Antitrust Investigations Raise Market Competition
In a new working paper, Stratakis Chair in Corporate Governance and Accountability Paolo Volpin, PhD, and coauthors provide a comprehensive study of the impact of cartel investigations initiated by the European Commission over the 1991-2019 period on companies around the world.
The research shows that cartel investigations reduce profits and spark restructuring activities within the affected sector.
- Firms in sectors affected by an investigation react to the increase in competition by reducing costs, selling assets, cutting employment, and relying more heavily on trade credit from suppliers.
- Shareholders and creditors are completely shielded from any negative effects from the reduction in profitability and the subsequent restructuring activity.
- As competition in the product market increases, the customers of the firms affected by the cartel investigation benefit from an increase in profitability.
These findings suggest that anti-trust authorities should be mindful that the effects of their activity go beyond the product market. Investigations also affect the market for inputs, in particular, the labor market.