In the US monopolies are prohibited, in Europe they are simply prohibited to abuse their dominant position. There is nothing wrong with current legislation in Europe, as a law that protects competition protects efficient competitors, and vice versa.
To: Neelie Kroes, European Commissioner, DG Competition
I hope you will allow this familiarity: in your recent lecture in the US, you spoke as a fellow economist. Your observations were widely interpreted as meaning that Europe’s policy towards dominant companies should be brought more in line with American practice. While the two continents should have common commercial standards where possible, such an outcome is not possible or desirable here.
In principle, American law seems tougher. It is an offence to be, or to seek to create, a monopoly within the US: Europe does not challenge the existence of a dominant position but prohibits its abuse. In practice, dominant companies such as Microsoft have recently found that European law is more restrictive. Fines were imposed on British Airways and on Michelin for offering loyalty rebates which would probably not have been the subject of action in the US.
America’s Sherman Act was passed in 1890 and is out of date. The criminalisation of monopoly was aimed at men such as John D. Rockefeller. The law did not recognise a distinction between competitive success that results from offering consumers better products and prices, and the use of political and economic power to squash or simply to buy out smaller and less well-connected competitors. The test that monopolisation be wilful required instead that the prosecutor establish the motives for the offending conduct.
Although the law cannot always avoid enquiring into the defendant’s state of mind, it encounters difficulties when it does. Europe’s courts have been wise to insist that abuse is “an objective concept” – what you do, rather than what you were thinking, establishes abuse.
American lawyers and judges are more creative than European ones and modern American practice differs considerably from the apparent meaning of the Sherman Act. The manifest weaknesses of that formulation enabled business lobbies to emasculate American antitrust law. Perhaps, given the scale and vitality of the modern American economy, it does not matter much.
The European background is quite different. We have few Rockefellers. Many of our dominant companies are state owned or formerly state owned. Others, ostensibly private businesses, have close connections with supportive governments. Your difficult task is to transform such market structures into innovative industries that compete within Europe and can compete outside it. Many legacy companies will ultimately disappear in that process. But they will not give in easily.
European law states that a dominant company has a special responsibility not to impair the process of genuine undistorted competition. You correctly interpret this as implying that a new business should prosper if, but only if, it is as efficient as the dominant company. A distinction is sometimes made between protecting competition and protecting competitors, but there is no conflict: a law that protects competition protects efficient competitors and vice versa.
You muse on whether the law should be amended to allow an efficiency defence. That would mean that otherwise abusive actions would be permitted if, on balance, they contribute to the welfare of consumers. I hope you will resist this suggestion. Apart from the impracticality of determining whether actions to exclude competitors are in the public interest, the role of cost- benefit analysis is to help legislators determine what the law should be, not to help judges determine how it should be implemented. The law against burglary exists to protect property owners. But it is not, and should not be, a defence to a charge of stealing a television to say that the owner would be better off without it.
There is not much wrong with the current status of Article 82 – the EU treaty provision prohibiting monopoly abuse – and you should reaffirm it. If it is unclear today it is mainly because your officials, battered by those lobbyists who have enjoyed such success across the Atlantic, have lost confidence in its application