The EU Competition Policy Dilemma

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EU antitrust policy has long been praised for protecting against abuses of market dominance and monopolistic price gouging. But is it stifling the rise of Europe’s global giants? Sometimes it is, according to a recent report on revitalising EU competitiveness by former European Central Bank President Mario Draghi. Teresa Ribera of Spain, nominated as the EU’s new competition chief, has been told to develop an approach that “better supports companies in expanding into global markets”. It is certainly right to ensure that EU antitrust rules keep up with the dizzying changes in technology and the global economy. But the aim should be evolution, not revolution.

Draghi argued that competition policy should take greater account of the need to create companies that can compete with American and Chinese giants, rather than just protecting competition in the EU market. Merger policy should also consider whether mergers will stimulate innovation, rather than focusing solely on price effects. “Innovation defense,” he suggested, could allow technology or other research-intensive companies to argue that through a merger they can achieve the scale needed to engage more in innovation. The EU could move to oversee some such mergers after they have been approved — for example, by ensuring they stick to agreed investment targets.

The key to an effective approach, however, must be to identify where the lack of scale in EU companies is actually the fault of competition rules, rather than the remaining obstacles to competition across national borders. In highly fragmented sectors such as telecommunications, banking or defence, fewer companies can actually strengthen competition and investment in the EU and enhance Europe’s ability to compete globally. But national safeguards or regulatory barriers are more likely to thwart consolidation than merger rules. Completing the single market is at least as important as adapting antitrust rules.

In highly consolidated sectors, giving regulators permission for, say, a two-for-one merger could create a European company capable of keeping up with other giants in global export markets. Draghi has suggested that his approach would allow a rail megamerger between France’s Alstom and Germany’s Siemens, which Brussels blocked in 2019, angering Paris and Berlin. But such discretion should not come at the cost of losing competition at home. The danger is that larger EU countries will seek to use it to promote their national champions.

An “innovation defense” that could ensure that mergers that could promote technological progress are not unnecessarily thwarted has merit. But the case needs to be proven on a case-by-case basis—to ensure that the defense is not misused as a cover to perpetuate market dominance. Competition is generally good for innovation. While they might argue that buying rivals would lower costs and free up investment in innovation, large US technology firms have a history of acquiring smaller rivals in order to neutralize them. Indeed, small start-ups are the source of much technological innovation, even if they are often subsequently acquired by larger players. A more robust EU capital market that allows firms to finance growth without being acquired could do more for innovation than greater market concentration.

When it comes to nurturing European champions in sectors where the EU might find it desirable to avoid having to rely on dominant foreign players and monopolies – from batteries to critical minerals, for example – that is the task of a carefully calibrated industrial policy. Restoring the EU’s vitality is first and foremost about creating an entire economic, financial and regulatory ecosystem – of which competition policy is just one part. An effort to make it fit for purpose should ensure that the benefits of its current approach are not lost.