European Competition Policy and Globalization

Since the European Union’s (EU) founding treaties, competition policy has become an increasingly important tool for constructing and maintaining what is now known as the Single European Market (SEM). By prohibiting anticompetitive business activities, competition policies are intended to create a level playing field among competitors and, ultimately, to increase economic efficiency and to determine opportunities and incentives for producers and consumers within the SEM.¹ At the same time, the EU relies heavily on domestic competition policy to prevent anticompetitive business activities and encourage rivalry among firms in its free market economy.² The importance of this policy for European integration has led scholars to claim that ‘[t]he concept of a competition policy is the foundation stone of the entire European Union’ (McGowan and Wilks 1995, 141).

This chapter builds upon the theoretical and conceptual insights discussed in Chapter 1 to describe the gradual convergence of European competition policy since the European Coal and Steel Community (ECSC) became operational in 1952. The chapter focuses in particular on the domestic and international causes of policy change and recent initiatives to modernize merger review and anticompetitive practices. Important roles are identified for European Union (EU) regulators and national politicians. Within the EU’s institutional framework, the regulators and politicians act and react to the legal decisions by the European Court of Justice (ECJ) on individual cases and developments, while the Commission has sought to expand its powers in this key economic policy. The behavior of these central actors is also informed by significant changes in the international political economy — in particular the liberalization of trade and investment over the last three decades — that have altered the incentives for firms to merge, seek state aid, and engage in anticompetitive activity. The chapter highlights the national basis of some of the policies in the competition realm and discusses how the merger philosophies of individual European countries and Commission officials, as well as variation in state capacity, have shaped the development of EU competition policy.

Merger review is one of the most prominent areas of competition policy. The international proliferation of national merger review policies during the last century reflects the emergence of free market economies throughout the world. The European Union’s (EU) own merger review and control regime reflects this proliferation and obliges two-level interaction with other jurisdictions because it makes clear that the activity of non-EU firms is subject to the Union’s competition policy if they are active in the Single European Market (SEM). This simple requirement of EU merger review surprises some observers because it gives the EU authority to review mergers among foreign firms and, therefore, places the Commission as chief of government (COG) in a two-level game in this policy area. When implementing merger review in individual cases, the win-set needs to be understood for Level II constituencies as the possible decisions the Commission could take when dealing with foreign firms. These decisions are typically taken in interaction with competition authorities in other jurisdictions. These other competition authorities then may act as COGs — which may pursue very different Level I strategies due to their different Level II preferences and institutions — in the two-level game of merger review implementation.

The process of globalization in recent decades has changed dramatically the nature of international business and the actors that shape it in at least four ways that are relevant to the themes of this book. First, firms have become huge in terms of global revenues and assets. This growth in size has been driven in large part by a second feature — a shift from a bifurcated global economy during the Cold War to an integrated global market and supply chain over the past quarter century that includes almost every country in the world. Third, globalization has been driven by technological innovation which allows firms that develop cutting-edge products to seize a first-mover advantage in many markets around the world, often leaving competitors scrambling to catch up. The rapidity of technological change and the fluidity of competition in international business in general combine to form the fourth development — how to regulate firms and markets to ensure fair competition. This is a challenge not just for the European Union (EU) but also for antitrust regulators around the world. With goods, services, and corporate strategies changing so quickly, how should governments respond to concerns that some companies may become so powerful as to inhibit competitors from having a chance at being successful, too? This is the question that is at the heart of regulating anticompetitive practices.

State aid is another important component of the European Union’s (EU’s) competition policy that helps to build and manage the regional market. But unlike the other components addressed in this book, state aid is characterized by a crucial difference: it is designed to target government behavior instead of direct business behavior. As part of competition policy, EU state aid policy and its external dimension have also been affected by the changes associated with globalization, in particular the increasing levels of international trade activity. As this chapter discusses, the external dimension of state aid policy is characterized more so than other parts of competition policy by the extent to which it is explicitly linked to the EU’s external trade policy.¹

Since the 1980s, grappling with external aspects has become a priority in the European Union’s (EU) strategy for competition policy (Aydin 2012, 667). As a result of the economic and political changes associated with globalization (see Chapter 1), the defining feature of this strategy is now the promotion of international cooperation and convergence among national competition policies. Notwithstanding the criticism that globalization can lead to a ‘race to the bottom’ in regulations, the EU’s efforts in competition policy suggest that governments can also rise to the challenge and agree on ways to pursue more stringent rules. Indeed, the EU’s promotion of cooperation and convergence in Level I negotiations over competition policy tells this tale.

This final chapter has three goals. The first is to review briefly this book’s objectives, theoretical approach, and empirical findings from previous chapters. The second is to raise and reflect upon some of the limitations that have been revealed by the study. These include words of caution with respect to the two-level game framework used to analyze European competition policy, some of the other business activities and market infractions that fall within the definition of competition policy but are not fully addressed in this book, and the impact of national antitrust regulators beyond the familiar arenas of Brussels and Washington. Finally, this chapter recommends additional areas for further research in the relationships between European competition policy and globalization.