The officials at the European Commission have always been rather good at manufacturing policy papers, reports, recommendations, reviews, guidelines and all other kinds of documents. Cynics say their fondness for putting pen to paper has much to do with the fact that all too often the Commission has many bright ideas - but rather limited powers to actually put them into practice.
For the Commission’s mighty competition directorate, of course, thing were always a little different. After all: Why waste your time writing widely-ignored policy papers when you can spend your time breaking up cartels, fining big companies or blocking the occasional merger?
Over the past few months, however, the European Union’s top competition watchdog has started to show a new side. In February, it published more than 300 pages analysing the state of competition in the European electricity and gas markets. On Wednesday, the Brussels regulator presented a 185-page survey of the EU market for payment card services. Next in line is a report on the lack of competition on current accounts in July and a survey of the business insurance industry is due out in September.
All four are the result so-called sector inquiries launched by the Commission last year. Unlike normal competition investigations, these do not target individual companies and cannot lead to fines or formal decisions. They simply end when the Commission puts all its findings in a report.
The inquiries are designed to help the Commission gain a better understanding of problematic markets and their failures. With a bit of luck, the evidence gathered during such a sector inquiry should also allow the launch of individual probes against companies violating competition rules.
This new paper-rich approach has its detractors. Some competition lawyers believe the Commission would do better to use its slender resources to go after the real offenders. After all, if you already have a pretty good idea that a market is not working and if there are suspicions that companies are misbehaving, why take the detour of a sector inquiry?
And: Given that the EU competition department is already broken up into units that cover individual sectors, should one not expect the officials tasked with scrutinising, say, the energy sector to have a pretty good idea of how the market does or does not work?
This argument has a particular resonance when it comes to payment cards, the subject of Wednesday’s preliminary findings. For a start, this sector has been at the heart of numerous inquiries already, both by the Commission and by national regulators, and should therefore not be a mystery to Brussels. Secondly, it is a sector that is to a large extent dominated by two companies - Visa and MasterCard - again making it somewhat easier to get an intellectual grip on the market structure.
Yet such concerns - justified as they may seem at first sight - are outweighed by the substantial benefits of the Commission’s new approach. Above all else, sector inquiries reflect the maturity of a regulator that has come to realise that not all competition problems can be solved with the narrow set of tools at its disposal.
Take the findings on payment cards, for example. According to the Commission’s interim findings, there are no fewer than 16 “issues” that trouble the regulator, ranging from excessive interchange fees to technical barriers and vertical integration of card payment systems. Remarkably, the Commission believes that only five of those issues can be addressed by using antitrust remedies.
All other problems, it says, should better be tackled by providing more information to consumers, issuing new rules and guidelines or even nudging the industry towards self-regulatory measures.
The Commission is, in other words, signalling that here is a sector and a market that is suffering from a complex mix of problems. Yes, competition abuses appear to part of that mix, but identifying and tackling only these would in all likelihood not deliver the desired result. But by advancing on a number of fronts simultaneously, the Commission believes it can help a highly-fragmented and seemingly inefficient market become more competitive.
That will undoubtedly take time, especially in the highly sensitive and politically charged energy sector. Yet it seems to be an eminently more sensible approach than simply trying to hunt down and punish abusive companies without asking why the market lets them get away with their behaviour in the first place.
If the paper lays the foundation for that kind of broad, comprehensive action, it will have been well worth the Commission’s effort.
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