Best Antitrust Wishes for 2019!!

Dear LinkedIn Antitrust Readers,

At the end of November 2018, the American Chamber of Commerce to the European Union (AmChamEU) held its 35th Annual Competition Policy Conference in Brussels, with Commissioner Vestager as a guest speaker. The following are the thoughts embodied in the opening address that I had prepared in my capacity as one of the two Co-Chairs of the Competition Policy Committee and which I would like to share with you. The conference program dealt mostly with issues arising in the digitized economy: consumer protection in the face of big data and market power, competition enforcement in digital markets, and theories of harm and the role of evidence. Indeed, competition policy is still in the process of grasping the particularities of the new economy, just as it is still struggling to find the right policy for the bricks-and-mortar economy.

We do live in interesting times. Competition policy is again in the focus of public debate. The Special Report on Competition in a recent Economist shows us that much is expected from the role that competition policy can play, should play or is expected to play. The report reads as if only competition policy can save the world from economic troubles, a very flattering but maybe exaggerated expectation. Competition policy is indeed a key tool in the portfolio of economic policy options. It relates to the question of government interference with business in a capitalistic free market-based society that is built on entrepreneurial freedom. But how much state intervention is legitimate, when is it useful, and is it suitable at all? In my teenage years, framed by the Cold War-era dichotomy between Adam Smith and Karl Marx, any government intervention was suspect. On the other hand, laissez-faire was good. As we all know, reality was more complex, and that not only since the invention of the welfare state.

Still, competition policy needs to define its objectives, even more so in times of paradigm change. But do we understand what the word competition refers to, and do we all have the same understanding? Some time ago I googled the word competition, and in that process came across a statement which helped me understand the nature of competition. It is from the French thinker Paul Valéry. At the end of World War I, in his essay “Crisis of the Mind”, he noted, “Peace is perhaps that state of things in which the natural competition between men is manifested in creation, rather than destruction, as in war.”

This insight is very timely in our world of geopolitical complexity. We must keep cool, calm and collected; that path will help us avoid becoming destructive. Valéry’s though emphasizes something else: we are all inherently competitive. It is our nature to compete. And we compete to win, to be number one ? be it in the Fortune 500, the football league tables or the music charts. It is not only about money. It is about aspirations, the meaning we give to our lives.  Having understood this anthropological reality, our focus inevitably shifts away from predefined society goals to the process of competing with each other. If rivalry is the expression of human aspirations, then government should above all ensure a level playing field, so that each of us has an equal opportunity to participate in the race, and to win it ? protecting the process against foul play, like a referee on the soccer field. Protecting the competitive process is certainly as difficult as defining policy objectives, as 128 years of competition policy since the US Sherman Act have shown.

We should remember that the Sherman Act was above all a political reaction to populist unrest. The antimonopoly movement was fuelled by disgruntled farmers in the American Midwest. To bring their produce to market, these farmers needed the railways. Railways gave volume rebates to large shippers, but not to smaller ones. Some localities were close to competitive points, where competitive shipping rates were available. Remote localities were stuck with only one expensive provider. The farmers did not complain about high rates; they contested rate inequalities, demanding level playing field. There were many pain points in the agricultural logistics chain but, for farmers, the railroads represented one of the greatest evils. There was a psychological factor at play. The local shopkeeper had a face, the railways did not. Railway companies were the first incarnation of the modern corporate organization with layers of management under the command of rich and powerful absentee owners. This behemoth simply terrified individual farmers. But railroads themselves were in a struggle for survival. In the decades after the Civil War, the federal government over-subsidized their development, creating ruinous competition which the railways tried to overcome by those very pools and trusts that the Sherman Act was going to prohibit.

Our situation today is similar to that in 1890. Something new is rising and we have not yet fully grasped its meaning. Hence the importance of not overreacting. Let competition policy find the right ways to manage the competitive process and to ensure a level playing field. This should be done gradually, step by step, and based on concrete evidence. By underscoring the competitive process, I do not claim that we can entirely neglect the material objectives of competition policy. Here are a few reflections on The Economist’s recent comments:  

• Consumer welfare remains an important benchmark. Competition policy should care about the welfare of all citizens, and protect them against exploitation. We must accept that today's consumers are not infants but well-informed adults who make their own purchasing decisions. Never before has there been so much transparency as to alternative choices.
• Other policy goals should be left to other policy makers. Competition policy should not pursue goals other than consumer welfare. It should ensure the fairness of the competitive process rather than decide what a fair society should look like in terms of wealth distribution, data protection and environmental preservation.
• The Economist suggests that high profit margins indicate market dysfunction. I am not certain that this is correct.
• The Economist further points to concentration in the old industries, naming airlines. Again, I am not certain that concentration levels necessarily indicate that markets are not competitive. In the long history of US antitrust policy, very opposing views as to concentration prevailed at different times. For decades, industrial organization theory held that concentration was bad. Later, the Chicago School declared that two companies are sufficient to ensure that a market is competitive. Both views were in my view imposed by ideological views and succeeded in becoming embedded in broader political trends, but they are not based on concrete facts. By the way, the only ones to beat the Chicago School on efficiencies were the Soviets. They claimed that one company per market ensures the maximum economies of scale.  
• Finally, The Economist frequently bashes the new tech giants. I hope that this is not an ideological view taken for purely editorial reasons.

In a nutshell, competition policy should be concrete, fact-based and proportionate.

Wishing us all a prosperous and antitrust-intensive 2019!