Convoco talked to Rupprecht Podszun about European competition policy in the new digital world.
Rupprecht Podszun started his career as a competition law enforcer with the Bundeskartellamt, the German competition agency. He is now a university professor and Director of the Institute for Competition Law at the University of Düsseldorf.
"I believe in the power of reason and in the virtues of the law. Competition law is about taming the powerful. This is the core value that it stands for in the modern European order"
Convoco: Competition policy has always been a defining pillar of the European project. The idea of competition law is to have open markets and to make companies compete on merit to the benefit of the consumer. You say that competition policy is at a crossroads today. Why is that?
Rupprecht Podszun: We have to make the choices how to shape the digital economy: is that an economy organised by monopolistic gatekeepers or is it run according to the mechanism of competition. The rules and tools to protect competition were designed at a time when the European economy was driven by coal and steel, and when economic policy was very much guided by normative beliefs. You may remember the “Ordoliberals,” a generation of economic policy analysts in the 1950s who developed a framework for doing business that was guaranteed by the state or the European institutions. This framework is still there but the digital economy plays a different style of hardball. There are phenomena such as big data, network effects, platforms, digital ecosystems—just to mention a few buzzwords. Some of our rules and tools simply do not fit very well with these phenomena. There has also been a change of attitude in conceptualization: we lack a widely shared idea of how to secure the fundamental freedoms in markets. Economic theory has become much more sophisticated since the times of the Ordoliberals—and more empirical, too. That makes it difficult to define what we want from an economic perspective and from a political one.
C: Margrethe Vestager has been reappointed as the European Commissioner in charge of competition and she has a remarkable track record of hefty fines against Google and clawing back taxes from Apple.
RP: Her determination is indeed outstanding, yet the decisions still have to pass the legal test in the European courts. The fines are one thing, the “remedies” are more important: will there be a significant change of behavior that opens up markets? Some of the proceedings came late or took a long time—the first Google case, Google Shopping, took seven years of investigations. That is an eternity in such markets. We have also seen failures in competition enforcement. For instance, Facebook was allowed to buy WhatsApp and Instagram. We are not yet able to control “killer acquisitions” where the GAFAs—Google, Amazon, Facebook, Apple—buy small potential rivals as soon as they show up on stage. So, yes, Commissioner Vestager is inspiring, but there is a long way to go.
C: Do you think European competition law is up to the task?
RP: The next two years are decisive; there is a reform agenda on the table. Germany will make a start in 2020 with new legislation and the European Union will follow suit. We need to come up with a regulatory framework for the digital economy. We need to be brave! We need to focus on innovation! And we need not fall prey to lobbyists for outdated business models on the one hand or for the tech giants on the other! This is not just an issue for competition law, though. Access to data probably needs sectoral regulation—holding platforms accountable needs new regulation. And, obviously, Europe needs to invest in research, the digital single market, and a better infrastructure. Not to create a new Google, but to enable entrepreneurs and scientist to take the next big steps.
It is a misperception to see the absence of formal regulation as freedom. If there is no framework, rules are set by the strongest actors.
C: Regulation is not really a popular word with start-ups.
RP: It is a misperception to see the absence of formal regulation as freedom. If there is no framework, rules are set by the strongest actors. This is what we witness today in large parts of the Internet. Take Google as an example. It is the gatekeeper of searches and the operator of Android. For many aspects of our economic decisions, Google has defined the boundaries—or taken the decision for us. Users and companies are increasingly locked in. That is not freedom. Still, the reservations towards regulation have their merits. When I talk about regulation, I mean smart and adaptive regulation. We need to get away from setting principles in stone that are out of touch the day the lengthy legislative process is over.
C: The Bundeskartellamt tried to go after Facebook for privacy violations, yet the order was stopped by the Düsseldorf Higher Regional Court in interim proceedings. You interpreted this as a clash of two institutions.
RP: On the one hand, there is the Bundeskartellamt, where teams of lawyers and economists work together for years on a case. Thought leaders there are heavily involved in international policy debates. The agency is also in a sort of competition to come up with pioneering solutions to the problems of highly concentrated digital markets. On the other hand, you have a bench of three honorable judges, sharp-minded lawyers, completely independent. Their worries are not so much directed at the question of “how to tame the tech titans,” rather they very soberly examine whether the approach is in accordance with the rules, with traditional doctrine, with precedent. Both institutions do perfectly what they should do, yet in new and innovative cases these different institutional starting points may clash.
C: There are reports that the US agencies are also taking a closer look what the GAFA companies are doing.
RP: Indeed. US antitrust was a pretty dull experience in the last decade: nothing to see. Enforcement was weak, and concentration is on the rise in the US in a worrying way. One reason seems to be that enforcement in antitrust law is more politicized. The Antitrust Division of the Department of Justice does not enjoy the same independence as its European counterparts. Equally, laissez-faire economics, the “Chicago School,” still resonates with competition law judges in the United States. It is good to see international consensus is now growing.
"Welcome to a competition for the best ideas on how to deal with big business in the future—that’s exciting, it’s gripping, and it’s to the benefit of society. That is exactly the reason why we want competition."
C: You have not yet spoken about the calls for more industrial policy and European champions that came up after the prohibition of the Siemens/Alstom merger.
RP: True, the German and the French ministers of economics were furious that the European Commission stopped that merger. They pointed at competition from state-funded enterprises from China. We often had such calls for European champions before. I do not worry too much; I am confident they will return to sound economic liberalism. The debate even had three positive aspects: first, the debate about China and how to establish a level playing field was helpful. Second, the debate triggered proposals for economic policies that may turn out to be fruitful. And third, the outrageous proposal to create an instrument to overrule the European Commission in merger cases energized the competition community. We know much better now what we love about tough competition enforcement!
C: That sounds quite confident, overall.
RP: Call me a dreamer, but I believe in the power of reason and in the virtues of the law. Competition law is about taming the powerful. This is the core value that it stands for in the modern European order: economic powerhouses, even monopolies, are subject to a rule-based control by democratic, legitimate institutions. What a fascinating piece of civilization! Globally, competition agencies have flourished. Just think of the Facebook case to appreciate the beauty and the power of this mechanism: a small agency in Bonn, Germany, scrutinizes the behavior of a company that is worth three-digit-billion dollars. And now they meet in court where three independent judges hear the case and try to find out whether that giant company and that agency adhered to the rules that we agreed on. Once their decision is out, a senate of another court will review it. And we are able to discuss all that and to contribute our ideas and views. Welcome to a competition for the best ideas on how to deal with big business in the future—that’s exciting, it’s gripping, and it’s to the benefit of society. That is exactly the reason why we want competition.
Rupprecht Podszun started his professional life as a competition law enforcer with the Bundeskartellamt, the German competition agency. Several merger cases and dawn raids on cartels later, he entered academia and is now a Professor at Heinrich Heine University, Düsseldorf, and a Director of the university’s Institute for Competition Law. He is also an Affiliated Research Fellow at Munich’s Max Planck Institute for Innovation and Competition and a Vice Chair of the Academic Society for Competition Law, ASCOLA.