Jordi Gual

Deregulation, Integration and Market Structure in European Banking

This paper analyzes the impact of deregulation and market integration policies on the structure of European banking markets. It argues that whether European integration will lead to large increases in EU-wide concentration will depend on the extent to which competition in banking is based on endogenous sunk costs or, alternatively, on variable costs and exogenous sunk costs. The paper also highlights the role of own funds as a source of endogenous increasing returns. Finally, it proposes an empirical test of the dominant form of competition. This procedure is applied to data for eleven EU countries during the period 1981-1995.

Telecommunications Policies: Determinants and Impact

This paper presents new data, in the form of four indices, on liberalization policies and the independence of regulators for a cross-section of countries. These indices are combined with a comprehensive set of performance, institutional and political data to analyze both the determinants and the impact of telecommunications policies. The authors find that liberalization policies are negatively associated with the degree to which countries have an interventionist tradition, but not with the partisan ideology of reforming countries per se. They also find that countries where the institutional endowment constrains less the behavior of the executive bodies, and countries with a stronger incumbent, are more prone to create truly independent regulatory agencies. There is weak evidence that the creation of independent regulatory agencies has a positive effect on network penetration when the endogeneity of regulatory independence is taken into account.

The Integration of EU Banking Markets

The goal of this Paper is to provide an assessment of the EU policies that pursue the creation of a single banking market. The Paper evaluates the degree of integration of EU banking markets and discusses whether current policies are the most appropriate instruments for market integration. After comparing the key features of EU policy with alternative methods of market opening, the analysis stresses that market opening in regulated markets such as banking faces a difficult trade-off between respect for domestic preferences and the elimination of regulations that protect local competitors and are not justified on efficiency grounds. The Paper also provides an overview of recent research, which has looked at different indicators of market integration in EU banking. Finally, it analyses the impact of integration policies on the conduct, the structure and the performance of the banking industry.

AN ECONOMETRIC ANALYSIS OF PRICE DIFFERENTIALS IN THE EEC AUTOMOBILE MARKET

The paper investigates the sources of the observed price disparities in the EEC automobile market. On the basis of an oligopoly model with product differentiation, this paper tests, and fails to reject, the hypothesis that automobile firms segregate national markets in the EEC. It is found that value added tax differentials and the existence of different import restraints (quotas and VERs) are important contributing factors to price disparities. On the contrary, transportation cost differentials are not a significant explanatory variable. Finally, the preference for domestic products or ‘national’ brands is found as an important contributing factor in Britain and Itlay.

The Liberalisation of Telecommunications in the EU: Managing the Transition

This second article in our two-part feature on the inaugural report of a programme to monitor the progress of European deregulation summarises the reports policy recommendations. The programme is designed to be a “report card” on the process of liberalisation, starting here with telecommunications where new technology is leading to dramatic changes in the basic economics of the industry.

Market Definition in the Telecoms Industry

Market definition for antitrust purposes is by now firmly rooted in economic analysis both in the US and the EU, even if the approaches are slightly different. This paper examines the theoretical basis for the legal definitions and assesses whether the general principles need to be adapted when dealing with the telecommunications services industry. The paper finds that the conventional antitrust methodology for market definition can be, to a large extent, readily applied to the telecoms industry but points out some key adjustments that have to be made to this methodology to ensure that the antitrust and regulatory authorities end up defining markets which capture adequately the nature of the competitive interaction in this industry. The definition of markets should be based on a detailed analysis of demand (both complementarities and substitutabilities) and the consideration of all companies which have the assets and capabilities to satisfy these consumer needs. Such an exercise should be done first, and distinguished from the subsequent analysis of the competitive conditions in the markets defined as relevant.

Integrating Regulated Network Markets in Europe

This paper assesses the integration strategy of the European Union in regulated network markets. The paper argues that in these markets integration should not be an end in itself. In regulated markets the conventional gains from trade or freedom of establishment may be outweighed by significant welfare losses if integration involves the choice of a misguided deregulation model. Moreover, the design of the integration process will affect the distribution of the gains from integration, and this may be unacceptable to some of the countries and/or social groups involved, leading to the failure of the process. The integration strategy should carefully balance several potentially conflicting interests, with priorities that may not be the same across industries. The paper provides a comparative analysis of the cases of banking, telecoms and electricity. It suggests that the design of the deregulation cum integration process should ensure the maintenance of a level playing field and the preservation of country-specific strategic interests to varying degrees, depending on the industry under consideration. A reasonable equilibrium of this sort is illustrated in the case of banking, but it has not yet been achieved in electricity. In other instances, for example telecoms, the key goal may be very different, with a focus on avoiding excessive regulatory rigidity. Altogether, this implies that integration strategies should combine strong harmonization of some regulations with a large degree of freedom at the Member State level in other domains.

Regulation and the development of electronic communications in Europe

This paper discusses the future evolution of the European regulatory framework for electronic communications. The paper argues that the deregulation model used so far is inappropriate for the nascent broadband market, both for mobile and fixed broadband. To guarantee the successful deployment of broadband, the regulatory framework should emphasize network competition, and establish network access conditions which promote the investment in alternative infrastructure. Policy should also focus on factors which are key for the expansion of this market: guaranteeing that content can provided across alternative networks, and that there are no obstacles to the Europeanization of the market.

European Telecoms Regulation: Past Performance and Prospects

This paper provides a review of the telecommunications policy of the European Union. We discuss the motivations for the Commissions regulatory choices and provide some evidence on their performance. We find that the outcome of the first regulatory period varied significantly between member states, reflecting the numerous implementation choices that were left at their consideration. The recent reform of the regulation addresses some of the past shortcomings, but still poses some risks for technological neutrality.

Time to Rethink Merger Policy

This paper provides a critical analysis of some of the key features of merger policy as understood and practiced in leading jurisdictions such as the European Community and the United States. It focuses first on a discussion of the gradual move of merger policy towards the examination of unilateral effects. The critical appraisal of this process is based on the practical and theoretical shortcomings of the economic models that underlie the growing prominence of unilateral effects as the key anticompetitive factor arising from a proposed merger. The paper stresses that even if unilateral effects were to lead to an increase in the conventional measures of anticompetitive performance (such as markups), it is not clear that this implies less competitive behavior for many of the most relevant industries in todays advanced economies. Finally, the paper also examines the relationship between competition and welfare, and argues that even if competition does indeed diminish due to a merger, it does not necessarily follow that this is not good in terms of economic welfare, when we take fully into consideration the incentives to innovate and the dynamic welfare gains that arise from new products and production processes.