Optimal firm behaviour depends on the specific business environment within which firms act. If the business environment is subject to fundamental and rapid change, this will most likely trigger modified strategic behaviour by firms. This could also have consequences for merger policy: behaviour evaluated to be restricting competition within the business environment at one point in time might not be restricting competition anymore after circumstances have fundamentally changed. Possible policy implications with regard to competition policy will then be drawn in chapter IV.
Many of the important and fundamental changes in business environment have been subsumed under the heading of “globalisation”. This concept has been able to generate angry opposition by many who directly benefit from it. But it has also been met with scepticism by many economic historians who point out that today’s integration levels are not dramatically higher than those achieved at the end of the 19th century, but that, in fact, they are often lower than those of more than a hundred years ago.
Still, it is a widely used concept and many of the changes in business environment can be subsumed under this heading. We define globalisation as the integration of production and distribution processes concerning goods and services beyond the borders of nation-states. Two indicators are often used to demonstrate the underlying developments:
(1) The increase in international trade; this has been a long-term trend since the end of World War II that has picked up considerable speed since the 1980s. Since then, growth in world trade has by far outnumbered growth in world income. It is particularly noteworthy that trade in services has been consistently growing faster than trade in goods.
(2) The increase in foreign direct investment; the growth in foreign direct investment has been consistently higher than the growth of world income.
In this chapter, some of the causes that have brought about these changes will be dealt with. Due to them, the costs of acting beyond the borders of the nation-state have decreased. These costs will hitherto be called international interaction costs (for the term and many similar arguments, see also Erb et al. 2000, chapter A). They consist of two categories, namely the costs of overcoming space and (nation-state) borders on the one hand and the costs of foreign direct investments on the other. The first category can be divided into three sub-categories, namely (1) the costs of transporting goods between two countries, (2) the transaction costs that have to be incurred when contracting with foreigners,12 and (3) the costs for complying with state-mandated barriers to entry such as tariff and non-tariff barriers to trade. Similarly, the costs of foreign direct investment can be broken down into three subcategories, namely (1) the costs of financing a foreign direct investment, (2) the transaction costs that have to be incurred, and (3) the costs of overcoming statemandated barriers to entry. Some of these costs must have fallen to make globalisation happen.
We propose to distinguish between decreases in cost that are due to policy changes (liberalisation, deregulation) and those that are due to economic or technological changes. Section one will deal with policy factors and section two with economic and technological factors. Section three contains some conclusions.
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