Competition in a Globalised World, 8 April 2019
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Ladies and gentlemen
It’s a very great pleasure to be here in Paris today. I want to give my very warm thanks to the Banque de France, and the Ministry of the Economy and Finances, for inviting me to take part.
It’s enormously valuable to have this chance to talk with people from so many different perspectives – from business and government, central banks and universities and other competition authorities.
Because some challenges are so big, and so important for our future, that they demand that we all come together to find the answers. And few things are more fundamental to the well-being and prosperity of Europeans than to keep our industry competitive, in today’s globalised markets.
So all of our policies need to play their part, in supporting a strong European industry. We need to invest in modern infrastructure, in research, in skills. We have to break down the barriers that get in the way of a true single market for services, and in digital markets.
And we have to make sure that when private investment isn’t enough, when the innovation we need is so difficult and risky that it needs public money to get off the ground, that this public money can be invested.
That’s why the EU state aid rules aim to make it as straightforward as possible for EU governments to come together and support companies investing in these important projects of common European interest. And in December, we approved Europe’s first integrated research project under these rules. Four EU countries – France, Germany, Italy and the UK – will together put 1.75 billion euros in to a series of 40 closely linked projects, aiming to build better European sensors and microchips.
A global level playing field
But in global markets, our companies aren’t just affected by public policies in Europe. The choices that our trading partners make, about the subsidies they give to business, or the way public procurement works, can affect Europe’s ability to compete in equal terms.
So we need to be sure that Europe is doing everything we can, so Europe’s companies have the chance to compete on a level playing field, across the world.
When we see foreign companies competing unfairly, by dumping underpriced products into our markets, we need to use our powers to respond – as we already do with dozens of products, from bicycles to steel.
We need to respond when there is no reciprocity, when European businesses don’t get the same chance in foreign public procurement markets as companies from those countries do in Europe. So the time has come for the European Parliament and the Council to move forward with the revised International Procurement Instrument we proposed in 2012 and revised in 2016.
We need to make full use of Europe’s new procedures to screen foreign investment in our businesses, so we can make sure that investment actually benefits our interests.
And we also need to keep working to limit subsidies that can undermine fair competition across the world. In Geneva last September, my colleague, Commissioner Malmström, presented a set of proposals to reform the WTO – not least, by improving the rules that deal with subsidies.
Reaching agreement on those proposals will take time, of course. In the meantime, we’re working directly with our main trading partners. Last year, for example, we set up a dialogue with China, to discuss how to make sure government intervention in the economy doesn’t harm competition. On the EU side, we’re sharing our experiences with our state aid rules. And our counterparts in China are helping us understand how their Fair Competition Review System will try to stop public policies harming competition and support a unified market. As this process will not bring concrete results tomorrow either, we also need to act ourselves to ensure reciprocity.
Competitiveness in a digital age
And to have a really effective industrial policy, we need to look to the future. We need to know what it will take to compete in global markets – and where Europe can find its competitive edge.
Right now, we’re in the middle of a digital revolution. New ways of connecting people and vehicles and machines, of collecting and storing and making sense of data, are working their way into every part of our economy– not just shopping or watching movies or searching for information, but transport and manufacturing, farming and government.
Very soon, there will be no such thing as digital markets – there will just be a digital world. So an industrial policy that’s worthy of the name has to be a digital industrial policy.
It has to recognise that success in the future will depend on how innovative we are. Not just in what we think of today as digital markets, but in every part of our industry. Tomorrow’s successes will be the companies that are cleverest and most innovative at using digital technology in healthcare, or finance, or to build clean and intelligent cars.
And the basic principles of Europe’s economic model – our commitment to openness and diversity and competition – are just the principles we need to succeed. Because we may not always be the biggest. But we can be the smartest.
In this time of rapidly changing technology, it’s hard to predict which ideas will make it big in the future. So what we need isn’t a single, centralised approach to innovation, but an environment where different ideas can flourish. So Europe’s diverse ecosystem, with businesses of all types and sizes, is just what we need to do well.
And that means that one of the most vital ways that competition policy, as part and parcel of a digital industrial policy, can contribute to the future of European industry, is to make sure our markets have room for innovation.
A digital world that works for Europeans
And as digitisation changes the way our markets work, we need to make sure that our competition rules – and the way we apply them – are ready to meet the challenges of digitisation.
In the last few years, we’ve seen, through our cases, how digital technology can affect competition. We’ve dealt with digital platforms in our three decisions against Google. And Amazon has also agreed to put a stop to contracts that made it hard for other e-book retailers to compete with innovative ideas.
We’ve looked at whether mergers, like Microsoft’s takeover of LinkedIn, might let companies monopolise the data that you need to compete. And in e-commerce markets, we’ve found that suppliers have used digital tools to make old restrictions more effective – like restrictions on cross-border sales within Europe.
We’ve also gone beyond individual cases. Nearly two years ago, we published the report of our investigation into e-commerce markets. In January, we held a conference in Brussels with more than 500 people, discussing the future of digital competition with some of the world’s leading experts. And in preparation for that conference, we collected more than a hundred written contributions, from all sides of the debate.
And last week, one more piece of the puzzle fell into place – the report on competition policy in the digital age, which our three special advisers have been working on over the past year.
I want to extend my very warm thanks to those advisers – Heike Schweitzer, Jacques Crémer and Yves-Alexandre de Montjoye. Their report is full of important insights into the way markets are changing – and full of valuable ideas on how competition policy can respond.
That report was only published on Thursday. So we’ll need to take some time to think about those ideas, before we reach any firm conclusions about what to do next.
But there are already a few key points we can identify – points that fit very well with the work we’ve been doing in recent years.
The challenges to competition in a digital age
The report makes clear that, despite all the changes that digital technology has brought, the basic principles of competition policy are as relevant as ever. The trouble is that some of those changes have made it harder than ever to keep competition working the way it should.
In a digital world, it can be especially tough to compete with big and powerful businesses. It’s not just that digitisation has made economies of scale more important than before. It’s also the huge amount of data that some big businesses have, which can give them an edge that smaller rivals can’t match. And since, in many parts of our digitised world, the value of a service depends on the size of the network behind it, smaller rivals can find it hard to compete, even with a better product, if they don’t have a critical mass of users.
So competition can be fragile, in this digital age. Opportunities to challenge powerful companies can be few. And as the special advisers make clear in their report, that means authorities need to be especially vigilant, to make sure those companies don’t misuse their power to shut down opportunities for innovators.
Adapting to change: digital platforms
Digitisation is about making connections. And the platforms that help us to make those connections – that find the right seller for each buyer, the right answer for each question – can end up being enormously powerful.
And that means – as the special advisers point out in their report – that we need to stay vigilant for new ways for those platforms to achieve old goals – like extending their dominance to new markets.
For decades, companies have tried to do just that. They’ve insisted that customers who want a popular product have to buy other things from them as well. In the eighties, that might mean forcing buyers of a certain type of nail gun to use nails made by the same company. These days, in our Android case, we found Google forcing phonemakers that wanted the Google Play Store pre-installed on their phones – as almost all of them did – to also pre-install Google Search and Chrome.
And in our case involving Google’s comparison shopping service, we tackled a different way that digital platforms can try to extend their dominance into new markets. Not simply by tying different products together; but by using the central position of the platform to give preferential treatment to their own services in those markets.
Google, in that case, was both player and referee – it both ran a comparison shopping service, and also set the rules for how competing websites showed up in Google search results. And it used that position to favour its own service, systematically showing Google Shopping at the top of the first page of search results, while demoting others so they only appeared – on average – on page four.
And the special advisers have also pointed out that a platform can seriously affect competition, just by acting as a referee – by laying down the rules that govern the market. The way a search algorithm is designed can affect which businesses are noticed, and which aren’t. An online marketplace can decide which sellers to allow on the platform, and the terms of their contracts with buyers. And so the report suggests that those platforms could have a responsibility under competition law to make sure the rules that they set are transparent, and don’t harm competition.
The report also points out that it can help new platforms to break into the market, if consumers can try out those new services while still also using the old ones. So what’s called “multi-homing” – the ability to use more than one platform – can be vital to keep competition open. And the report points out that we may need to step in, if we find powerful platforms trying to make it harder for users to multi-home.
Adapting to change: digital ecosystems and merger rules
And as more industries have become digital, that’s allowed a few businesses to follow that rising tide, expanding into a growing range of markets – and creating whole ecosystems of linked products.
No one, a couple of decades ago, would have imagined that their telephone, and their camera, and their thermostat, and their credit card, would all be provided by the same company. Now, that possibility is becoming commonplace. And by bringing many different products together, that sort of integration can bring a lot of value to consumers.
But it can also make competition much more difficult, in dozens of markets that get drawn into those ecosystems. It can be hard for independent businesses to compete with ecosystems that are fortified by huge collections of data from their other markets. And if the products in those ecosystems don’t play well with those from other companies – if they don’t take interoperability seriously – then consumers can find that the only way to get the benefit of products and services that work together, is to get them all from one ecosystem.
It’s true, of course, that different ecosystems can still compete against each other. But as the special advisers point out in their report, that’s not necessarily enough to make sure that consumers get the full benefits of competition. It can leave new products from smaller businesses without the chance to succeed – even if they’re better than what’s already on the market – just because they don’t work with the rest of the ecosystem. So that the sort of competition that’s given us today’s digital technology – where startups produce new ideas that transform our markets – could become much more difficult in the future.And that’s why the report proposes that we revisit our theories of harm, so we can intervene in mergers when the owners of ecosystems buy startups before they have a chance to grow – strengthening that ecosystem, and helping to protect it from competition.
In the coming weeks and months, we’ll have to study that proposal, along with the many other valuable ideas in the report. But in the end, I think the most important message from the report is rather simple.
It’s that the markets we deal with, and the threats to competition, are constantly changing – and we need to make sure we keep up with that change.
In the last few years, we’ve done a lot to bring competition rules into the digital age. And we need to keep that up, in the years ahead.
Because a strong European economy needs effective competition, to keep it innovative and dynamic and successful. And we’ll keep working, to make sure that we can defend competition, in this digital world.