Oligopolies pose new test for regulators

Date: 01/07/1999

By Renée Cordes
WHOEVER gets the coveted job of next Competition Commissioner will soon discover that stepping into outgoing anti-trust chief Karel van Miert's shoes will be far from easy.

Van Miert has earned a fearsome reputation over the past five years as a man who is not afraid of taking tough decisions, however unpopular these might be with member states or powerful sectors of industry.

His has always been one of the most difficult jobs in the Commission, and it looks set to get even harder as the new millennium approaches.

On top of the ever-growing caseload dealt with by the Commission's Directorate-General for competition (DGIV), the new Commissioner faces a tough challenge in fulfilling Van Miert's pledge to monitor more closely the growing number of industries which are being controlled by just a handful of companies.

"What we are seeing is the creation of oligopolies and this will happen more and more." said Van Miert in an interview with European Voice. He argues that the new Commission will have to be "especially vigilant" in monitoring a boom in merger activity, warning that in some sectors - although not all - this could lead to anti-competitive behaviour.

Van Miert's warning shot comes amid a flurry of cross-border mergers, as companies respond to ever-closer economic integration in the EU and seek to broaden their reach across Europe.

In 1997 alone, mergers involving European companies in more than one member state rose by 36%.

As a result, some industries are now dominated by just a handful of players. Examples cited by Van Miert include the consultancy and auditing sector, which went through a metamorphosis last year with the merger of 'big six' accounting firms Price Waterhouse and Coopers & Lybrand; the the aircraft engine sector, which is now controlled by just four companies world-wide; and the chemicals industry.

In 1997, chemical manufacturers accounted for most of the EU's merger activity, with 21 notifications to the Commission, followed by telecommunications (17), financial services (15) and retailing (11).

"In certain sectors there is a trend toward concentration in the market." said Fiona Carlin, a competition lawyer at Oppenheimer Wolff & Donnelly, although she added that this was "not necessarily going to lead to oligopolies in all areas".

Whether it does or not, the incoming Competition Commissioner and his staff will have to keep an increasingly watchful eye over key sectors to ensure that those involved in the merger mania are not abusing or creating a dominant market position.

One sector where the trend towards oligopolies is particularly marked is the oil industry, which will provide an early test of the new Commission's mettle as it inherits investigations into a string of merger cases involving Exxon and Mobil, BP Amoco and Atlantic Richfield, and - if market analysts prove to be correct - Royal Dutch/Shell.

But size is not necessarily everything, according to Van Miert, who adds that in many cases firms may not be banding together for strategic reasons but simply making a bid to blanket the market. "The irony is that some of these mergers are not going to deliver the goods." he said.

At the same time, warns the outgoing Commissioner, preventing cartel-like behaviour such as price-fixing is becoming harder as companies become more skilled in covering their tracks. "In the past, some of the cartels, like in cement, were not very subtle." he explained. "Now we have these very sophisticated operations in, for example, chemicals or steel."

To encourage companies to cooperate more closely with the Commission when it is probing alleged breaches of EU competition rules, the institution introduced a system a couple of years ago under which firms involved in anti-competitive practices could have their fines reduced if they cooperated with officials and supplied them with information relevant to their investigations.

This has already begun to pay off. Swedish engineering firm ABB Asea Brown Boveri won a 30% reduction in the fine imposed on the company in relation to a heating-pipes cartel after cooperating with the investigation. However, at €70 million, the fine was still the third largest ever handed out by the Commission to a single firm.

"The leniency programme is starting to deliver the goods." said Van Miert, although he conceded that some companies might still be reluctant to come forward, hoping instead that the Commission would not be able to find enough evidence of cartel-like behaviour to levy any fine at all.

Van Miert also warns that there is a limit to what DGIV will be able to achieve, who ever succeeds him, if it does not get extra staff.

The Acting Commissioner says that although his team is extremely capable and hard-working, it is overstretched. "We are reaching the outer limits of the work we can do." he explained. "I hope that in the new Commission, this will be looked at more carefully."

Van Miert claims that giving the team handling anti-trust cases just 20 more staff and the merger task force another ten would make all the difference. "You do not really need big numbers but just reinforcements and good people." he insisted.

The outgoing Commission has also taken steps to reduce DGIV's workload by drawing up plans to hand responsibility for investigating less controversial merger cases back to member states. However, the European employers' federation UNICE and some company lawyers have expressed concern that this could cause confusion in the long run, with differences in the way EU law is interpreted in individual member states.

Van Miert, who plans to move into academia as a university lecturer once he leaves office in the autumn, had hoped to deliver verdicts on a number of important competition cases before stepping down.

But it now looks unlikely that he will be able to make good many of his promises, with a string of key decisions on cases ranging from transatlantic airline alliances between BA/American Airlines and Lufthansa/United Airlines to British Steel's planned acquisition of Dutch rival Hoogovens delayed by the Commission's resignation in March.

The key question now is whether incoming Commission President Romano Prodi can find a new competition supremo tough and bold enough to match his predecessor's vigilance.

EU merger mania

Number of final merger decisions taken by the European Commission each year and number of deals notified

Breakdown by type of activity

Since 1993, the number of mergers handled by the Commission has increased every year. A significant jump occurred in 1997, especially the second half of the year, with the Commission receiving a total of 172 notifications. This increase was mainly due to a rise in mergers involving firms from more than one member state.

Source: European Commission, XXVIIth Report on Competition Policy in 1997 (Published 1998)

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