A Fork in the Road for EU Competition Policy

Economic

Summary:

In her instructions to the incoming EU competition commissioner, Ursula von der Leyen equivocates on the issue of national champions

One might expect the president of the European Commission, Ursula von der Leyen, when instructing the European Union’s incoming competition commissioner, to take a stand on whether competition enforcement should be weakened in order to grow large European firms, or whether that goal is best achieved by maintaining vigorous competition enforcement (as concluded by former European Central Bank president Mario Draghi in his September report to von der Leyen; Draghi, 2024) . But von der Leyen equivocates and does neither, leaving the commissioner-designate, Teresa Ribera, great latitude in her policy choices.

In her mission letter to Ribera , von der Leyen begins with “Europe needs a new approach to competition policy – one that is more supportive of companies scaling up in global markets, allows European businesses and consumers to reap all the benefits of effective competition and is better geared to our common goals, including decarbonisation and a just transition”. This is a sentence of two clashing parts.

In noting that competition policy should help companies scale up, von der Leyen seems to advocate a significant departure from past practice and favour more state intervention in markets. This could be read as support for industrial policy that allows anticompetitive mergers though, as a formal matter, there is no need to weaken competition enforcement to support European companies that want to grow abroad. Many policies, from setting industry standards to encouraging foreign joint ventures to R&D subsidies, will help companies grow. More importantly, coddling a domestic firm at home by protecting it from competition is unlikely to help it achieve success when it meets rivals abroad.

Von der Leyen then takes a more pro-competitive direction in calling for effective competition that “…allows European businesses and consumers to reap all the benefits of effective competition and is better geared to our common goals.” Here we see the correct understanding that a weakening of competition enforcement would harm European consumers. Vigorous competition helps consumers and local businesses by generating lower prices and more innovation and quality. This latter part of the sentence implies that Ribera should not weaken competition enforcement. The very end of this interesting sentence – “including decarbonisation and a just transition” – goes further and suggests competition enforcement should be used not only for the traditional reasons but also to help with a fair green transition.

Industrial policy

Once the green transition is part of the instruction, the role of competition policy broadens beyond competition enforcement. Competition enforcement is one of the three parts of competition policy, the others being regulation and industrial policy. Enforcement is the most prominent segment of competition policy because it governs mergers, antitrust cases and cartels. Regulation of digital monopolies is already assigned to the Commission’s competition directorate-general through the Digital Markets Act (DMA, Regulation (EU) 2022/1925). In addition, it may be a good idea to give the competition commissioner more oversight of industrial policy.

Traditional state aid is an anticompetitive form of industrial policy because it involves one EU country giving money to a local firm so that it can obtain market share in unfair competition against firms from other EU countries; for this reason, such aid breaches European competition law.

But competition policy also includes pro-competitive efforts by governments to fix markets that are broken – which is useful industrial policy (Scott Morton, 2024). Broken markets can be made more competitive through lower entry barriers, better public goods or more efficient workers, among other policies, and these improvements often require government action. By flagging the need for Europe to use the principles of competition to help with the green transition, the mission letter endorses this form of pro-competitive European-wide public aid. Ribera may want to take advantage of this opportunity to rebrand EU-wide industrial policy that increases competition with a different, catchy name, and reserve ‘state aid’ for member state subsidies that distort competition.

The letter asks for adoption of many of the novel ideas in the competition chapter of the Draghi report (Draghi, 2024). These actions are likely to strengthen competition enforcement. Finding ways to enforce against killer acquisitions and strengthen and speed-up enforcement would be excellent steps. Likewise, enforcing the EU Foreign Subsidies Regulation (Regulation (EU) 2022/2560) to ensure competition is fair will be difficult but critical.

Tough tasks

One of the most challenging tasks assigned to the incoming commissioner will be coordinating with global authorities in the enforcement of the DMA. Sophisticated global digital platforms are likely to play off jurisdictions against each other, as each attempts to impose different regulations and remedies with different timelines. Ensuring that Europe comes out ahead in that game should be a top priority for Ribera.

Von der Leyen also issues an instruction to review the Horizontal Merger Control Guidelines 3 , which, she says “should give adequate weight to the European economy’s more acute needs in respect of resilience, efficiency and innovation, the time horizons and investment intensity of competition in certain strategic sectors, and the changed defence and security environment.” This could be problematic.

The concerns about economic resilience, efficiency and innovation are consistent with current analytical approaches in horizontal mergers and require no substantive reform to be taken account of correctly. However, consideration of “investment intensity of competition in certain strategic sectors” is a deviation from past practices in merger review. A serious merger review process protects consumers across all sectors and does not exempt some sectors from rigorous scrutiny. Identifying a ‘strategic sector’ is also outside the remit of a competition specialist and belongs with a foreign or defence authority.

Commissioner-designate Ribera may want to request other parts of the European Commission to take responsibility for defining strategic sectors so that, if she is asked to weaken competition enforcement in those places and consumers are hurt, it is clear that the outcome is not her fault.

European productivity may rise if new (and expensive) industrial policy is directed by a staff enthusiastic about and skilled in making markets more competitive, while at the same time traditional competition enforcement is made broader and quicker. Alternatively, if Ribera interprets the letter as an instruction to deploy industrial policy to distort or weaken competition enforcement, that would be harmful to consumers in Europe. She therefore has a great deal of latitude as to whether she improves European competitiveness or not.

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