Alessia D’Amico and Inge Graef discuss Mario Draghi’s proposal for a New Competition Tool to revamp competition in the European Union. They write the European Commission must think hard about its design to achieve the right balance.
In his report on the future of European Union competitiveness, Mario Draghi asserts that “the EU is weak in the emerging technologies that will drive future growth.” One way to tackle this weakness is by “revamping competition,” for which, Draghi argues, competition authorities need to become more forward-looking and agile. The introduction of a New Competition Tool(NCT) is portrayed as one practical step that can be taken in that direction. While the NCT may be a welcome addition to regulators’ competition toolbox, it is by no means a silver bullet.
The New Competition Tool
While Draghi’s report does not explain in detail what the NCT should look like, it indicates that it “is a market investigation instrument designed to address structural competition problems and to determine a solution together with firms as a potential instrument for enforcing competition policy in today’s rapidly evolving economy…” The tool described is not a new idea. The European Commission proposed a similar tool as part of its Digital Services Act package, designed to create a safer digital space and to foster innovation and competitiveness, though it was ultimately not included in the legislative proposal.
A key difference of the NCT compared to traditional competition law is that it would allow the Commission’s department responsible for enforcing competition rules, the Directorate-General for Competition, to impose remedies to correct market defects and promote competition without having to establish any wrongdoing. Being able to intervene outside the scope of traditional competition rules is critical in cases in which the effective functioning of a market has been impaired by market features, rather than companies’ conduct, as it would not be possible to identify a specific violation. In the United Kingdom, a similar market investigation tool has existed for over 75 years and Germany introduced such a tool in 2023 following the UK’s example, as did Denmark earlier this year.
Ex-Ante vs Ex-Post Enforcement
The report criticizes competition law cases that last decades and emphasizes the need to ensure timely and effective intervention. It mentions the ex-ante approach of the Digital Markets Act (DMA), which seeks to increase market contestability and fairness by imposing obligations on digital gatekeepers rather than intervening after competition law infringements have occurred (ex-post), as a way to increase the speed of intervention in the digital sector. However, it also stresses that ex-ante regulation should not become the primary tool to foster competition, unless special structural impediments to competition call for it. This is due to the labor-intensiveness of the ex-ante monitoring of markets.
Instead, the report recommends reinforcing ex-post intervention to ease the enforcement of competition policy. To make ex-post enforcement more efficient, Draghi suggests that companies should be given a greater duty to report metrics that are used to evaluate the level of competition. While the proposal to introduce this information disclosure obligation is presented as separate from the NCT, the report indicates that this ex-post enforcement strategy could be integrated in the NCT. The access to data even after a case is closed would facilitate intervention in markets in which past enforcement action has been ineffective. Such focus of an NCT appears to differ from the existing use of market investigation tools in other jurisdictions.
The NCT as proposed by Draghi arguably combines ex-ante and ex-post elements in a novel manner. As explained by Schweitzer in her expert report on the NCT:
While pursuing competition law goals, it will not focus on conduct but on features of the market that adversely affect competition. The analysis will be of a prospective and holistic nature: It shall identify risks for competition or the causes of a continuing lack of competition. Likewise, remedies will not strive to effectively put an end to an infringement but to address the underlying competition problem as such, with a goal to ensure effective competition in the future.
The NCT would, accordingly, give the Commission the flexibility needed to avoid unnecessary ex-ante monitoring, while at the same time making interventions more timely and future-oriented.
Challenges around the Introduction of the NCT
Availability of resources and effective remedy design
While the NCT is a welcome addition to the Commission’s toolbox for addressing structural market problems, its application will put further strain on the limited resources of competition enforcers. The report already points out the problem with additional resources being required for the enforcement of the DMA. It also stresses that the enforcement of new competition regulations should not lead to a reduction of enforcement of traditional competition policy tools, such as under Article 102 TFEU, prohibiting abuses of dominance. To alleviate this problem, besides providing more resources to the Commission, Draghi suggests limiting the application of the NCT to four areas: 1) tacit collusion; 2) markets with particular need for consumer protection; 3) markets with weak economic resilience; and 4) past enforcement action in which the remedies are ineffective (as already mentioned above).
While these are indeed complex areas where existing competition rules have their limitations, the question is to what extent the NCT can tackle the problems in these domains. Identifying a market problem is one step, solving it is another. Effective remedy design has already been a challenge in regular competition enforcement and will be even more crucial for the NCT to achieve successful outcomes. The fact that resources can be fully focused on identifying the problem and possible solutions, rather than on establishing an infringement of the competition rules, shows the potential of the NCT. At the same time, it is not a given that the introduction of the NCT will solve the problems in the four areas. Significant resources and expertise are required to ensure that such market problems can be properly investigated and effectively addressed.
Scope of the NCT
A more fundamental issue is the discretion and scope of the Commission’s powers under the NCT. Resolving market problems in some of the listed areas would require market-wide remedies (for instance, to facilitate consumer switching under the second area of potential intervention), targeting an unlimited number of existing and future market players. To some extent, this raises concerns about democratic legitimacy and separation of powers, as the Commission would acquire semi-legislative powers through its ability to impose general remedies on an entire market under the NCT. This is a key difference with its powers to apply the competition rules and the provisions of the DMA, which still contain open norms subject to the Commission’s interpretation but are limited in scope to certain market players (including those committing collusion, having a dominant position, or qualifying as a gatekeeper).
At the national level, countries have taken different choices in this regard. The UK Enterprise Act enables the Competition & Markets Authority to adopt market-wide remedies, whereas the German Gesetz gegen Wettbewerbsbeschränkungen only allows the Bundeskartellamtto address remedies to “undertakings whose conduct and their relevance for the market structure contributes significantly to the malfunctioning of competition.” The scope of the NCT at the EU level should probably fall somewhere in between to avoid making it so broad that the Commission risks becoming a semi-legislator, while at the same time not making it so narrow that the Commission is unable to act effectively to address the structural market problems that the NCT seeks to resolve in the first place.
Conclusion
The NCT represents a forward-looking strategy to address structural competition issues in Europe’s rapidly evolving economy characterized by increasing market concentration. By blending ex-ante and ex-post elements, the NCT aims to provide the Commission with a more proactive mechanism to intervene in markets without having to establish violations or wrongdoings. Draghi’s call for an NCT does not come as a surprise given the developments at the national level in several of the member states, but considerable thought will need to be given to the resources and expertise needed at EU level to make the NCT work as well as to the desirable degree of discretion available to the Commission.
Authors’ Disclosures: Inge Graef co-authored the 2023 TILEC study on the effectiveness of abuse of dominance enforcement in the Netherlands, commissioned by the Dutch Ministry of Economic Affairs, which funded some of her earlier work on market investigation tools. Alessia D’Amico reports no conflicts of interest. You can read our disclosure policy here.
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