Exploring Aspects of the State of Competition in the EU

We are pleased to announce that the report “Exploring Aspects of the State of Competition in the EU” has been published today by the European Commission. The report was prepared by a consortium of firms led by Lear and comprising E.CA Economics, Fideres, Prometeia, the University of East Anglia, and Verian. Our report contributes to the Commission’s report “Protecting Competition in a Changing World“, also published today, which will be presented on June 27 at a conference hosted by DG COMP.

The report includes five chapters. Chapter 1, prepared by Lear, and in particular by our Partner Salvatore Nava and Consultant Elena Salomone, with support from Prometeia, describes the available evidence on how, over the past few decades, competition across markets in the EU seems to have weakened: industry concentration and markups have increased, while the gap between market leaders and followers has widened and business dynamism has declined. Against this background, this report investigates four other important aspects of the state of competition in the EU.

Chapter 2, prepared by the University of East Anglia and Fideres, along with a team of researchers from academia, explores the role played by market or industry concentration in determining market outcomes, providing evidence that higher concentration is generally associated with higher prices. It does so through price-concentration studies concerning six sectors of economic activity: mobile telecom, airlines, beer, mortgages, modern consumer retail and cement. For mobile telecoms and airlines, the report includes original empirical analyses that allow to infer a causal effect of market concentration on prices and other outcomes.

Chapter 3, prepared by E.CA Economics, provides an analysis of the evolution of “Global Superstars” – the most profitable of the world’s largest firms – and finds that their profit rates have increased significantly over the last 25 years, and that the distribution of profits has become more skewed. The chapter investigates why these profits are not competed away, noting that in certain sectors of economic activity (the IT, pharma and consumer goods sectors) Global Superstars are protected by barriers to entry.

Chapter 4, led by Lear Senior Advisor Elena Argentesi and Consultant Livia De Simone, informs the debate on the interplay between domestic competition and export competitiveness. A survey of EU-based exporting firms, conducted by Verian, suggests that effective domestic competition within the Single Market (i) is an important driver of their global export competitiveness (in particular effective competition in upstream goods markets) and (ii) is for a majority of respondents not constraining their scale in a way which would prevent them from being successful on global export markets.

Finally, chapter 5, prepared by Prometeia, provides original estimates of the costs of non-competition to the wider economy. Relying on own estimates of markups, the report shows that effective competition brings about sizeable macro-economic benefits, positively affecting investment, employment, productivity and GDP growth.

The study was coordinated by Lear, and in particular by Partner Salvatore Nava and Consultant Elena Salomone, with support from leading scholar Tomaso Duso.

Download the report at this link.