TCS Daily

Antitrust in the Political Market

By Alberto Mingardi - August 23, 2004 12:00 AM

Competition theory is a tricky subject, residing both within and beyond the paddock of professional economists. In an age when traditional justifications for state interventionism are fading away, antitrust regulations remain popular all over the political spectrum. Genuine market competition is understood as inherently "imperfect" (so in the need of correction), or at least as some sort of a Darwinian struggle, whose output is inconsistent with any true principle of justice.

The demand for "fairer" competition always sells well in the political market - and antitrust authorities are among the most respected bodies actively engaged in the economic discourse. Their responses are taken with the seriousness reserved to oracles that, by definition, are to be consulted in the search for truth.

Still, antitrust authorities may have in common with ancient oracles something more that the respect the public tribute to them: their alleged infallibility goes hand in hand with the arbitrariness of some of their decisions.

A recent example of this fact is a decision taken by Italy's antitrust authority, which has fined packaging giant Tetra Pak €95 million for not respecting a ban it had imposed in August 1993, which barred Tetra Pak from acquiring Italpack. The ban was decided, according to the authority, because the acquisition would have strengthened Tetra Pak's "dominant position" in markets for packaging for liquid and semi-liquid food products.

After an investigation launched in April 2004, the authority figured out that "notwithstanding Italpack's formal acquisition by Eaglepack Italia in 1995, the Tetra Pak group has de facto managed Italpack as if it was dealing with a company belonging to the same group. This de facto control is shown via a series of elements, including long-term contracts, substantially exclusive commercial agreements with Tetra Pak, and influencing the choice of management of Italpack."

The fine was levied on Tetra Pak International because it manages the group's European operations. Tetra Pak has promptly announced that it will appeal the Italian antitrust authority's ruling, as it believes that there has been no breach of the prohibition decision. As Tetra Pak's senior communications vice president J├Ârgen Haglind clarified in a statement, "the supply agreement was of a non-exclusive nature and annually renewable for both parties: therefore the agreement could not constitute control of Italpack."

This is not the first time that Tetra Pak has become the target of an antitrust investigation. Recently Tetra Laval, the group to which Tetra Pak belongs, was charged a €90,000 fine for an alleged failure to provide information in the long running investigation of its acquisition of Sidel. The acquisition of Sidel, a French manufacturer of machines for producing PET bottles, was originally stopped by EU Commissioner Mario Monti but was authorized in a second stage, after close scrutiny by the European Court of First Instance.

The European Commission now is back on Tetra Laval's case for providing what it called "incorrect or misleading information" relating to the existence of its Tetra Fast technology, when the Commission requested regulatory approval for its acquisition of Sidel. Tetra Fast is a project which attempts to use combustion technology to form PET bottles rather than the traditional compressed air technology. It has still to prove its commercial availability, but regulators seem to be convinced that it will prove dangerous for competitors.

If this whole framework confirms that antitrust authorities are fundamentally biased against companies enjoying a relevant market share - in other words, it sees dominant positions as being despicable, per se, regardless of the way in which a dominant position was reached - the Italian ruling against Tetra Pak is particularly paradoxical.

First and foremost, banning acquisitions and mergers qua acquisitions and mergers is a decision that shows a considerable lack of respect for true market mechanisms. After all, when two companies decide to unite their assets and know-how, they are not hurting anyone. It is their own properties, not anyone's else, which are at stake. Criminal intensions cannot be always presumed to be inherent in mergers - such as peaceful and harmless (or, well, not successful) mergers were the exception that makes the rule.

At the same time, it is very difficult to judge or forecast the consequences of an acquisition ex ante. Regulators cannot predict the future. But, even if the impact of the merger is the one presumably expected by the entrepreneurs pushing for the acquisition, and feared from antitrust authorities (i.e., the enlargement of a firm's market share at expense of the competitors), nothing in this world says that such an output is to be impeded. After all, law does not prescribe what a market should look like. Nor do principles of justice, freedom, and civilization.

Tetra Pak's attempted acquisition of Italpack should not be considered illegitimate just because it would enlarge the market share of the packaging company. Being good in serving the consumers, and so acquiring a bigger market share, is far from a crime.

Second, and not less important, the same notion of "de facto control" is quite dubious. In particular, how can a third part judge, just looking at the ways production is performed and at contractual agreements, how two enterprises interact? Antitrust regulators may guess something, put forward hypotheses, but watching a ship sailing gives you very few insights on how the captain is managing the crew.

The decision taken by the Italian antitrust authority shows a poor regard for genuine market economics and, at the same time, a passion for haruspicy. Business decisions are seen like thru the livers and entrails of sacrificed animals: "de facto control" is a malleable accusation, easily adaptable to any situation that does not smell good to the regulators.

On the other hand, there is a trend towards banning acquisitions qua acquisitions, in the belief that enlarging market share is per se to be understood as a potentially criminal act.

What about leaving customers to decide?

The author is Globalization and Competition Policy director of Istituto Bruno Leoni, Italy's leading think tank. He is also Visiting Fellow with Brussels-based Centre for the New Europe


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