Organized Business, Affiliated Labor, and Competition Policy Reform in Developing Democracies

One of the enduring lessons of the global financial crisis is that regulatory laxity heightens systemic risk. This paper examines the political sources of regulatory laxity, highlighting the influence of interest groups on governments' commitments to competition (antitrust) regulation in democracies. I argue that competition policy enforcement reflects the relative political strength of two contending groups. A rent-preserving alliance of incumbent producers and affiliated labor ("insiders") opposes competition policies that erode its market dominance. A pro-competition coalition of consumers, unorganized workers, and entrepreneurs ("outsiders") favors regulatory oversight. A simple model illustrates that policymakers' commitments to competition policy vary according to the distributive effects of reform. Where insiders are concentrated and encompassing, commitments to antitrust regulatory reform are weakened. To test the propositions, I create an original dataset measuring competition agency design over the period 1975-2007. The results, which are robust to multiple specifications and instrumental variables, suggest that anticompetitive interest groups slow the reform process and weaken governments' commitments to a robust regulatory regime.