Is it Worth all the Trouble? – The Costs and Benefits of Antitrust Enforcement

There is no significant doubt among economists that competition policy has established itself in most industrialised countries as an integral part of public policy that contributes substantially to the improvement of the wealth of nations. However, the follow-up question of how substantial these benefits of competition policy have been (compared to the costs), has not yet attracted huge research input by economists. This "state of the art" is unfortunate as, for instance, competition authorities have to justify their budgets (or requests for budget increases) and might find it helpful to show the significance of their work. Furthermore, economists also benefit from showing to what extent society benefits from their public policy recommendations. Against this background, the paper aims at assessing the costs and benefits of antitrust enforcement. The analysis starts with an investigation of why competition is typically worth protecting followed by a collection of empirical evidence which shows that competition actually needs protection by antitrust policy in order to hinder firms to permanently abuse market power to the detriment of consumers. Subsequently, an estimation of the costs and benefits of antitrust enforcement is undertaken for the United States and the Netherlands. The analysis differentiates between an aggregate level approach which basically focuses on deadweight losses and a disaggregate level approach which estimates the benefits of antitrust enforcement in particular antitrust cases and compares these figures with estimates of the costs of antitrust enforcement. The results basically show for the United States and the Netherlands that the realised benefits overtop the realised costs by far as long as overcharges/redistribution effects and deadweight losses are considered as welfare loss. However, if only the avoidance of deadweight losses is considered as benefit of antitrust policy, the benefits estimate for cartel and merger enforcement under a disaggregate approach cannot cover the derived cost estimate for the United States and the Netherlands.

Hüschelrath, Kai (2008), Is it Worth all the Trouble? – The Costs and Benefits of Antitrust Enforcement, ZEW Discussion Paper No. 08-107, Mannheim, published in: World Competition Law and Economics Review.