Blog Martijn Snoep: Updating competition enforcement

Over the past several decades, the number of active companies in most markets in the US and Europe has gone down. In many cases, that decline has led to less effective competition. The remaining competitors have less incentive to be concerned about their buyers, suppliers, and competitors, and that comes at the expense of price, quality, and innovation. The magnitude of this problem varies per region and per market, but the general trend is heading in the wrong direction. That’s why the Netherlands Authority for Consumers and Markets (ACM) has, for a while now already, argued for an update of the competition laws by way of two amendments in order to be able to counteract this trend (at least in the Netherlands) in a targeted manner with an eye for due process.

Call-in power

At the moment, all transactions that meet the statutory turnover thresholds need to be notified to ACM. This applies to approximately 120 transactions each year, while only a handful of those transactions gives reason for competition concerns. At the same time however, transactions that do not exceed the turnover threshold but that do cause competition concerns escape ACM’s scrutiny. Think of big companies that gain market power by making serial acquisitions below the turnover thresholds (‘roll-up acquisitions’), and of businesses that already have market power and absorb potential competitors in order to prevent future competition (‘killer acquisitions’).

In order to be able to plug this enforcement gap in a targeted manner, ACM has proposed to raise the turnover threshold so that fewer transactions need to be notified. That will alleviate the administrative burden on both the government and businesses. However, that proposal must go hand in hand with ACM’s ability to assess within a set timeframe transactions that fall below the threshold in the case of competitions concerns. The Dutch House of Representatives recently passed a motion calling on the Minister of Economic Affairs to enshrine this ‘call-in’ power into law. The minister, too, acknowledged the need for such a power, and will inform the Dutch House of Representatives about this soon.

New Competition Tool

The second amendment concerns a statutory power to impose measures on businesses in markets where competition is insufficient, and where buyers or suppliers are harmed by higher prices, reduced quality, or less innovation. With this ‘New Competition Tool’ (NCT), ACM will be able to reignite competition, for example by eliminating switching barriers for buyers, or by lowering barriers to entry for new entrants. That will change market dynamics. After all, buyers (as well as society as a whole) benefit from lower prices and from opportunities for new business models that take advantage of new technological possibilities, which incumbents pay less attention to. The minister is ‘sympathetic’ to an NCT, but wishes to take into consideration all different interests first. He expects to put forward a proposal in the first quarter of 2025.

Too much power?

When it comes to this NCT, one logical question is whether or not it gives ACM too much power. After all, the fact that competition is insufficient does not necessarily mean that businesses have violated the competition rules. A power to impose measures mandating businesses to do something or to refrain from doing something without them having violated the law: does such a power actually belong to an independent regulator? That is a valid question, which already makes it clear that this power calls for guardrails. Allow me to explain this in greater detail.

International and national context

For over 75 years, ACM’s counterpart in the UK has been able to rekindle competition in cases where it had slowed down. For example, an investigation is currently being conducted into the market for vets following consumer complaints about larger companies buying up veterinary practices, poor provision of information, and high prices. In the past few years, the German, Italian, and Danish competition authorities have also been granted this power to boost competition whenever needed. And, in his recommendations about restoring the EU’s competitiveness, Mario Draghi proposed to introduce an NCT at the European level. Moreover, ACM is already able to impose similar measures on businesses in the telecom and energy sectors in order to improve the functioning of these markets. The independent Dutch Healthcare Authority can do this in the health care sector. So seen in that context, the NCT is not a particularly wild idea.

Thorough investigations and legal assessments

When imposing measures on companies, a good regulator is diligent. The first guardrail is therefore the condition of a thorough economic analysis into the degree of competition, within a certain time limit (statutory or otherwise). Part of such an analysis is the question of what measures are proportional for reigniting both competition as well as the dynamism on the market, if competition indeed is insufficient. This must be an open and transparent process, which should include the opportunity for businesses, customers, and potential competitors to submit their views and to respond to provisional findings.

A second guardrail is the legal assessment. As with all of ACM’s decisions, the courts take a critical look at the soundness of the findings, and whether the imposed measures are proportional. The standard of proof is set high for ACM, and the courts assess whether analyses have been carried out thoroughly and fairly, and whether the reasoning sufficiently justifies the decision.

Weighing different public interests

However, we can imagine a third guardrail to be necessary. The proportional measures that ACM can impose are aimed at improving competition so that prices go down, quality improves, and innovation is stimulated. However, sometimes other public interests play a role, too. What may be good for competition can be bad for national security or privacy, for example. At the moment, ACM’s mission (making markets work well for all people and businesses, now and in the future) and the legal boundaries within which ACM operates also offer scope for taking into account other public interests. As such, ACM does so regularly. Yet, it is a valid question as to whether ACM should have the final say when it comes to a general power to impose measures for improving competition. Wouldn’t that be more something for a minister, who can be called to account for this by parliament?

The minister’s power of annulment

It is ultimately up to the legislature to decide on this, but there is a big case to be made for introducing a third guardrail where the minister is granted the power to annul (in part or in full) any measure that ACM wishes to impose, if at odds with the public interest. That is to say: public interests other than the interest of competition. The minister currently has a similar power when ACM blocks an acquisition. The minister can then clear the acquisition anyway, for reasons of general public interests other than the interest of competition. In short, this third guardrail, too, perfectly goes hand in hand with a targeted update to the current competition laws, without losing sight of due process.

Martijn Snoep
Chairman of the Board of ACM