A Monopoly speed die sits on display in the Hasbro showroom during the International Toy Fair in New York. (Photographer: Daniel Acker/Bloomberg News)

No One Is Innocent In The Global Game of Monopoly

(Bloomberg Opinion) -- Margrethe Vestager, the EU’s competition commissioner, has a reputation for being one of the world’s most committed trustbusters. From Apple Inc. to Alphabet Inc., the Danish politician has taken on some of the world’s most powerful corporations.

Yet it’s fair to ask whether the EU is really such a shining beacon when it comes to reining in its own companies. 

Over the past few years, several academic papers have shown how monopoly power appears to be expanding rapidly in the U.S. Possible explanations include globalization and technology, but the timidity of American antitrust authorities in tackling the “abuse of dominance” is to blame too. 

The EU, by contrast, has been hailed for fostering greater competition thanks to its single market and stricter antitrust enforcement. Vestager’s battles with Google and Apple – which have had an easy ride in the U.S. – have cemented the European Commission’s reputation in this area.

Yet new economic research shows that Europe isn’t immune from the rise of dominant companies. Jan De Loecker and Jan Eeckhout, who wrote a seminal paper on the decline of competition in the U.S., have recently obtained estimates for the evolution of market power globally. Their study, looking at the financial statements of more than 70,000 firms in 134 countries, shows the markup that European businesses charge over their marginal cost increased from roughly zero in 1980 to 64 percent in 2016. The jump – particularly pronounced in Denmark, Italy and Belgium – is even higher than in the U.S.

No One Is Innocent In The Global Game of Monopoly

The findings, confirmed in similar work by the International Monetary Fund, have the same deep-rooted causes as the ones in the U.S. – this is about globalization and technology, as well as antitrust. But they do raise questions about the EU’s ability to preserve competition. The single market for goods and services is one of the bloc’s proudest achievements, but it’s too often taken for granted.

Last week, Massimo Motta, an economics professor at Barcelona’s Universitat Pompeu Fabra and former chief competition economist at the Commission, asked how tough EU antitrust enforcement has really been. While he acknowledged that EU agencies have been more aggressive than their U.S. counterparts, he has highlighted some remarkable merger statistics. Between 2012 and 2016, the Commission intervened in just 98 out of 1,562 merger cases, and in most cases only to ask for remedies.

Of course, competition authorities can’t have a target for how many mergers should be cleared. Each case has to be examined on its merits. Yet Motta pointed to an inherent problems in EU antitrust enforcement: Too often politicians have a soft spot for creating “European champions” to compete globally with other giants. 

Of course, economies of scale can improve efficiency and lower prices. But if you concentrate so much power in the hands of a big company, you’re placing a lot of trust in them treating the consumer fairly. 

Another drag on competitiveness is the reluctance of European governments, particularly in Spain and Italy, to let bad firms die. As the OECD has noted, “zombie companiesdrag on productivity growth because they suck up resources that would be better used by more innovative rivals. Politicians too often prioritize the preservation of jobs and companies, rather than helping workers retrain for new types of employment.

With a trade war in full swing, it’s possible that European firms will be subject to less competitive pressure from abroad. Governments may also be tempted to protect incumbents through more aggressive industrial policies. As such, it’s imperative that the Commission doubles down on its efforts to defend competition. There has rarely been a greater need for tough antitrust enforcement.

©2018 Bloomberg L.P.