The EU’s antitrust lessons for America

March 07, 2022 09:09
The Federal Trade Commission is seeking to unwind Facebook’s acquisitions of Instagram and WhatsApp in 2012 and 2014. Photo: Reuters

US corporate giants often criticize the European Commission’s aggressive competition policy, claiming that it protects inefficient European firms. Meanwhile, they applaud America’s laissez-faire antitrust policies, which regard market dominance as a reward for success and have aided the development of today’s US megafirms, especially in the tech sector.

With US President Joe Biden’s administration seeking to boost competition in order to reduce what it views as excessive corporate consolidation, this may be about to change. But the risk is that, rather than tweaking an antitrust regime that has mostly served America well, Biden may go too far in reforming it. US big business may therefore find that, in the long run, the European Union’s competition policy ends up being more predictable and reasonable than America’s.

Consider how the EU and US authorities currently regulate anti-competitive conduct by dominant firms. The European Commission, already tough, is getting even stricter – but there are checks and balances to prevent it from going too far.

For example, the Commission is increasingly concerned about large tech firms leveraging their most-used services to support less-used ones – as, for example, Microsoft does when it uses Windows to promote its search engine, Bing. But, although these practices can give big firms huge advantages over smaller competitors, they are not necessarily anti-competitive. While Bing has a small market share, it is the only meaningful challenger to Google’s near-monopoly in online search. Microsoft’s practices boost competition in this domain and should thus be welcomed, not banned.

The EU is about to enact a new law, the Digital Markets Act, which will prohibit such conduct by digital platforms – even if it boosts competition. But the EU Court of Justice (ECJ), in its Google Shopping judgment last November, showed that it would at least ensure that EU competition policy does not ban this practice across the economy.

In its ruling, the ECJ agreed with the Commission that Google had acted anti-competitively by using its search engine to promote its own shopping service. But the judges implicitly warned the Commission that the ruling did not ban all such practices, because it relied heavily on factors specific to the case, such as Google’s enduring market share of above 90%. And the ECJ recently overturned a €1.1 billion ($1.2 billion) fine on Intel, criticizing the Commission for failing to provide adequate proof that Intel had reduced competition.

Compared to the EU, US antitrust policy in recent decades has been weak. For example, dominant firms can set prices as high as they like, on the assumption that if they raise prices too much, rivals will emerge to undercut them. This approach served America well in the past, but it is now difficult to justify – especially in digital markets, where the likes of Google, despite charging retailers high prices to advertise online, still have no viable rivals.

But the Biden administration’s bold competition agenda may overcompensate for past laxity – and this agenda will be driven by legislation, which will sideline US courts’ past conservatism in competition cases. The basic principles of EU competition law, on the other hand, are set out in international treaties and interpreted by the ECJ in judgments that cannot be as easily circumvented.

The EU – at least outside the tech sector – is therefore sticking to well-understood and enduring competition-law principles. By contrast, US antitrust enforcement agencies have simply reinterpreted vague standards in new ways, for example by planning to prosecute firms that do not breach conventional competition law, but use so-called “unfair methods of competition.”

Some American politicians, like US Senator Elizabeth Warren of Massachusetts, also advocate radical solutions like breaking up large tech companies, which the EU is not pursuing. And a bill introduced by US Senator Amy Klobuchar of Minnesota would prohibit dominant firms from using their position to the disadvantage of their competitors. Klobuchar’s ill-conceived proposal ignores the central objective of competition policy, which is to help consumers, not competitors. For example, when a firm lowers its prices below those charged by other firms, those other firms are “disadvantaged” – but consumers benefit.

Merger reviews raise similar issues. Although corporate acquisitions may sometimes reduce competition, many benefit consumers, because they help firms become more efficient and compete more effectively, or give smaller companies more resources to commercialize their ideas. But both EU and US authorities want to stop so-called killer acquisitions, where large firms purchase start-ups solely to prevent them from becoming competitors later.

The Commission, despite recently taking steps to scrutinize more deals, has a good track record of allowing start-up acquisitions to proceed. This will probably continue, because EU lawmakers cannot easily tinker with merger-review laws to make it easier to block questionable deals.

In contrast, US authorities have recently unexpectedly withdrawn guidelines for industry that were meant to help businesses understand whether their deals were likely to be blocked. They have also changed merger-review policies to make it more difficult for some firms to get their transactions cleared. They have even threatened to review deals retrospectively. The Federal Trade Commission is seeking to unwind Facebook’s acquisitions of Instagram and WhatsApp in 2012 and 2014, respectively – transactions that it reviewed and approved at the time. And Klobuchar’s bill could force US authorities to block certain deals, even if they would probably benefit consumers.

Today, the global consensus appears to be shifting toward stricter competition policy. But while the EU’s courts and legislative processes will moderate the European Commission’s hardline instincts, the United States, with its newfound antitrust zeal, risks banning corporate conduct and deals that help consumers. In the future, therefore, big businesses wanting moderate and stable competition policy may have to look to Brussels rather than Washington.

Copyright: Project Syndicate
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Research fellow at the Centre for European Reform