How EU competition policy should respond to global players & digitisation

02.03.2020

The letter of 4 February by France, Germany, Italy and Poland’s ministers to Executive Vice President Vestager makes several suggestions on how to move forward on competition policy.

These suggestions deserve public debate.

 

By Martin Peitz, Professor of Economics at the University of Mannheim, Research Fellow at the Centre on Regulation in Europe (CERRE) and Director of the Mannheim Centre for Competition and Innovation (MaCCI).

Competition practice has to adjust to market circumstances. Changes in global competition and the increasing importance of digitisation raise important questions about fair competition. Now is a good moment to reflect on the existing competition toolbox and its institutional underpinnings and ask whether adjustments are desirable.

It was a pleasure to read that even in these politically stormy times, the four ministers express support for a competition policy that provides an environment for firms to compete on their merits, to the benefit of European consumers. This approach also means that prosperous firms in Europe will have the chance to be successful abroad (unless they suffer from trade barriers).

The ministers point out that EU companies “now have to compete with foreign companies that sometimes benefit from substantial state support or from protected markets.” Similar observations have been made in the past; for example, with the rise of Japan as a strong exporter some decades ago. It is also fair to say that some European companies benefit from substantial state support (admittedly, under State Aid rules). The ministries in the four signing member states can certainly provide more than a few examples.

These two caveats notwithstanding, the assessment that several non-EU companies operate differently than competing EU companies appears to be correct. The letter recommends that the assessment of horizontal mergers and the definition of the relevant market be modernised. The EU’s horizontal merger guidelines do indeed leave room for improvement. In particular, taking a more forward-looking perspective in light of the importance of innovation and potential competition in many sectors is a must for Europe. In a recent piece, Massimo Motta and I make proposals in this respect when looking at big tech mergers. We suggest updating notification rules to introduce the acquisition price as a complementary screening device. Notified mergers should be evaluated on the basis of a balance-of-harm approach according to which expected efficiencies of a merger should be weighed against expected losses due to possible anti-competitive effects. This also applies to assessing mergers that remove a potential competitor.

Merger policy and competition law are not meant to be part of an industrial policy that gives preference to domestic EU companies. Rather their main objective is to foster competition in the interest of EU consumers who benefit from lower prices and better products. A clear statement to this effect by the ministers would have been appreciated… But the ministers write that the competition toolbox should be made “more efficient and effective in tackling potential abusive behaviour in the single market of economic operators from outside the EU”. The outside observer may wonder why this is only needed for non-EU companies. (Incidentally, this also raises the question of when, exactly, a company would be considered “non-European”.)

The ministers also ask the Commission to provide clarifications on the efficiencies brought about by a merger. It is up to the merging parties to provide an efficiency defence and the Commission is then supposed to include these considerations in their analysis. The move to a balance-of-harm approach would encourage all parties to properly account for efficiencies and allow for probabilistic assessments.

Turning to digital markets, the ministers propose to give some companies the label “digital platform with paramount importance for competition”. They ask the Commission to define companies that deserve this label and to develop a regulatory framework for them. The ministers ask for a proposal by the end of June. Perhaps a good starting point would be to agree to a simpler sounding label to communicate more effectively with the public; e.g. one may label some companies to be systemic. Developing a framework and procedures to assess the status of a company and an adequate framework that possibly combines a variety of competition law and possibly other instruments appears to me an important endeavour.

The introduction of a special status for some companies that subjects them to more stringent rules is certainly a proposal that deserves consideration at the EU level. However, while some in Germany may assume they have delivered a blueprint at the national level (with the proposed Tenth Amendment to the Act against Restraints of Competition), this blueprint differs from a number of alternative proposals on how to deal with “systemic” companies. Some independent legal scholars and competition economists could provide important input. For what it’s worth, in my piece with Massimo Motta we make concrete suggestions on how to formulate a more stringent merger policy for systemic companies.

Looking at several independent firms joining forces, the ministers echo the call by some companies to provide guidance on which cooperative agreements between firms, e.g., in the form of joint ventures, would be permitted. No objections on my side, as long as the benefit to EU consumers is the guiding principle. In the end, often a case-by-case analysis appears to be necessary.

Perhaps the best part of the letter is that it does not mention the term “European champion”. I am hopeful that this reflects the insight that it is not the job of a competition authority to create and nurture such companies; it provides a good starting point to modernise EU competition policy.

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