Blog Martijn Snoep: Big companies, big risks
Big companies can bring a lot of value in terms of innovation, employment, investment and career opportunities and tax revenues. But they can also create corporate power, which brings big risks for society and that must be properly addressed at the national and EU level.
Big risks
These risks are, for example, the power to unilaterally increase prices, reduce quality or restrict innovation. Or reducing purchasing prices, leading to the degradation of smaller enterprises and self-employed workers, like farmers and journalists. This power can lead to exploitation such as charging excessive prices or by imposing unreasonable contractual conditions, simply because these companies can. And power can lead to unchecked exploitation of information asymmetries and consumer biases through dark patterns and other savvy techniques. Digital technology and big data accelerated this potential for exploitation. The power to pollute air, water and soil while transferring the bill to society is another manifestation of corporate power. Even public and political debates can be influenced by corporate power. That’s why media pluralism and election laws are cornerstones in any democratic society. Finally, corporate power in the form of legal or natural monopolies, allow companies, even with price controls in place, to be lazy and inefficient in customer service and capital investments.
Making markets work well
In light of these risks, independent market authorities, like ACM and many others, are instrumental in the well-functioning of national and EU markets. They are a necessary check on corporate power, based on different laws and instruments but with the same goal. These authorities must prevent, counter or regulate corporate power in the public interest. Their explicit or implied mission is to make markets work well for all people and businesses, now and in the future. This is an aspirational goal. The job will never be done as new markets, companies and manifestations of power will continue to pop up.
Three lessons learned
Over the years, in our interventions against corporate power, we have learned a number of lessons relevant for policymakers, other authorities and the people and businesses for whom we work.
First, prevention is better than cure. Preventing corporate power trumps regulation. This requires strict merger control enforcement without exceptions. “Champions” should be created through competition and innovation instead of through anti-competitive mergers. Even small mergers can be harmful if they intend to kill a potential competitive threat to corporate power or create local power. That’s why ACM supports a call-in power at the national and EU level to be able to review mergers below the thresholds for mandatory notification, without the administrative burden to notify all mergers. But that is not all. Prevention requires lowering legal and commercial barriers to entry and expansion for competitors and avoiding customer lock-in. Interconnection between systems and portability of data and other details are key to avoid corporate power over individual customers.
Prevention also requires strict cartel enforcement, as corporate power can be created by secret agreements not to compete. This also means avoiding legally endorsed monopolies through perpetual exclusive concessions or licenses to private companies. And if, and only if, there is a natural monopoly, the company should – next to being regulated properly – at least be government-owned. A natural monopoly in the hands of a private company equals a license to print money. Or as US Senator John Sherman insisted already in 1890: monopolies are "inconsistent with our form of government (..) If we will not endure a king as a political power, we should not endure a king over the production, transportation, and sale of any of the necessaries of life. If we would not submit to an emperor, we should not submit to an autocrat of trade (…)".
Second, a whole-of-government approach is necessary. All government branches and institutions should be aligned, setting aside public tribalism, and focusing on common goals and values. There should be no overlap, but also no gaps. Also, public procurement should contribute to the long-term well-functioning of markets by allowing new entrants a fair chance. This requires working from a common vision on when markets can be considered to work well, balancing different public interests and setting aside vested interests. All market authorities must cooperate and actively contribute to such a vision within the boundaries of their mandates. But making markets work well cannot be left to independent market authorities alone. Difficult choices and trade-offs need to be made by elected officials based on expert advice, or be explicitly delegated to market authorities, based on a clear mandate.
Third, there is no silver bullet. Markets and circumstances differ and fast innovations do not only lead to new business models, but also to new possibilities to gain and exploit power. The availability of a variety of potential interventions is necessary in the light of unpredictable issues that will surely arise. Intervention tool boxes must be comprehensive and allow for flexibility. The flip side is of course that market authorities must bear responsibility to continuously evaluate the need for adaptation of existing tools and the introduction of new ones. For this very reason, ACM is in favor of a legal instrument, the “new competition tool” at the national and EU level to be able to impose remedies to restore competition, following a market investigation demonstrating a lack of competition in, for example, oligopolistic markets with only a few big companies.
Conclusion
Big companies offer significant benefits but they can also lead to corporate power and present considerable risks to society. While various traditional sectors show an ongoing trend towards further concentration of corporate power, digital and data-intensive sectors have given rise to new scale and scope effects. The mitigation of these risks is a crucial task for the government and the raison d’etre for independent market authorities at the national and EU level.
Martijn Snoep, Chairman ACM
