Assessing the European Commission’s New Competition Tool

Expert economists Justin Coombs, John Davies, Jorge Padilla and Rameet Sangha from Compass Lexecon discuss the European Commission’s (“EC”) new competition tool with Financier Worldwide ("FW").

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FW: Could you outline the reasons behind the perceived need to change current European Union (EU) competition rules? What key weaknesses or shortcomings have been identified in existing rules?

Jorge Padilla: Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU) empower the EC and EU competition authorities and courts to intervene to try to deter companies with market power from entering into agreements that distort competition and harm consumer welfare, and from engaging in unilateral conduct that disrupts the competitive process to the ultimate detriment of consumers. However, there are many other practices that could disrupt the competitive process and harm consumers, which are currently left unchecked. These gaps in current enforcement may now be more relevant than ever, given the increase in concentration in many markets across the EU. Furthermore, the available tools, especially Article 102 of the TFEU, appear to be not fit for purpose in fast-moving digital markets in which, by the time the agencies are ready to act, the distortion of the competition process is beyond repair.

FW: The new competition tool sounds a lot like the UK’s Market Investigation Regime (“MIR”). In your experience, how effective has that legislation been in promoting more competitive markets in the UK?

John Davies: The Competition and Markets Authority (CMA) panel has impressive remedial powers under the MIR, either to remedy the adverse effect on competition itself or its effects. These powers include the ability to impose orders as behavioral remedies and even forced divestment, as well as recommending legal or regulatory changes to other public bodies. These powers might seem alarming, combined with the rather broad definition of an AEC. However, there are procedural safeguards. Remedial action can only be taken if it would effectively remedy the AEC or its effects, with a strong focus on whether consumers would be better off.

Justin Coombs: The great advantage of the MIR has been the ability to investigate markets where competition does not work well but there is no illegal behavior. The most common situation is perhaps an oligopolistic market where there are only a small number of competitors but no dominant firm. Examples have included a wide range of diverse industries including banking, auditors, supermarkets, and cement.

FW: Based on your experience with the UK MIR, do you have any advice for companies that might experience the EU version, if it is implemented?

Rameet Sangha: From our experience, key questions to address before an MIR investigation are the following. First, what are the areas where outcomes for consumers could potentially be improved? Second, how in practice could these improvements occur? This probably requires industry-wide action, because if an individual firm could profitably make changes that would improve outcomes, it could already do so. Third, what are the advantages and disadvantages of different remedies? Finally, do any potential remedies also present positive opportunities for industry participants?

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