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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 creation of blue-chip European companies? Sometimes it can be, according to the latest research. report in Reviving EU competitiveness former European Central Bank Governor Mario Draghi. Spain’s Teresa Ribera, nominated as the new EU competition chief, has been instructed to develop a approach “More support for companies growing in global markets.” It is certainly right to ensure that EU antitrust regulations keep pace with rapid changes in technology and the global economy. But the goal should be evolution, not revolution.
Draghi argued competition policy The EU should take more account of the need to create companies that can compete with US and Chinese giants, and not just preserve competition within the EU market. Merger policy should also weigh whether mergers will stimulate innovation, and not focus only on price effects. An “innovation defence”, he suggested, could allow technology or other research-intensive companies to argue that by merging they could achieve the scale needed to invest more in innovation. The EU could move to monitor some such mergers after they are approved, for example by ensuring they fit within agreed investment targets.
However, a key to the approach being successful is determining where EU companies’ lack of scale is actually due to competition rules, rather than remaining an obstacle to cross-border competition. In highly fragmented sectors, such as telecommunications, banking In the case of defence, having fewer companies could strengthen competition and investment in the EU and improve Europe’s ability to compete globally, but national protections or regulatory barriers have been more responsible than merger rules for preventing consolidation. Completing the single market is at least as important as tightening antitrust regulations.
In highly consolidated sectors, allowing regulators to, say, a two-for-one merger could create a European company able to hold its own against other giants in global export markets. Draghi hinted that his approach would have allowed the mega rail merger between France’s Alstom and Germany’s Siemens that Brussels blocked in 2019, angering Paris and Berlin. But such discretion should not come at the price of losing competition at home. The danger is that larger EU countries will try to use it to promote their national champions.
An “innovation defence” that ensures that mergers capable of promoting technological progress are not unnecessarily thwarted has merit, but it needs to be demonstrated that it is a defence in each case, to ensure that it is not misused as a cover for entrenching market dominance. Competition is, in general, good for innovation. While they may argue that buying rivals will reduce costs and free up investment in innovation, big US tech companies have a history of acquiring smaller rivals to neutralise them. Indeed, small start-ups are the source of much technological innovation, even if they are often acquired by the larger players. A stronger EU capital market that allows companies to finance growth without being acquired could do more for innovation than greater market concentration.
When it comes to fostering European champions in sectors where the EU might find it desirable to avoid having to rely on foreign dominant players and monopolies (from, for example, batteries to critical minerals), that is the task of a carefully calibrated industrial policy. Restoring the EU’s vitality requires, above all, creating a complete economic, financial and regulatory ecosystem, of which competition policy is only one part. The effort to make it fit for purpose must ensure that the benefits of its current approach are not lost.