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How to Preserve Trust in Anti-trust

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Let it be known: yesterday was European Competition Day. With a one-day conference in Stockholm, hosted by the Swedish EU Presidency, the European Commission wanted to enhance the visibility of EU competition policy (or anti-trust policy, in American terminology) and explain its achievements to the general public.

The idea for a European Competition Day grew out of the concern that European citizens are in general poorly informed about the benefits they can derive from EU competition policy. In light of the current economic crisis, consumer education and awareness-raising has never been more crucial.

In order to preserve public confidence in competitive markets, and in the benefits derived from them for our everyday life, a better understanding of the importance of competition policy is invaluable.

In Europe, the U.S. and elsewhere, the crisis has generated much debate about the reliance on market forces to provide the best outcome for consumers and the economy as a whole. It has poked holes in the idea that financial markets will self-correct. Extending this concern to markets in general is not a big leap. Many industries in distress have already requested greater tolerance towards cartels, abuses of dominant positions and other anti-competitive practices and, as the social impact of the recession unfolds, political pressure to retrench competition enforcement is expected to intensify. As a response to these calls, the EU and U.S. competition authorities declare that they continue business as usual. However, the European Commission already showed flexibility in the application of the rules under which state aid is monitored (it approved over 2,900 billion Euro of state guarantees in favour of banks). Furthermore, if history can tell us anything, it is that no government has reacted to a crisis by calling for a more vigorous anti-trust enforcement. In the face of the Great Depression, the U.S. government suspended the anti-trust rules and put in its place a system of industry-sponsored codes. Similarly, albeit less radical, the European Commission relaxed its stance on competition issues in response to the oil crises in the mid-1970s.

The current economic reality of course needs to be recognised. And it is certainly true that unrestrained markets will not necessarily deliver. But in settling the relationship between regulatory interventions and ex post market corrections (through the competition rules), it would be wrong to lose the commitment to the latter. As the EU competition commissioner, Neelie Kroes, likes to phrase it: adequate competition oversight is not part of the problem, it is part of the solution to help markets work better. Yet herein lies a fundamental problem: a preference for market-based solutions, and thus also the support for a vigorous competition policy, is based on public confidence in the market process.

So, how to preserve and restore consumer trust in markets and in competition policy? The position of consumers in competition enforcement must be strengthened and I suggest three ways to do so.

Firstly, more account should be taken of the interests of the final consumer in the application of the competition rules. It is hard to find a speech of Commissioner Kroes where she does not use the catchphrase that consumer welfare is at the heart of EU competition policy. However, the use of the notion of consumer welfare is misleading. Often it is used in a technical sense that considers the welfare of the (intermediate) sellers and customers of the companies. In fact, the subsequent impact on consumers like you and me is rarely considered. There is no need to prove in court or in administrative proceedings direct harm to the end-consumer. And when efficiencies flowing from an anticompetitive practice are used as a defense, it is not necessary to establish that these efficiencies are passed on to the final consumer. Instead, competition authorities, both at the national and European level, presume a causal link between harm to the competitive process and harm to final consumers. This link is not always evident, though. To live up to the pro-consumer mantra, a more solid assessment of how a certain conduct affects the final consumer is required.

Secondly, the final consumer should be better informed about the benefits of competition enforcement. Most of us have heard about the colossal fines the European Commission imposed on companies like Microsoft (497 million Euro). More recent sanctions have already dwarfed this fine. The latest record was set in May, when Kroes slapped a 1.06 billion Euro penalty on chipmaker Intel for abusing its dominant position (the Intel fine equates to almost 1 per cent of the EU budget!). But do we also understand that competition policy is not only about giving pinpricks to the bank balance of enormous corporations?

Despite the economic crisis, there has particularly been a strong enforcement against cartels in recent years. Cartels are arguably the most harmful type of anti-competitive conduct. Instead of competing with each other, cartel participants agree on a common course of action, for instance they fix prices or divide markets. Competition authorities should attempt to demonstrate that the consumer ultimately pays for this. It is noteworthy that the European Commission only recently made the attempt to estimate the harmful effects of cartels on consumers. It calculated that, due to the cartels it broke up or prevented during the years 2005 to 2007, European consumers were saved from at least 7.6 billion euro in terms of higher prices. But even this figure is too low, the Commission stressed in its 2008 Report on Competition Policy. Assuming that for every cartel discovered, five cartels may not have been continued or set up, it suggests that an additional saving of some 60 Euro billion could have accrued. Or to put it more simply: about 136 Euro saved for each of the 500 million EU citizens.

Thirdly, and as a corollary to the two other suggestions, consumer bodies should be better represented in competition cases. Precisely because they are less informed and less organised, their voice is less heard than the utterances of the producers. Consumer organisations should become more involved in a consultative capacity whenever their input would be helpful. Last year's creation of a Consumer Liaison Unit in the Competition services of the European Commission is a welcome first step towards a better representation of consumer interests. But more work needs to be done (for example, by improving the ability of individual consumers to sue for compensation in national courts).

It is well established that a properly managed environment for business promotes the efficient allocation of recourses and gives incentives to market actors to pursue productive efficiency, quality and innovation. But the key role the competition rules have to play here remains under-emphasized. Especially now that the basic premises of competition policy are under attack, it is more important than ever to make a strong case for good competitive practice in the marketplace. Every day should be Competition Day.

By Ben Van Rompuy

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