Europe Shouldn’t Relax Its Antitrust Rules
(Bloomberg Opinion) -- The European Union’s governments are encouraging the European Commission to weaken its antitrust standards to promote “continental champions.” Europe, they say, needs larger companies to compete on an equal footing with U.S. and Chinese giants. This idea is a mistake, and it rests on an economic fallacy. Big firms aren’t necessarily more efficient than smaller ones, especially when they’re big because of state support. An effective antitrust policy is actually a source of strength.
The EU antitrust regime has long been a cornerstone of the European single market. To ensure that companies compete freely and fairly across the union, the Commission polices support from their respective governments and any abuse of their market power. Lately, though, Brussels hasn’t been as effective in this as it used to be. A recent study has shown that the mark-up that European businesses charge over their marginal cost rose from roughly zero in 1980 to more than 60 percent in 2016. The rise could be due to globalization and technology as well as to a softer approach to antitrust, but it’s disturbing nonetheless — and it’s bigger than in the United States.
Several EU countries are pushing for changes that could increase market power even further. In December, 19 national governments agreed to a proposal to loosen the rules. Alstom SA and Siemens AG's plan to merge their rail businesses to create a Franco-German champion to rival potential Chinese competition is a case in point. The French and German governments are urging the Commission to clear the deal; competition authorities in four other member states are opposed. A decision is due soon.
The Commission shouldn’t lower its standards. Horizontal mergers like the Alstom-Siemens deal are likely to raise prices unless they yield big gains in efficiency. Mergers can also block the emergence of new rivals, hobbling competition in future as well as right now. And there’s no evidence that a company needs to grow through mergers to compete globally: Monopolies generally get less efficient when they’re shielded from domestic competition. Europe would be wiser to focus on preventing unfair competition from abroad. For instance, there’s a good case for making it tougher for Chinese or other companies to bid for European procurement contracts or acquire European companies if they benefit from excessive state aid.
EU companies already have to contend with strong global competitors, and the pressure is likely to grow in the coming years. Governments should stand behind these corporations by improving their corporate-tax systems and easing their ability to access other European markets — that is, by building on the strengths of the single market. Changes like that would improve the prospects of EU enterprises in ways that help, rather than harm, EU consumers.
Editorials are written by the Bloomberg Opinion editorial board.
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