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The paradox of competition policy in the US and EU: Is efficiency enough for economic freedom?

A short analysis of US and European antitrust policy in the aftermath of the crisis.

The genesis of the current crisis may be explained through the argument of a paradoxical lack of competition in the international market. This trend has been generated by a more general set of laissez faire policies, which have been applied mainly, but not exclusively, by the U.S. during the last 40 years. Since Reagan’s presidency, the neoliberal antitrust policy promoted by Chicago scholars as David Bork, has been supporting a wild liberalisation process in the USA, which instead of encouraging competition in the market has increasingly facilitated the rise of mergers among big companies.

Thanks to the Reagonomics, between 1980 and 1986 the number of mergers almost triplicated (passing from 1,565 to 4,323) and their value grew even faster, almost sevenfold (from $33 billion in 1980 to more than $204 billion in 1986). Although Clinton’s administration slightly challenged them, Chicago oriented antitrust institutions were maintained until Bush J. Presidency, when the world economy was shaken by then incoming worst financial crisis since the 1930’s. Even though the triggering event of the credit crunch is more related to a general deregulation of the banking and investment industries, the wide-ranging permissive policy towards competition has allowed big companies to merge and acquire enough shares to control the financial market and overturn governmental policies. This trend continued also in the aftermath of the credit crunch when Bank of America bought Countrywide and Merrill Lynch; J.P. Morgan bought Bear Stearns and Wells Fargo acquired Wachovia.

Apparently, the same strategies that aimed to promote economic efficiency and competitiveness have left the market in the hands of few corporations. Without being refrained by long-term governmental policies, mergers have facilitated the collapse of the financial market and the downturn of the real economy. In other words, the current crisis has outlined a real paradox: instead of promoting competition those laissez faire trends have enabled the rise of monopolies and restrained market investments opportunities.

For more than a decade, the USA has been accusing the European Union to be too little efficiency oriented in judging competition matters (cfr. Continental Can, Microsoft case and many others). In 2004, following the U.S. trends, the Commission’s Directorate General for Competition (DG IV) has started modernising its competition policy and eventually enforcing new regulations and guidelines that reflected a neo-liberal trend and promoted economic efficiency rather than the European common market per se. An emblematic example of the latter is the Horizontal Merger Guideline enforced in 2004.

This Guideline allowed mergers’ economic efficiency to be judged according to a more lenient approach by adopting the same Herfindahl Index implemented by the Federal Trade Commission (FTC) and the Antitrust Division in 1986, which legitimated many vertical and conglomerate mergers to be free from prosecution.

This approach was rather innovative since the core of the European competition law originated from the Ordoliberal theoretical framework. The Austrian school of thought, indeed, outlines the necessity to defend economic freedom of market players, even though their actions are not economically efficient, in order to avoid the aggregation of big businesses. The latter would affect the economic performance of smaller competitors and reduce market integration.

Since 2008, this thinking seems to be destined to a new glory as the Commission has been acting readily in order to promote competition regulations that would avoid the rise of a beggar your neighbour policy among Member States, thus contributing to the end of the crisis in Europe. Similarly to the oil crises of the 70’s, Member States have in fact reacted to the current downturn by applying state aid in order to finance national industries and resettle their national economies on the expenses of other Member States. However, this time the Commission has been keener, at least in competition matters, to react more promptly, taking into consideration not only the needs of the private business but also of the European market per se.

The Commission’s Directorate General for Competition has promoted a plan for coordinating the use of national aid and regulating non-horizontal mergers. Furthermore, particular attention has been paid to the energy sector where long term competition policy visions are needed so that Europe can overcome the crisis by responding more quickly to economic matters affecting industrial performance.

Particularly after Fukushima nuclear accident, the EU has realised the necessity to allow communitarian aid to facilitate the development of green energy suppliers. This is an example of Ordoliberal Policy, where the realisation of a common vision has to be achieved through a coordination of intents between public and private sectors that would generate not only economic efficiency but also social welfare.

Indeed, the U.S. neo-liberal efficiency oriented discourse seems to have failed in the light of those new political decisions. While Obama is still considering which approach the U.S. should adopt in order to overcome the crisis, Europe has to be keener to regulate competition through a policy that has to fix the boundaries of economic actions in the respect of the general welfare and not based exclusively on the safeguard of the economic efficiency of individual market players.

In other words, general social benefits need to be emphasised.

This trend should not result in a new type of protectionist policy, which is one of the US main fears. On the contrary, Europe needs to continue and consolidate its consultations with business stakeholders, both at home and abroad. However, business efficiency-oriented visions should be mediated with a long-term vision on a steady common market development in Europe.

This has to be the key difference with the US antitrust doctrine. Although the USA is the co-founder, together with Canada, of the antitrust policy, its neo-liberal approach has proved that the lack of a firm intervention into market competition does not always allow for a larger trade flow. On the contrary, the neo-liberalism has provided for the basis of the big business dictatorship transforming the ‘land of possibilities’, into a market where the unique welfare is the one owned by the few managing the economic power.


Eleonora Poli, School of Social Science, Department of International Politics, City University London. Her research interests  include International political economy and antitrust regulation. She can be contacted at eleanora.poli.1[at]

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