Preference heterogeneity and equilibrium institutions: The case of European competition policy

Abstract

One characteristic of European competition policy is its complex governance structure. On the one hand, the European competition regulator has always enjoyed a high degree of formal autonomy from national governments. On the other hand, that regulator has always been embedded in a multi-task and collegial organisation that mirrors intergovernmental politics. Although the literature has often disapprovingly noted this complexity, it has not been explained. Part I elaborates on the theoretical lens for understanding the governance structures of EC competition policy. Despite the prominence of principal-agent models, transaction cost economics seems to offer a more promising venue. The assumption that Member States maximise their total expected gains and postpone excessive bargaining costs leads to the following hypothesis: the greater the preference heterogeneity (homogeneity) between Member States, the higher (lower) the asset-specific investments involved, hence the higher (lower) the risk of post-contractual hold-ups, and hence the more (less) integrated the governance structures created to sustain future transactions. Alternatively, this logic leads to a deterministic hypothesis about the sufficiency of preference heterogeneities for the production of complex governance structures. Part II examines this deterministic hypothesis. Using various sources, and conducting both within- and comparative case- studies, it analyses three important cases: the negotiations of the Treaty of Paris (1951), of the Treaty of Rome (1957), and of the two implementing Council Regulations (1962 and 2003). The evidence shows that (a) the relevant actors do reason in terms of transaction cost-economising, and (b) in the presence of preference heterogeneity, actors create complex governance structures. Nevertheless, it is also found that (c) the transaction cost-economising logic is not as compelling as it may be in private market settings, as bargaining costs are not systematically postponed to the post-contractual stage, and (d) the transaction costs between Member States are not the only relevant costs.