On the Rise: Competition Policy Challenges in Europe, Part I

September 9, 2020

As Congress and various agencies debate the applicability of U.S. antitrust law on digital platforms, a bigger problem is Europe’s enforcement of European antitrust policy. It risks undermining competition and U.S. business interests in Europe’s giant digital market; Europe’s business-to-consumer e-commerce sales alone are climbing past $850 billion this year.

Digital business models such as social media platforms, ridesharing apps, and e-commerce marketplaces that enable millions of individuals and firms to interact with each other have given rise to arguments that platforms become “winner-take-all” businesses that create network effects that entice more and more users to join a single service that then gobbles up potential competitors before they turn into threats.

Several European Commission officials have for years espoused these views, and also acted on them, to the detriment of European consumers and businesses as well as those in the United States. For example, in July 2018, the European Union fined Google $5 billion for equipping Android smartphones with Google products even if Google did not prevent European consumers from deleting these products or downloading their favorite apps on their phones. The Commission has pursued a number of billion dollar cases against U.S. companies like Amazon and Google for such supposed “self-preferencing” even if it expands consumer choice; in June 2020, the Commission opened an investigation into whether Apple treated rivals like Europe’s music streaming service Spotify unfairly in its app store.

The Commission’s antitrust hawks have time and again investigated U.S. companies’ M&A activity. Even though it has approved such high-profile acquisitions like Facebook and WhatsApp and Instagram, Microsoft and LinkedIn, and Apple and the song-recognition app Shazam, there is concern, including in Europe, that the Commission may be overreaching and thereby undermining European companies’ ability to attain the kind of scale that would level the playing field with Chinese firms. In 2019, for example, the Commission blocked a merger between Siemens and Alstom that would have helped Europe compete more successfully against the state-owned CRRC.

Now Europe’s antitrust policymaking is heating up further, especially for big tech. In June, Margarethe Vestager, executive vice president for the European Commission’s “A Europe Fit for the Digital Age” initiative and the commissioner who has led antitrust enforcement, signaled she is seeking broader antitrust powers to address “structural competition problems” within industries rather than individual cases against a single company. The Commission is also seeking regulations to tackle potentially anticompetitive practices by dominant digital platforms prior to the anticompetitive impact coming into sight (ex-ante), arguing ex-post investigations come too late, allowing big tech to grow bigger while investigations drag on. 

Behind these maneuvers are France and Germany and their allies Italy, Austria, Poland, and Spain, the leading advocates of tougher competition policy enforcement on big tech. In 2018, German experts drew up Competition Law 4.0 that calls for “contestability of positions of power in the digital economy.” German authorities are also considering enabling regulators to pause certain business practices at the tech companies during an antitrust investigation. Benelux competition authorities have also lobbied for ex-ante remedies, and even the United Kingdom, Europe’s tech power, now that it is leaving the European Union, is rethinking competition policy and has drawn up a law to force Facebook to interoperate better with rival social networks. At the same time, disappointed by the Commission’s Alstom decision, Germany and France drew up a joint manifesto outlining industrial policies and merger rules to produce “European Champions.” In other words, it seems big is fine if big is European. This protectionist-sounding maneuvering is raising concerns among the more liberal Digital 9 (D9) coalition of Northern European, digitally advanced nations like Sweden and Estonia about the politicization of competition policy enforcement in Europe.

Europe’s actions are in part continuation of a long history of cases where enforcers and courts applied an array of arguments and benchmarks positing that certain specified behavior is anticompetitive. Europe, just like the United States, fears unbridled expansion of Chinese state-sponsored businesses and penetration of critical infrastructures like 5G networks, and its measures are also a defensive reaction. But Europe has also failed to seize on the various technology waves that brought us smartphones, cloud computing, search, and social media, and it sorely lacks the kind of market-leading platforms the United States and China have produced, such as Amazon, Facebook, Twitter, Google, Alibaba, and WeChat. The only comparable, albeit smaller, tech firms in Europe are Germany’s SAP, the Netherlands’ Adyen, and Sweden’s Spotify that have barely 3 percent of the market cap of major tech platforms, compared to 68 percent held by U.S. companies. Europe’s digital regulations and antitrust policies do nothing to close this gap.

The Commission’s interventionist approach, industry fairly contends, penalizes success in the marketplace and contrasts with U.S. courts and antitrust enforcers who have largely accepted market leadership and consumer loyalty earned through hard competition and risky investments. For U.S. enforcers, protecting consumer welfare and innovation rather than protecting potential competitors has been the North Star.

In both Europe and the United States, academic communities are split into the “big-is-beautiful” camp, which thinks big companies create efficiency gains that enhance consumer welfare, and the more populist “deconcentrationist” camp that inherently eyes big tech with suspicion. A third way seems elusive—especially as both camps like to think their position is one that maximizes yet another desirable of antitrust policy: innovation. Decades of academic literature on the question conclude “it depends” on how innovation and competition are defined—but that typically innovation is maximized somewhere between the extremes of fierce competition among small firm and a monopoly. While hugely popular, the notion that digital businesses are monopoly-in-waiting “winner-take-alls” with durable networks and deep moats enabled by proprietary data is suspect and contested in academic literature.

For U.S. businesses, the problem of Europe’s hardening stance on antitrust has hard and immediate impacts. The fines are significant, and the barrage of investigations, even if resulting in a favorable outcome, are time-consuming and costly and cause reputational damage and uncertainties that deter new investments. Being under European antitrust chiefs’ microscopes risks making some of the boldest and most innovative companies on the planet tiptoe. How should U.S. policymakers respond to Europe’s proposals, what should be the objective of our policy, and how do we best attain it? The next blog will discuss.

Kati Suominen is an adjunct fellow (non-resident) with the Europe Program at the Center for Strategic and International Studies in Washington, D.C.

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