New CEI Paper: Antitrust Policy in Europe, Lessons for America

Today, CEI is releasing a new paper on antitrust policy in the European Union by Swiss competition commissioner Henrique Schneider. Europe’s approach to competition policy, as antitrust policy is known there, tends to be more active than in the United States. Schneider provides some useful lessons for policy makers in the U.S. as enforcement ramps up on this side of the Atlantic.

One lesson is a version of the relevant market fallacy, the EU’s bizarre distinction between online and offline businesses. A second lesson is that reversing the burden of proof in court cases is a bad idea—which the EU does to many online businesses in competition cases. A third lesson is that antitrust policy can have protectionist effects, even if that is not the intention.

With a Google case already filed, a Facebook case likely on the way, and other companies such as Amazon and Apple also being investigated, Schneider’s description of European policy gives an example of what the U.S. should avoid.

Strangely, European antitrust policy treats companies differently based on whether or not their business model is online-based. Nearly every business is at some in-between point on the spectrum between being entirely online and entirely offline. More fundamentally, being online or offline does not change the nature of business transactions. People exchange value through buying and selling—and that’s it. Whether they are done in person or on a computer does not matter. Exchange is exchange.

Companies also move along the spectrum over time. Many traditional brick-and-mortar retailers are expanding their online presence, especially during the COVID-19 era. Amazon, on the other hand, is expanding its offline presence through its Whole Foods grocery stores and experiments with retail stores.

The real purpose of the EU’s online-offline distinction is likely not accuracy. It is to define a company’s market more narrowly. This makes it easier to find a monopoly. Left unsaid, of course, is that such a narrow monopoly does not cover the entire relevant market. This is another version of the relevant market fallacy.

That’s the first lesson. The second lesson concerns the burden of proof. For antitrust purposes, the EU’s online-offline distinction determines who bears the burden of proof. In most liberal countries, the accused are innocent until proven guilty. For digital businesses in EU competition cases, the burden is reversed. They are presumed guilty unless they can prove their innocence.

This is where antitrust policy unexpectedly intersects with trade policy. This is Schneider’s third lesson. Europe and the U.S. are already involved in a years-long trade spat, about which I’ve written here. The result so far has been tariffs added to more than $10 billion of goods from both sides. Schneider shows how, intentionally or not, antitrust enforcement can raise trade barriers without raising tariffs.

Most of the EU’s competition cases against digital companies have been against American companies such as Microsoft and Google. By fining companies, forcing product alterations, and other penalties, one effect of EU competition policy is to make EU-based technology firms relatively more competitive. In absolute terms, the market becomes less competitive. One company has been taken down, rather than another company building itself up. At best, this policy is misguided. At worst, it is a form of corporate welfare and trade protectionism.

As both Europe and the U.S. embark on a new era of more aggressive antitrust enforcement, officials on both sides should learn those three lessons about false distinctions and the relevant market fallacy, the burden of proof, and protectionist effects. Not only should the United States not be like Europe on antitrust matters, neither should Europe.

Schneider’s full paper is here. Wayne Crews’s and my paper on U.S. antitrust law is here. CEI’s dedicated antitrust website is antitrust.cei.org.

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