On Fairness and Welfare : The Objectives of Competition Policy Comment on David J. Gerber, Christian Ahlborn and A. Jorge Padilla

Based on the European legal rules on freedom of establishment founders of companies have freedom of choice between different corporate laws – and as the emergence of new types such as the Spanish “lightning company” and the French ‘one-euro company' reveal, legislatures more and more try to be attractive for company founders. Is such ‘corporate law competition' good or bad? As far as corporate law is concerned, there is much to say for the argument that at the incorporation stage the choice made will often be in favour of whatever offers particular advantage to the founders even if this proves disadvantageous to certain non-shareholder groups. Over the past few years, however, it has been interesting to see that the converse is true in the context of capital-market law: there has indeed been a ‘race to the top' here. Legislation in continental Europe has for the most part aligned itself with the high standards of law in the USA with regard to issues such as ad hoc publicity and insider trading. Therefore it is definitely not always the case that competition leads to harmonisation of laws at a low level.The rise in standards in capital-market law can be explained by the fact that here the law applicable is ultimately decided by several parties: first, by the founders or corporate executive, who might have an interest in drawing on the capital market and – from a short-term perspective – in having a weaker level of protection (i.e. investor protection). On the other hand, however, the investors also make a choice: professional decision-makers at institutional investors are clearly inclined to go where a relatively high standard of capital-market protection prevails. The States which keep a watch on this now have an interest in presenting themselves as attractive financial centres – in Europe we are seeing competition between stock market locations in London, Paris, Frankfurt and Zurich, for instance. Each national legislature therefore has reason to create and maintain a body of capital-market law that offers protection to investors