The latter has a long history. Competition can appear distorted when a subsidized, state-owned or otherwise state-backed foreign entity seeks to acquire a European company. In 1997, the European Commission scrutinized Boeing’s purchase of McDonnell Douglas, paying close attention to the advantages the merged entity would have as a result of R&D funding from the US Department of Defense, NASA and other public bodies. The Commission approved the merger once it had secured commitments relating to licensing of government-funded patents and transparency of research and development funding.
Given the complex and often subtle interplay between law, politics, economics and trade, it is not surprising that there is no science of competition policy ready to be handed over to artificially intelligent algorithms fed with rules and case law, armed with theories of harm and the econometrics needed to apply them. Equally unsurprisingly, calls to change competition law are met with dire warnings about opening Pandora’s box, coupled with reassuring references to the flexibility of the language of the current law.
Some issues are specific to individual jurisdictions and their particular politics, while others, such as the age-old question of market definition, are of universal concern. Peering into the microscope, we adjust the focus until we see clearly who is competing with whom and where.
Let’s say a company based on Mars seeks to merge with a Belgian one. The initial EU focus is rightly on Belgium. But what’s happening back on Mars? How relevant is that? If the roles were reversed, could the Belgian company enter the Martian market? Does the Martian company have support from its government bolstering its domestic position and giving it the firepower to maraud other planets?
Competition authorities responsible for what happens in Belgium need to worry about the prices for Belgian consumers, but should they also be concerned about where and under what conditions the goods are made, or about opportunities for Belgian companies in those foreign markets? Is it legitimate to oppose a merger on the grounds that a foreign party’s home market is impenetrable? Or if the domestic party’s activities are deemed “strategic” and must therefore remain located in the domestic territory?
In addition to the legal and economic analyses underpinning competition policy, we also need an understanding of political science and the incentives and interests of agencies and professions involved in enforcement and administration. The roles of parliaments and courts in the various jurisdictions need to be considered with regard to enforcement. Ultimately, we must answer the question, to whom are competition authorities accountable?
To take a recent example, if bank resolution rules are missing, should state aid rules be used to approve state support? In the absence of tax rules at EU level, should a country’s favorable tax arrangements for a company in return for local investment be considered a distortion of competition within the EU’s “single” market?
These considerations go beyond arguments about what parameters of competition should be included in the analysis of competition effects. Output, price, research and development, innovation, nipping future competitors in the bud, predatory behavior and foreclosure are all legitimate concerns. New theories of harm may need to be developed to deal with concerns about competitiveness as they emerge, or reemerge, into political consciousness.
Competition policy will have an important role to play in the sustainable reconstruction of post-confinement economies. Public affairs will join law and economics as the disciplines needed to understand what is going on and how to achieve desired outcomes.
Jonathan Faull is Chair, European Public Affairs, Brunswick Group and formerly Director General of the European Commission. This article draws on pieces previously published via the Jean Monnet Network BRIDGE at Dublin City University and in Concurrences.
Illustration by James Steinberg.