A report just issued by the European Commission’s competition department has reinforced concerns among consumer groups about the harm that weakened competition, as indicated by increased market concentration, and companies’ significantly higher markups and profits, can cause.
The report finds that reduced competition can harm competitiveness, productivity growth and thus the overall health of the EU economy.
For consumers, this harm can in particular take the form of higher prices. This is especially concerning when concentration levels are high in markets which matter for poorer households, for example food and energy.
The report therefore strengthens BEUC’s view that the Commission and EU governments must urgently tackle the problem by more – not less – strictly enforcing EU competition rules, and in particular merger control.
Market concentration has increased
The report, entitled ‘Protecting competition in a changing world’, finds that, while there are sector- and country-specific factors, on average and in a wide range of sectors, concentration in the EU over the past 25 years appears to have increased at both industry and market level, with markups and profits climbing significantly. Moreover, the gap between industry leaders and followers as regards markups, profits and productivity has increased, and business dynamism, as measured by indicators such as market share volatility between leading firms or market entry and exit rates, has declined.
On average and on balance, the report finds, the overall intensity of competition in the EU seems today to be weaker than in the past, while the market power of firms at the top of the markup and profit distribution appears to be more pronounced.
Higher concentration brings higher prices, not more investment
The report includes a new study on price-concentration relationships in six sectors with notable price variations across EU Member States that provides qualitative and, for mobile telecoms and airlines, empirical evidence that higher concentration levels appear to be associated with higher prices. For example, the study found that countries with three telecommunications operators have consistently higher prices than those with four and that in the case of airlines, prices per mile are higher for monopoly and duopoly routes. The report also refers to research indicating that more competition in the EU airline industry would potentially benefit consumers to the tune of €900 million per year.
In the case of mobile communications in the period 2009 to 2019, there was no evidence that higher concentration was accompanied by higher investment in networks relevant to users’ experience. In other words, calls by the Global System for Mobile Communications Association– grouping the main telecom companies – for in-market consolidation on the grounds that investment in digital infrastructure would be fostered “by tackling low returns for service providers” are not backed up by the research undertaken by the Commission. On the contrary, the evidence cited in the Commission’s report suggests that there are no guarantees that higher returns for telecom service providers would increase infrastructure investment.
Strong competition improves competitiveness
The report’s evidence confirms BEUC’s consistent position that the most effective way to preserve and improve the competitiveness of European companies on world markets is to ensure that they face effective competition within the EU’s Single Market, including from new market entrants.
More specifically, the report details how companies exposed to fierce competition show increased productivity — the most important factor for overall competitiveness and long-term economic growth. It illustrates this phenomenon with empirical evidence, based on a survey of 398 firms from 11 EU countries belonging to the “most successful export sectors”, that companies facing strong competition on their domestic markets perform better on the global stage. Companies surveyed indicated that competition in their domestic markets for their own products contributed to their export success because it gave them an incentive to increase the quality of their products, improve their efficiency and deliver innovation.
Consumers want action to boost competition enforcement
In the light of the Commission’s report, while recognising that competition law enforcement is not the only factor that has led to the trends identified, Europe’s consumers call on the incoming European Commission and individual EU countries to take concrete measures to boost competition, in particular in markets that matter most to consumers. These measures must include stricter enforcement of competition rules, including merger control, by taking more account of consumer harm caused by reduced choice and increased prices, and by paying more heed to the reality of consumer markets and rather than hypothetical models.
Member States and the Commission must be able to call in and review mergers that currently fly below the radar but can lead to significant consumer harm – for example sequential buy outs of small businesses by private equity (rollups) in healthcare.
The EU must also introduce a European Competition Tool allowing the Commission to take action to restore or introduce competition in markets that are not performing for consumers.
These measures are essential to not only improve consumers’ choice of high quality and innovative products and value for money but also offer real benefits to European companies’ global competitiveness and to the EU’s long-term economic growth.