Why (no) global competition policy is a tough choice

This paper analyzes the global aspects of competition policy. The effects of a merger in the global marketplace will generally be asymmetric, and consequently lead to a bias in domestic merger decisions. In order to compare different policy regimes, we ascribe general objective functions to the respective authorities and employ a stochastic notion of mergers. We show that under the territoriality principle, the resulting global policy is too lax, whereas when domestic agencies assume extra-territorial powers the resulting policy is inefficiently strict. A global authority would achieve the first best outcome. The gains, however, would be distributed unevenly, which may explain the difficulty of instituting such an authority.