The Protectionist Politics of Enforcement?: Competition Policy and Foreign Firms

• In Event: Bureaucracies and Foreign Policy

Abstract

Regulatory globalization has created new opportunities for economic patriotism, or discrimination in favor of domestic companies. Studies of a number of different regulatory sectors have shown how national regulatory policy can be used to provide domestic firms with competitive advantages over their foreign rivals. However, few scholars have investigated whether and how the design of regulatory bureaucracies shapes the politics of regulatory patriotism in an era of globalized enforcement. Drawing from a comprehensive database of cartel enforcement in the US and EU that covers the years 2000-2015, I investigate the relationship between institutional design and the treatment of foreign and domestic firms committing similar regulatory violations. I find that in the US, where primary enforcement responsibility for anti-cartel laws lies with the US Department of Justice (DOJ), an executive department led by political appointees who serve at the pleasure of the President, foreign firms are subjected to penalties that are more than twice as high as domestic ones, even after adjusting for differences in firm characteristics and the gravity of a firm’s violation in terms of consumer overcharge. By contrast, in the European Union, where enforcement decisions are made by a politically autonomous supranational bureaucracy, the intensity of cartel enforcement does not significantly differ across foreign and domestic firms. The Federal Trade Commission, which is formally independent from elected officials, and national-level competition regulators in Europe, which are also organized as independent regulatory agencies, similarly exhibit lower degrees of discrimination than the DOJ in their treatment of foreign and domestic firms. Such systematic differences in regulatory outputs, within an area of law that is highly harmonized across American and European jurisdictions and characterized by an otherwise similar overall incidence of enforcement, suggests that the degree of political independence possessed by enforcement bureaucracies affects the extent to which regulation is used as a tool of economic patriotism.

Author

• Chase Michael Foster, Brown University