Reinforcing Each Other:How the Combination of European and Domestic ReformsIncreased Competition in Liberalized Industries

This paper contends the view that conceives European institutions as the sole decisive factor for competition in network industries. I propose an alternative explanation that recognizes the simultaneous importance of the different domestic institutional settings. In this new framework, European and domestic reforms are mutually reinforcing. The analysis focuses on liberalized industries, where national policies complemented European directives. Using a staggered differences-in-differences quasi-experimental design, I show that when European directives are combined with domestic pro-competition policies, we observe the most significant reduction in firm-level markups. By contrast, when considered in isolation, these reforms do not increase competition. However, the combined effect of domestic and European policies is highly heterogeneous across countries. This result can reconcile domestic institutional variability with the highly diverse competition trends characterizing liberalized industries. Finally, I analyze the effect of privatizations and liberalizations on markups separately. We observe the largest reduction in markups when privatizations are combined with liberalization at the European and domestic levels. By contrast, privatization alone does not significantly reduce market power.