The Dynamics of a Policy Outcome : Market Response and Bureaucratic Enforcement of a Policy Change

Policy outcomes are determined not by the words in a statute but by the actions of private citizens in response. Whether a policy succeeds or fails depends on how policy shapes behavior and how that behavior, in turn, shapes the future course of policy. To understand this process, we develop amodel that explicitly combines the political and non-political domains, focusing on competition policy and the regulation of markets. We show how the outcome of a change in policy develops over time as firms respond in the market and interact with bureaucratic enforcement. We identify a critical threshold in market structure that determines whether a policy succeeds or fails, and discuss how the design of political institutions can affect this level. The threshold represents a balancing of the path-dependence of politics with the self-correcting nature of markets. It establishes when political forces dominate those in markets and, thus, when a policy change will have a lasting effect on society