Government and Institutions

The EU’s antitrust battle: statism vs. dynamism

In his book The Antitrust Paradox, Robert H. Bork recalls a lawyer’s quip which compared antitrust authorities to the sheriff of a rowdy Western frontier town: The sheriff does not always have to intervene actively; in general, it is enough if he just patrols the streets, and occasionally fires a shot to keep passers-by on their best behaviour.

Perhaps the EU Commission’s investigation into Google is not exactly a pistol shot in a Wild West town. Be that as it may, the question remains whether, in antitrust proceedings concerning the digital market, there is a clear line that separates the legal rationale from the ideological one, or the culprit from the scapegoat.

Google is charged, under two different investigations, for two practices: favouring its own comparison shopping product in its search results, and hindering the development of alternative operating systems to Google’s Android by means of exclusivity agreements with smartphone and tablet manufacturers.

By issuing a statement of charges pertaining to the first issue, and opening a formal investigation into the second one, EU Competition Commissioner Margrethe Vestager stated her aim of guaranteeing unfettered development of the digital economy, free of any unilaterally imposed obstacles to competition from any company. The ideological nature of this goal, however, clearly emerges from a counterfactual consideration: nobody – including the authorities charged with protecting and monitoring a free competitive environment –can tell what developments would ensue if companies were not subjected to antitrust sanctions. We cannot know whether the growth of any market is due to monitoring by antitrust authorities, or entirely unrelated causes.

In 2004, Microsoft was fined a record €497m for abusing its dominant market position, to which almost €900m were added in the appeal decision for deliberately hindering the supply of competitors’ products on PCs running the Windows operating system.

As is the case for Google’s current dominance in search engines, at the time Microsoft held some 90% of the European market for operating systems. As today, the most vocal complaints did come not from consumers, but from Microsoft’s smaller (at the time) competitors. A few years hence, Microsoft was no longer the unchallenged behemoth in the electronics and digital services markets. Was this the result of the EU Commission’s action, which aimed at curtailing its market share to enable the survival of a greater number of competitors? If this is the case, then it would seem that European regulations did in fact cut Goliath down to size, thus allowing the little Davids in the relevant market to grow but, at the same time, that these minnows have since grown to quite respectable proportions.

As a consequence, it would appear that Google, in particular, grew to be ‘too big’ not to raise concerns, although less among its consumers than among its competitors. Apparently, these circumstances would call for placing this behemoth too on the EU Commission’s operating table.

In contrast, if we were to conclude that the European case was not the root cause of Microsoft’s loss of its dominance, we should conclude that the remedies imposed by the Commission in Microsoft’s case did not prevent the emergence of new ‘too big’ actors in the digital market. Either way, the implication would be that the antitrust authorities’ action was at best pointless. Thus, doing the same thing all over again would probably be equally pointless.

A second explanation is the more plausible one. There is good evidence that innovation, not regulation, has led to the emergence of novel ways to deploy the same digital technologies.

The very concept of a search engine technology might well become obsolete, as the use of apps increases, as we use smartphones more than PCs, and as our information increasingly comes from social networks rather than search engines.

Undoubtedly, the antitrust authorities’ motives are unimpeachable, but it remains the case that the regulation of competition looks at the markets from a static perspective. Yet companies, like individual products, have a life-cycle: they grow, they reach a peak, they experience a decline, and then they either pass away or consolidate.

Regulators claim to defend their citizens by shaping the future of a market by extrapolating the present, but this might well have perverse effects. And this is nowhere truer than in a highly dynamic market such as the digital economy, which – at some 7 percent of European GDP – does not seem to leave too many consumers unsatisfied.

1 thought on “The EU’s antitrust battle: statism vs. dynamism”

  1. Posted 06/05/2015 at 13:52 | Permalink

    Those who interfere in markets on behalf of government agencies may indeed ‘mean well’; but we should judge them by the results not by their intentions. It is hard to resist the conclusion that all too many agencies try to justify their existence by doing far too much. Those of us who advocate laissez-faire (which I define as ‘government non-interference’) mean well too.

Comments are closed.