Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

Regulatory capture and the progressive cause in competition law

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Uncle Sam the monopoly man

For the people of my generation, Ralph Nader is the left-of-centre candidate whose participation in the 2000 election paved the way for George W Bush’s victory. For older people, the name is associated with his activism during the 1970s.

What does Ralph Nader have to do with competition law? Take a look back at the early years. Doing so helps put some issues in perspective.

Regulatory capture is one of these issues. When triggered by the word capture, the Pavlovian reaction of many people is to think as follows: ‘Stigler – public choice – Buchanan – right-wing crank’. Capture is, according to this view, a concern of people who wish they could dismantle government intervention.

It was not always like this. Quite the opposite, in fact. Some readers may not know it, but the fight against government capture by big corporations was a cause of the left in the 1970s, in particular in the US. Some of these ideas are presented in a piece that Ralph Nader published, with Mark Green, in the Yale Law Journal, and which was colourfully entitled ‘Uncle Sam the Monopoly Man’.

In the piece, they explain how regulation is often crafted to serve powerful special interests (read: big companies and industries), as opposed to citizens. The solutions offered by the authors are more interesting than their denunciation of capture. For them, more competition was the answer. They advocated liberalisation and competition law enforcement (i.e. what the European Commission has been doing since the 1990s). In their view, competition law would ensure that regulation is crafted and enforced in a way that serves consumers.

I re-read this piece when writing about some recent regulatory developments.

One of my thoughts is that, no matter how much I may disagree on specific issues (and I certainly do), it is great news that there is an emerging progressive antitrust movement in the US (known as ‘New Brandeis’ and occasionally as ‘Hipster Antitrust’). I will always go for policy-makers that place competition law and its values at the centre of their agenda.

I also thought that Mark Green and Ralph Nader’s paper, even though it was written in the 1970s, provides a valuable template to address the dilemmas around the digital economy.

There is always the question of whether, and how, digital players should be regulated. Some of the authors’ ideas could take us a long way. I draw two main lessons from the article:

  • First, legal barriers to entry should be avoided.
  • Second, it is necessary to create institutional mechanisms to avoid capture (i.e. companies seeking and obtaining special favours from regulators).

How can this template be applied in practice? I will mention two examples.

Every now and then we read news about big multinational companies shopping around for subsidies in the US (‘O Governor, Won’t You Buy Me a Mercedes Plant?’ is the title of a legendary New York Times article on the subject). Some online platforms have now become big enough to seek special favours in the form of tax breaks and other regulatory advantages (see here for a recent example).

These practices are bad for competition (the advantages obtained depend on firms’ power and ability to influence policy-makers, not on their merits) and are socially destructive (each job created in the region ends up costing a fortune that is not put to better use). Insofar as they do not have any redeeming virtues, they should be prohibited. We are lucky to have a State aid regime in Europe. And it is no surprise that the idea of adopting State aid-like regulation in the US has now been floated.

Another example came to mind following recent news about Uber in London. I arrived in this city before the company launched its services. I remember very well the dodgy and unreliable minicab companies that existed five or six years ago. I also remember that the few reliable companies were just as expensive as regular cabs. No point in using either.

I am just a user of the service, but I find it hard to believe, having experienced what I have, that Uber is not ‘fit and proper’ to provide services in London. I am not surprised that it has been claimed for years that the regulator (Transport for London) is too close to incumbents (read: taxis). We wrote about this here and here.

The UK Competition and Markets Authority expressed its views on these issues a couple of years ago. Its report was unambiguously supportive of new technologies in this industry and warned against unnecessary regulation restricting competition. This is a strong indicator that some of proposals advanced by Transport for London were not intended to protect ordinary Londoners.

Under the approach sketched by Mark Green and Ralph Nader, the CMA’s report would have determined the outcome of the regulatory process. A pity that, as things stand, we have to wait and see whether the ban on Uber is confirmed on appeal.

Written by Pablo Ibanez Colomo

23 November 2017 at 4:03 pm

Posted in Uncategorized

One Response

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  1. Quite comforting from an Italian standpoint…we’re not alone…!

    Enzo Marasà

    25 November 2017 at 10:53 am


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