EU competition policy: a more holistic approach needed

The European Commission looks at mergers only through the narrow, consumer-price lens of its competition policy. The wider public interest is not being served.

Magdalena Senn

Last year’s merger of Monsanto and Bayer created the world’s largest integrated seeds and pesticides supplier. The merger was approved by the European Commission despite concerns expressed by citizens and NGOs that it represented a threat to food safety, consumer protection and the environment. The commission’s condition was that certain parts of the business had to be sold to sustain the prevailing competition and innovation in the market.

While assessing the effects on consumer prices and to a minor extent on innovation, the commission did not take into account risks to food security, the environment or consumer protection. This problem of ignoring a wide range of risk factors attached to mergers and acquisitions is structural: the commission applies a consumer-welfare approach to competition policy, focusing on price efficiency as the main measure of competition.

This has led to other controversial decisions in recent years. For instance, the takeover of Whatsapp by Facebook was approved by the commission in 2014. The acquisition has led to a massive concentration of user data, cementing the companies’ powerful position in the market and threatening the protection of consumer data. The commission’s decision to fine Facebook in 2017 for providing misleading information to EU authorities, in the context of this acquisition, did not put into question its assessment.

Price-centric paradigm

These examples reflect the current price-centric paradigm of competition policy. The commission interprets the merger regulation aimed at prohibiting mergers and acquisitions that would significantly reduce competition in the single market only in the light of potential consumer-price effects. The key assessment as to whether a merger reduces competition is the likelihood that it leads to an increase in consumer prices, due to the dominant position of the newly created company. Treating the best market outcome as the lowest consumer price, monopoly-like control of user data or high concentrations in the supply chain are not considered a problem as long as prices are not affected. The impact of mergers and acquisitions on innovation is nevertheless accorded a certain role.

The commission’s approach is blind to the fact that the production of all kinds of goods and the provision of services often come with negative externalities not reflected in the price paid by consumers. This means that companies can rely on certain freely available resources, pollute water or exploit insufficiently protected workers, without paying the real cost. This allows them to offer products cheaper than they actually are from a societal point of view, since part of the cost is borne by the public or by affected communities around production sites.

When competition policy only takes account of the price upfront, it favours those who can best exploit externalities to reduce their production costs. Thereby, competition policy creates locational advantages for sites with lower protection standards for people and environment. As there are differences between EU member states when it comes to environmental or social standards and their implementation, while at the same time companies can move freely within the internal market, the outcome is a non-level playing-field for competition. Instead of companies competing on the basis of common rules, we end up with harmful competition between locations, with a race-to-the-bottom in protection standards.

Locational differences in social and environmental standards in the single market will remain for the foreseeable future. Therefore, EU competition policy needs to be more holistic, to account for negative externalities along the supply chain not reflected in consumer prices. Environmental degradation, violation of workers’ rights or concentration of data control are public-interest concerns which should be incorporated in competition-policy decisions, as they are not reflected in goods prices.

Public-interest concerns

Could EU competition law be interpreted to take account of wider public-interest concerns beyond consumer prices? The debate around a more sustainable and holistic EU competition policy inspired a study and a conference organised by the NGO Fair Trade Advocacy Office in December 2018 and was taken up in the latest annual own-initiative report on competition policy of the European Parliament, adopted in January 2019.

The report was drafted and negotiated by the Austrian Green member Michel Reimon. In it, the parliament calls for a complete overhaul by the commission of competition policy. It is the first time the parliament has criticised the commission’s approach in such a fundamental manner. The report was adopted with a broad, cross-party majority supporting the continuing debate as to the appropriateness of current competition policy.

Regarding the Bayer/Monsanto merger, the parliament contends that the commission ignored treaty principles, namely food safety and consumer protection. It stresses the high concentration in food supply chains in oligopolistic markets, which threatens biodiversity, makes farmers more dependent on large suppliers of seeds and pesticides and reduces innovation and food quality.

The report also addresses sustainability and fair-trade standards along supply chains. It calls on the commission to interpret the treaty rule on co-operation between enterprises in the light of wider European values. Beyond price efficiency, antitrust decisions should take into account treaty-based principles, such as environmental standards, climate policy and consumer protection. Revising the horizontal guidelines for co-operation between market players would create legal certainty for initiatives that aim to improve environmental and social standards. It could encourage more actors to act collectively against environmental degradation and unfair working conditions.

When it comes to the challenges posed by the digital economy, the report demands that future merger decisions should go beyond the analysis of price effects and assess anti-competitive behaviour from a multi-disciplinary perspective, also accounting for breaches of laws regulating data and consumer protection. The ever-increasing concentration of data flows in the hands of a few companies, such as Google or Facebook, excludes competitors from the market and can be considered an abuse of a market-dominating position, negatively affecting the quality of products and services and the privacy of users. The parliament suggests using the effective control of user data as a proxy for the existence of market power and urges the commission to specify this in its guidance on abuses of dominant positions.

The relevant threshold to launch an EU merger review is linked to the turnover of the involved companies. In the digital economy, however, turnover is not a reliable proxy for the market power of a company, as many services such as social networks are free of cost. Instead, digital companies profit from the number of visitors to a website for advertising purposes. Therefore, the parliament calls on the commission to revise the thresholds for merger reviews, to account for the number of consumers affected by a merger and the value of transactions linked to it.

Adapt rules

The list of issues with current EU competition-policy decisions that fail to serve the public interest in several dimensions—from biodiversity to concentrated data control—shows the need to adapt competition rules for an uneven playing field. Both the European Parliament and Fair Trade Advocacy suggest the narrow, price-centric approach can be overcome without treaty changes. The objectives of competition policy have evolved over time, showing the potential for reinterpretation of unaltered legal provisions.

The commission should develop a more holistic interpretation of EU competition rules, which takes into account a broader set of treaty principles. This could be achieved by an overhaul of the various guidelines to the application of the rules. Revised guidelines would provide legal certainty for all those working together for a more sustainable economy.

A European eco-social market economy offers a global model for the efforts to tame the destructive side of capitalism and alleviate its harmful impact on people and nature. When it comes to competition policy, the EU should lead by example, establishing a holistic interpretation that accounts for treaty principles aimed at protecting the public interest, such as climate and environmental protection and workers’ rights.

Europe is becoming a pioneer in the area of sustainable finance by writing sustainability into the DNA of the financial system. Alongside greening financial markets, the commission should develop a more sustainable European competition policy, to remove antitrust-related obstacles to a more equitable and ecological economy. This could contribute to the EU’s commitments for the Paris agreement, as well as encourage initiatives towards a more social and ecological economic model.