Anti-trust concerns are not so easily dismissed

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Competition policy has become divorced from its original purposes – satisfying litigators is not the same as satisfying the purposes of the law. This week, John takes a look at Microsoft’s antitrust case and draws lessons from policy decisions of the past.

We should usually be happy when legal disputes are settled between the parties rather than fought in the courts. Conciliation is preferable to conflict, the taxpayer is spared expense and almost anything is better than watching lawyers clock up their bills.

But consider the following. Company A dominates a market. Then company B enters with lower prices and better products. Company A responds with offers targeted so aggressively at potential customers of company B that the entrant cannot operate profitably.

Predatory action is prohibited in Europe, the US and most other countries. So company B sues. Before the judge dons his robes, company A agrees to make a substantial payment to company B, which then withdraws from the case and the market. Company A’s comfortable and profitable monopoly is restored.

Everyone is happy – except, of course, consumers, whose interests the law exists to defend. If company A were simply to pay company B not to compete, that would be illegal, as it should be. But if the same effect is achieved through the settlement of an antitrust action, no rules are breached if the agreement is appropriately drafted, as it certainly will be. Could this happen? Does this happen? Yes.

There are significant differences between this hypothetical example and the antitrust suit against Microsoft. That dispute revolves around complex issues in the bundling of software products. The actions against Microsoft have been pursued by public agencies – the US Department of Justice and the European Commission.

But there are also important similarities. Antitrust policies exist to protect consumers and citizens from the economic and political power of large companies. But nowadays antitrust investigations are very often the result of complaints by other companies. Inquiries into retailing take place not because consumers are unhappy with the supermarkets’ service but because their growing power is threatening to manufacturers and small shopkeepers.

In the US, the public interest in competition has been emasculated by business lobbies. In Europe, the Commission has been battered by a series of adverse decisions by the European Court of Justice. These judges have demanded better evidence of damage to consumers from a projected merger than company directors have ever required in assessing benefit to shareholders. Large companies have much greater resources to argue their case than have consumers and their representatives, and substantially greater resources than the enforcement agencies. So in big antitrust disputes – such as those involving Microsoft – large companies often line up on both sides. Much of the information and argument in the case has come from Microsoft’s competitors. There is nothing intrinsically wrong with this – who is better placed to identify abuses by a dominant company than competitors? But the purpose of the policy is to protect competition, not competitors, and the interests of competition are not the same as the interests of competitors. Competitors want to make profits rather than foster competitive markets.

Whatever feuding businesses may agree among themselves, the consumer interest should remain paramount. Microsoft has sensibly decided to deal with the remaining antitrust issues against it in a conciliatory manner. But the future conduct of the case should depend not on whether the parties to the dispute are satisfied but on whether the public interest issues raised have been adequately met. The most egregious issue is Microsoft’s payment to the trade association that was one of the Commission’s most prominent supporters in its case against the US group. Worse, almost half that sum went to the trade association’s top official.

Satisfying litigators is not the same as satisfying the purposes of the law. Competition policy has become divorced from its original purposes. A hundred years ago, great combinations in industries such as steel, oil and tobacco threatened to monopolise each discrete area of US business. The objective of antitrust policy was to limit the political influence of such companies and to ensure that they could not block innovative forces of rivalry and new enterprise. Amid the complexities of modern competition law, we should keep hold of these very simple ideas.

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