An “International Sheriff” to enforce fairness in worldwide competition

Marc Ivaldi, Olivier Bertrand 18 June 2007

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Brussels’ attempts this year to crack down on collusion have lit a fuse. On February 21st, the European Commission imposed a record fine of 992m on makers of elevators and escalators – accusing the world’s four largest of price-fixing. At the end of January, a dozen electronics manufacturers found themselves facing a 750m penalty for acting as a cartel. German heavyweight Siemens was hit with the largest fine ever levied against an individual company, a whopping €418m. All are spectacular victories in the international fight against anticompetitive behaviour. Nevertheless, these individual successes in fact underscore the proliferation of illicit deal-making, especially across national borders.

As it stands today, when ostensibly rival firms agree to split the market in order to pass on higher prices to consumers, the potential punishments they face vary greatly, depending both on the countries in which the infractions occur and on the nationalities of the firms. Multinationals can, as a result, strategically locate their subsidiaries in order to take advantage of authorities’ investigative and jurisdictional limits. Conducted in a piecemeal way, the prosecution of companies guilty of anticompetitive behaviour, be it collusion or abuse of a dominant position, is very inefficient and, in the meantime, provokes serious political tension among governments who accuse each other of negligent inaction.

Faced with this situation, the EU collaborates with its principal partner countries via a hodgepodge of bilateral and multilateral agreements. But conflicts arise frequently. For example, when American firms set up export cartels, American authorities are obviously suspected to act under the influence of conflicting motives. Do they place a higher priority on defending the free market or their own national interests? Analogously, American economists call into question the impartiality of the European Commission. Such conflicting incentives clearly manifested themselves at the time of the mergers between Boeing and MacDonnell Douglas, in the late 90s, and between General Electric and Honeywell, in the early 2000s. Quite often, the stance taken by American authorities has been very different from that taken by their European counterparts. Another well-known example is that of Microsoft. While the software giant was dealt stiff fines by the European Commission, it emerged nearly unscathed from the case brought against it by the American government.

These conflicts would be avoidable, to some extent, if the different competition authorities had a common framework for considering such cases, and if they had an identical set of instruments at their disposal. Thus is the objective of some large institutions such as the OECD, UNCTAD and international forums like the “International Competition Network”, an informal network of competition authorities from almost 80 countries. There have been mutterings of expanding the role of the World Trade Organization (WTO) into this area, but the idea is risky. The WTO oversees negotiations among states looking to reduce tariffs, mainly in order to promote business’ interests. It pays very little attention to defending the consumer, and the politicised nature of its debates undermines its efficacy. A better idea is to create a new supranational structure grouping together the already-existing competition authorities from principal countries, or at least, as a first step, to set up a form of institutionally-sanctioned collaboration among a small number of important players such as the European Union, the United States and Japan.

Due to the weight of these three in terms of international investment and trade, mutual cooperation on their part would be sufficient to control the majority of private actors around the world. It would also enable credible cases to be brought against large multinationals, even those based in developing countries or in emerging ones such as Russia, China, India, Brazil or South Africa. It would allow for the intensification of the fight against cartels and illegal agreements, while also ensuring that the ever-growing number of cross-border mergers and acquisitions be done for legitimate reasons. At the same time, the number of states involved would remain small enough to limit both coordination problems and the costs associated with a new bureaucratic structure.

This first step towards the creation of a “competition sheriff” would be a decisive one; furthermore, it’s not as unrealistic as some might be inclined to think. Faced with a growing cost of inaction, developed countries will be forced, sooner or later, to discuss the creation of an embryo of world economic governance.

Editor’s note: This article appears in French on our Consortium partner site Telos, see “Pour un Interpol de la concurrence mondiale.”

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Topics:  Competition policy

Assistant professor at the Université de Toulouse, GREMAQ – Toulouse School of Economics.

Toulouse School of Economics and Programme Director of CEPR’s Industrial Organization programme.