (DG ECFIN) for assessing the impact of EU policies, and an EU-wide input-output model, which allows for an investigation of the sectoral differentiation and spill-over effects of competition policy interventions. The simulation carried out in QUEST III allows to evaluate the impact of competition policy enforcement on economy-wide measures of performance such as GDP, employment, prices and productivity. The impact includes the direct price effects of the Commission's competition policy interventions (as captured by the annual customer savings calculations) as well as the indirect, deterrent effects of these interventions. This report updates and improves the model simulation published in the previous edition (European Commission, 2022b) along several dimensions. First, it includes the straightforward update of results with the competition interventions by the Commission in 2021. Similar to 2020, the year 2021 is characterised by a relatively low number of interventions. Second, it includes improved data on the Commission's antitrust and cartel interventions for the period 2012-2021. Third, it includes a new approach to assess the deterrent effects of competition policy interventions based on models used to describe the diffusion of information (using the Bass model). The new simulation results suggest a 1.17 percentage point reduction in markups (as measured by the Lerner index) resulting from the Commission's competition policy interventions. This reduction in mark-ups, applied to a (calibrated) mark-up level of 13.56 percent in the steady-state of the QUEST III model, triggers an increase of real GDP relative to the baseline in the range of 0.6% - 1.1% in the medium to long term (the equivalent of an uplift of EUR 80 - 150 billion in 2019 GDP), as well as a 0.3% - 0.7% reduction in the price level. All the main components of aggregate demand increase. More specifically, after 5 years, the results suggest an increase in consumption (0.5%) and investment (1.1%) despite the decline in profits associated with the negative markup shock. Investment is increasing because the negative direct effect of markups on future profitability is more than offset by the positive effect of the increasing demand due to the lower prices.