European anti-trust policy is detrimental to free competition and prevents companies – which are “dominant” or those alone in their niche – from better satisfying consumers, according to a new study

Brussels, September 14, 2007 – On 17th September the European Court of First Instance is expected to announce one of the most important decisions in anti-trust history. Whatever this decision may turn out to be in this case opposing the European Commission to Microsoft, it is very unlikely that it will fundamentally challenge the current regulation in this regard.

“However, this regulation is not only useless if one wants to judge competitive pressure in the economy, but paradoxically it’s also detrimental to free competition and a better serving of consumers,” states Valentin Petkantchin, director of research at the Institut économique Molinari and author of the study.

Innovative sectors seem to be among the favourite targets. After sanctioning Microsoft, Brussels has recently announced that it now has in its sights the number one producer of microprocessors in the world, Intel, even though consumers haven’t stopped benefiting from better products and lower prices.

Put an end to systematically suspecting producers who are “dominant” or alone in their niche

“It’s incorrect to conceive of competition in terms of ‘market shares’ and ‘dominant’ firms,” declares Mr. Petkantchin.

First, pushing the limits of market subdivision until finding a niche where a company may be on its own, as anti-trust authorities have been doing, is simply baseless. Such subdivision is irrelevant for new competitors – who may come from other sectors of the economy – if there is an opportunity to better satisfying consumers and making a profit, unless legal obstacles prevent them from doing it.

Second, even if such subdivision was possible, the fact that a single company holds a great number of market shares or is alone in a specific niche, doesn’t mean competition is non-existent, thus requiring anti-trust intervention. In some sectors there may be a company that, as the most efficient and innovative, naturally becomes the preferred or sole supplier to all consumers. Penalizing or sanctioning such a company ends up in fine to be detrimental not only to the companies but also to consumers.

Anti-trust authorities’ static approach to competition also prevents them from understanding that competitive pressure still exerts its influence for the benefit of consumers, even in the extreme case when there is a producer remaining alone while reducing its output and increasing its prices.

It is true that, in such extreme case, consumers might appear to be penalized. But what is overlooked is that resources have been freed up by the sole producer’s lower output. These resources – machinery, labour, buildings or raw materials – are available to produce other goods or services elsewhere in the economy at lower prices than would otherwise have been the case. From a consumer’s point of view, production of these other goods and a lowering of their prices are more pressing than maintaining lower prices in the sole producer’s specific niche.

“It is necessary to stop believing that the fact of a company being ‘dominant’ or being the sole producer in a sector automatically means competition is non-existent requiring anti-trust authorities to intervene,” concludes the author of the study.

Entitled, Does the presence of just one producer automatically point to an absence of competition requiring anti-trust authorities to intervene?, the study is available at: https://www.institutmolinari.org/spip.php?article479

Information and interview requests:

Valentin Petkantchin, PhD

Director of Research

Institut économique Molinari

Rue du Luxembourg 23, Boîte 1

1000 Bruxelles, Belgique

Tél: +33 4 42 53 46 19 GSM: +33 6 82 69 17 39