Competition Politics

• Author: Stephen Weymouth
• Published date: 01 June 2016
• Date: 01 June 2016
• DOI: http://doi.org/10.1177/0003603X16644122

Article
The Antitrust Bulletin
2016, Vol. 61(2) 296-316
Competition Politics: Interest
ª The Author(s) 2016
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DOI: 10.1177/0003603X16644122
Reform in Developing Countries
abx.sagepub.com
Stephen Weymouth*
Abstract
This article examines the political origins of antitrust enforcement in the developing countries. I
consider how the organization and political influence of business affects governments’ commitments to
competition policy institutions. The analysis predicts cross-class coalitions with contending regulatory
preferences. An alliance of incumbent producers and affiliated labor groups (‘‘insiders’’) opposes
competition policies that threaten its existing rents. A procompetition coalition of consumers,
unorganized workers, and small businesses (‘‘outsiders’’) favors the price and employment effects of
effective antitrust enforcement. I argue that governments’ commitments to competition policy reflect
the congruence of interests among economic insiders and the strength of democratic institutions. I
examine the argument using a new dataset measuring the timing of competition policy reforms, as well
as governments’ commitments to the effectiveness of the competition policy authority. The empirical
analysis indicates that democracies are more likely to pursue competition policy reforms. I also find
that organized insiders are associated with a slower reform process and with less effective competition
agencies.
Keywords
competition policy, regulation, interest groups, rent-seeking, democracy, economic development
This article examines how the organization and political influence of business affects variation in
competition policy institutions in the developing world. The topic is motivated in part by research
arguing that industrial organization and patterns of corporate ownership affect productivity, innova-
tion, and, ultimately, economic growth.1 Moreover, it appears that one of the enduring lessons of the
1. PETER A. HALL & DAVID SOSKICE, VARIETIES OF CAPITALISM: THE INSTITUTIONAL FOUNDATIONS OF COMPARATIVE ADVANTAGE
(2001); Randall Morck, Daniel Wolfenzon, & Bernard Yeung, Corporate Governance, Economic Entrenchment, and
Growth, 43 J. ECON. LITERATURE 655 (2005); Tarun Khanna & Yishay Yafeh, Business Groups in Emerging Markets:
Paragons or Parasites?, 45 J. ECON. LITERATURE 331 (2007).
*McDonough School of Business, Georgetown University, Washington, D.C., USA
Corresponding Author:
Stephen Weymouth, McDonough School of Business, Georgetown University, Washington, D.C., WA 20057, USA.
Email: stephen.weymouth@georgetown.edu

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Weymouth
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global financial crisis is that regulatory laxity poses huge systemic risks but entrenched interests will
fight hard to maintain the status quo.2 Focusing on the domestic politics of competition policy reform, I
propose that powerful actors seek to impede the development of competition policy institutions that
diminish their rents. Democratic political institutions help determine the influence of competing
interests groups over the timing and efficacy of competition policy reforms.3
Recent interest in competition policy in the developing world is driven in part by the failure of the
Washington Consensus to produce more equitable economic development.4 Any argument linking
traditional liberalizations of trade and foreign investment to economic growth relies on the assumption
that domestic markets are competitive. In reality, anticompetitive practices by incumbent firms persist
in open economies—and the welfare losses due to the exercise of monopoly power have been shown to
disproportionately accrue to the poor.5 Thus, competition policy may be an important complement to
trade and investment liberalization.6 Given the potential impact of competition enforcement for
economic growth and poverty alleviation in developing countries, it is important to understand the
political conditions that may impede or promote the establishment of effective competition policy
agencies.7 This paper seeks to explain the political economy determinants of competition policy
reform in the developing world.
Antitrust, or competition policy, institutions are responsible for monitoring and sanctioning antic-
ompetitive behavior by incumbent businesses. While not new to developed countries, these institutions
are currently the subject of vigorous debate in developing countries. I explain variation in competition
policy reforms as the consequence of a political struggle between contending social coalitions. In
contrast with a large and important literature on the political economy of external openness,8 my model
predicts cross-class alliances with contending preferences regarding internal competition policies.
Evidence from cross-national tests of the determinants of antitrust reform strongly supports my
coalitional argument.
Increasing economic competition from a noncompetitive status quo implies a redistribution of
wealth from organized incumbent oligopolists (‘‘producers’’) to diffuse consumers.9 Effective com-
petition policy enforcement weakens the ability of incumbent producers to capture and maintain rents,
benefiting consumers through favorable price effects. The redistribution of rents implies political
conflict: incumbent interests will lobby to maintain and expand their rents, while consumers will
support greater competition policy enforcement. My analysis looks beyond industry concentration
2. NEW PERSPECTIVES ON REGULATION (David A. Moss & John A. Cisternino eds., 2009); Simon Johnson, The Quiet Coup, THE
ATLANTIC (May 2009).
3. For related arguments, see RAGHURAM G. RAJAN & LUIGI ZINGALES, SAVING CAPITALISM FROM THE CAPITALISTS (2003); Efraim
Benmelech & Tobias J. Moskowitz, The Political Economy of Financial Regulation: Evidence from US State Usury Laws in
the 19th Century, 3 J. FIN. 1029 (2010).
4. JOSEPH E. STIGLITZ, GLOBALIZATION AND ITS DISCONTENTS (2003).
5. Carlos M. Urzu´a, Distributive and Regional Effects of Monopoly Power, 22 ECONOMI´A MEXICANA NUEVA E
´ POCA 279 (2013).
6. Tim Bu¨the, The Politics of Market Competition: Trade and Antitrust in a Global Economy, in THE POLITICAL ECONOMY OF
INTERNATIONAL TRADE (Lisa L. Martin ed., 2015).
7. For related research, see Franz Kronthaler & Johannes Stephan, Factors Accounting for the Enactment of a Competition
Law—An Empirical Analysis, 52 ANTITRUST BULL. 137 (2007); Mark R. A. Palim, The Worldwide Growth of Competition
Laws: An Empirical Analysis, 43 ANTITRUST BULL. 105 (1998); Raju Parakkal, Political Characteristics and Competition Law
Enactment: A Cross-Country Empirical Analysis, 56 ANTITRUST BULL. 609 (2011).
8. PETER GOUREVITCH, POLITICS IN HARD TIMES: COMPARATIVE RESPONSES TO INTERNATIONAL ECONOMIC CRISES (1986); Ronald
Rogowski, Political Cleavages and Changing Exposure to Trade, 81 AM. POL. SCI. REV. 1121 (1987); Jeffry A. Frieden,
Invested Interests: The Politics of National Economic Policies in a World of Global Capital, 45 INT’L ORG. 425 (1991);
Michael J. Hiscox, Inter-Industry Factor Mobility and the Politics of Trade, 55 INT’L ORG. 1 (2001).
9. George J. Stigler, The Theory of Economic Regulation, 2 BELL J. ECON. & MGMT. SCI. 3 (1971); Sam Peltzman, Toward a
More General Theory of Regulation, 19 J. L. & ECON. 211 (1976); Ronald Rogowski & Mark Andreas Kayser, Majoritarian
Electoral Systems and Consumer Power: Price-Level Evidence from the OECD Countries, 43 AM. J. POL. SCI. 526 (2002).

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The Antitrust Bulletin 61(2)
in product markets to examine how labor market considerations shape workers’ regulatory prefer-
ences. Building on the assumption that workers prefer lower unemployment and higher salaries, I
argue that the effects of competition policies on employment and wages help explain workers’ atti-
tudes toward antitrust reform.
The introduction of labor market incentives sheds new light on the politics of competition regula-
tion and explains the formation of cross-class alliances with contending preferences. A procompetition
coalition consists of consumers, unorganized workers, and small (often informal) business owners who
all favor the effects of competition on lower prices, greater product choice, and lower unemployment.
The competing group is a rent-preserving alliance anchored in the interests of concentrated incumbent
producers and allied labor, which seeks to maintain anticompetitive rents by opposing competition
policy reform. The political cleavage pits outsiders, who favor competition policy reform, against
insiders, who oppose it. This divide is distinct from most production-based approaches in the political
economy literature, in which social and political divisions are drawn along class (factors of production)
or industry lines.
Variation in competition policy reflects the interests of the winner of this political conflict between
outsiders and insiders. When the procompetition coalition prevails, my analysis predicts that govern-
ments commit to effective antitrust oversight by establishing competition policy institutions. When the
rent-preserving alliance wins out, no such regulatory institutions emerge. Competition policy reflects
the political weight of the organized interest group (the rent-preserving alliance) relative to the
unorganized set of procompetition forces. I explain that the political power of insiders increases when
workers share in the anticompetitive rents. I argue that rigidities in labor markets enable workers to
extract a portion of these rents, thus...