Revitalising EU growth: The power of competitive markets

Abstract

The observed decline in competition in the EU has come at a cost. Simulations of the macroeconomic effects of competition using dynamic stochastic general equilibrium models show that the increase in markups observed in the EU since 2000 may have reduced EU GDP by up to 5–7 % compared to the counterfactual. However, without the European Commission’s competition interventions taken over the last ten years, this impact might have been larger by almost one quarter. The paper also suggests that targeted policy measures limiting the market power of high markup companies and tackling the lack of competition in EU lagging countries, each promise to increase GDP by around 4 % after 10 years, counterbalancing the loss due to the increase in EU markups since 2000.