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This chapter analyses the special nature of banks, and how the importance of the banking sector and its stability overlaps with the preservation of competitive banking markets. Banks have a unique standing in the economy, and are regarded as more vulnerable to instability than other firms as they provide liquidity and are involved in inter-bank lending markets and the payment system. Due to the systemic nature of banks, governments try to avert a crisis that can affect the whole banking sector by ensuring that banks which are ‘too big to fail’ remain sustainable. Such intervention has a distortive effect on competition, as it prevents ‘self-correction’ of the market. State aid measures that characterized the response of regulators in the recent financial crisis were based on the premise of the special nature of the banking sector and its importance to the economy. In addressing the special nature of banks the chapter looks into the approach adopted towards banks under State aid control, tackling issues such as ‘too-big-to-fail’ and the BRRD and SRM.
A Global Issue
Peter C. Carstensen
This chapter describes the harms that abuse of buyer power causes including both exploitation of producers and exclusion of competing buyers. It highlights the global dimensions of the problems that abuse of buyer power is causing.
Pier Luigi Parcu, Giorgio Monti and Marco Botta
Edited by Pier L. Parcu, Giorgio Monti and Marco Botta
Christian Koenig and Bernhard von Wendland
Regulation is the key to overcoming the tyranny of the marketplace in the pursuit of economic justice and welfare: it can prevent the abuse of economic dominance. Such abuse undermines a functioning market, the economic motor to producing welfare, sustainability and inclusiveness. Abuse of public capital is as omnipresent as the abuse of market dominance by private capital. The state can make major investments or compete with the private sector, or pick winners and subsidise them. Such interventions may be necessary e.g. to provide infrastructure. The wasteful allocation of public monies, however, can do immense harm: it can crowd out private investments, distort private incentives and help foreclosing markets. In any case, it deviates scarce funds from those who need them most. Therefore, regulation of state aid and public procurement is just as essential as regulation against the abuse of market dominance by private capital. State monopolies have been another public cause of economic exploitation until the recent past. Besides poor quality of service, consumer bondage within state monopolies used to entail much higher prices for services compared to liberalised markets in other jurisdictions. After liberalisation though, complex and well-adjusted regulation is crucial to induce functioning competition and to allocate the welfare benefits from liberalisation. Keywords: abuse of market dominance, liberalisation, state aid, states monopolies, regulation