London is getting it wrong: Consumer protection is not anti-growth

The UK government wants merger scrutiny to be more business-friendly.  (REUTERS) (via REUTERS)
The UK government wants merger scrutiny to be more business-friendly. (REUTERS) (via REUTERS)

Summary

  • Market rivalry is good for businesses, consumers and the economy. But the UK government wants merger scrutiny to be more business-friendly and has weakened its antitrust authority. This is policy myopia.

The forces protecting consumers from abuse by big business are in retreat. Former Italian Premier Mario Draghi last year called for reform of merger control in Europe to boost the region’s global competitiveness. Consumer champion Lina Khan has, as expected, left the US Federal Trade Commission antitrust authority. And last week came a real shocker: The UK government ousted the chair of its Competition & Markets Authority (CMA) merger watchdog.

Also Read: The Draghi report has rung an alarm that Europe can’t afford to sleep through

A problematic narrative is emerging that antitrust regulation needs a philosophical overhaul, and that its primary aim of protecting competition should give way to a more nuanced approach advancing multiple economic goals. Economics says competitive markets are good for consumers and leads to other benefits. If merger regulators focus on preserving competition and preventing future monopolies, the economy wins as a result. Healthy rivalry between companies spurs innovation and sees efficient firms take market share from inefficient peers. You don’t need to directly target, say, growth.

The first task in examining a merger is to determine if the mooted tie-up might lead to what’s called a “substantial lessening of competition." Everything else follows from that. The CMA has consistently argued competition is a growth enabler. Yet, when the UK government replaced CMA chair Marcus Bokkerink with former Amazon executive Doug Gurr, it said the interim appointment was “a bid to boost growth" and flagged that the agency would soon receive a “new growth-focused" strategic steer. 

The implicit concern is that the traditional obsession with competition could be having bad side effects from a wider economic perspective. In theory, you could imagine a takeover that reduced competition and left consumers worse off but created tremendous savings that the enlarged company could plough into investment. On that view, a degree of reduced rivalry and consumer harm is sometimes worth tolerating. Perhaps deals are being blocked that should in fact be approved.

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Bokkerink’s CMA plans to drive “innovation, investment and productivity growth." The agency had also signalled it could become more open-minded about potential fixes to alleviate the harm caused by anti-competitive tie-ups. The severity of such remedies was a bone of contention in the approval process for Microsoft’s bid for videogame maker Activision Blizzard. A new flexibility is already on display with the recent clearance of Vodafone’s merger of its UK operations with domestic rival Three without a major divestiture.

And yet, the UK government seems to want its merger cops to be more business-friendly. The debate over the right goals for merger control has already been had. As John Vickers, former head of the one of the UK’s competition bodies, recently flagged, the UK once put takeovers to a broad public-interest test. This involved weighing a range of economic considerations; politicians had the final say. 

The switch to using a narrower competition-based test, decided independent of government, occurred in 2003 largely because competition was typically the central issue. A focused economic test is best handled by a separate regulator—just as interest rates are best decided by an independent central bank.

Is there any good reason to revert to a regime that’s less consumer-focused? One argument is that digital markets behave differently and need a fresh approach. 

Tech firms need to innovate to survive, and scale through mergers can help that. “The question is whether the way authorities look at competition should change depending on whether you’re looking at old or new industries," says Zach Meyers of the Centre for European Reform. “When thinking about a typical monopolist, you think about them sitting back... and overcharging consumers. But when you’re thinking about how tech works, competition doesn’t really work like that—they’re competing on investment and innovation."

Also Read: Google antitrust ruling: The big deal about Big Tech's monopoly power

That doesn’t justify watering down watchdogs’ competition focus. Once regulators are tasked with balancing different objectives, deal assessment “becomes very speculative," cautions Meyers. And Vickers says the arguments for including non-competition factors in merger appraisal are weaker than their proponents suggest. The fact is that “competition is good for growth, so robust competition policy—if well applied—is good for growth," he says.

True, the CMA has made mistakes. The agency has since changed the way it conducts probes, making the process more transparent to the companies subject to them. The UK needs to tread carefully. It’s already weakened the CMA’s authority. The focus shouldn’t be on regulators doing things better—and letting them get on with the job independently. ©Bloomberg

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