Five Things European Antitrust Gets Wrong

Within the last month, Assistant Attorney General for Antitrust Makan Delrahim was reported to have said to a journalist:

Much wisdom is reflected in this quote, and foreign antitrust authorities would do well to reflect on these issues. For Europe, there are five basic things that it continues to get wrong with its approach to antitrust enforcement.

1. Antitrust is not regulation.

Antitrust enforcement should be grounded in the belief that markets can and should self-regulate. Further, when a private sector restraint of trade occurs, antitrust enforcement steps in to restore market forces to once again self-regulate in the market. However, Europe instead uses antitrust to steer market outcomes, something that is better left to regulation outside the sphere of antitrust.

2. The relationship between antitrust and innovation is complex.

Closely related to the first point, EU remedies often drive market outcomes because the EU often convinces itself that its interventions spur greater competition and innovation. Yet it’s unclear that any ex-post evaluation of its decisions would validate that conclusion. In the EU’s Microsoft case, it is clear that the remedy that required Microsoft to allow consumers to choose between web browsers altered market share between Microsoft and its competitors, but it is not clear at all that innovation flourished as a result of that decision. More recently, the decision by the EU to force the divesture of the global R&D operations of DuPont as a condition of its merger with Dow was done in the name of promoting innovation, but the move has raised eyebrows among serious antitrust experts for its excessive reach.

3. Expanding choice always improves consumer welfare?

Choice plays a role in the antirust view of consumer welfare, but Europe conveniently forgets consumers often choose convenience. Consumers can buy pencils without erasers, but most consumers are pleased that pencil companies generally offer an eraser with every purchase. The same is arguably true for a computer or a smart phone: The consumer wants to be able to turn it on and start to use it. In both the Microsoft and the most recent Google case, the EU decided that consumers are too lazy to download a different app over preloaded offerings, despite the fact that last year alone consumers downloaded 197 billion apps on mobile devices.

4. Bad process leads to bad results.

Europe’s investigative and decision-making process in antitrust cases is not adversarial in nature and consequently is prone to flawed market definitions and untested theories of economic harm. The recent Court of Justice decision that undermined the certainty with which the EU pronounced judgement against Intel more than a decade ago underscores the importance of having solid economic evidence to support the theory of harm. During the period Intel was determined to have violated EU law, computer chip prices were dropping as the processing speed of chips was rapidly increasing. These basic market facts that suggest a highly competitive market were largely ignored.

The EU instead found Intel’s rebates that further lowered the price of their chips to be anti-competitive. How is a firm supposed to defend itself against the theoretical argument that without the rebates the price of the chips would have dropped more and innovation would have advanced faster? The theory of harm and economic evidence the Commission used to justify its decision amounted to Intel being compelled to prove a negative. Without a more adversarial process that challenges internal DG Competition thinking during the investigative process, the EU will continue to leave itself vulnerable to criticism.

5. EU fines are gratuitous.

Large fines in the context of cartel behavior may be justified given that such offenses are not criminal violations in the EU (unlike in the United States). Without prison terms, it can be argued that high fines are appropriate to deter egregious anti-competitive behavior such as collusion among competitors.

Yet Europe’s largest antitrust fines have all been reserved for American firms caught up in single-firm conduct investigations, not cartels. Setting aside the fact that the legal basis for the fine is capped by global turnover versus turnover in the European market, the bigger problem is that there is little nexus between the size of the fine and measurable economic harm caused to EU consumers. Additionally, most single-firm conduct cases are at best subjective judgement calls, not clear cut violations of the law.

Finally, high fines in these highly subjective cases chill future pro-competitive behavior. All firms, including those with large market shares, should be encouraged to compete aggressively. However, large fines send a signal to stop competing up against the legal line and instead play it safe. The message competition authorities should send to firms is always to compete vigorously; and if a legal line is crossed, the priority will be to restore competitive forces in the market, not make news with headline-grabbing fines.

About the authors

Sean Heather

Sean Heather is Senior Vice President for International Regulatory Affairs and Antitrust.

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