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Review of the evidence on market power, contestability and antitrust

John Asker - Global Forum on Productivity - 20-21 June 2019, Sydney

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Review of the evidence on market power, contestability and antitrust

  1. 1. “Review of the evidence on market power, contestability and antitrust” John Asker Professor of Economics, UCLA June 20, 2019 OECD GFP Asker Market Power, Contestability, Antitrust June 2019 1 / 25
  2. 2. Outline Questions posed: What is market power? How is it inferred? What is the evidence on the aggregate incidence of market power? What are the policy implications of the available evidence Specifically, what are the implications for competition policy? Take aways: Keeping basic economic definitions firmly in mind is crucial to interpreting evidence Evidence tends to suggest concentration and markups have risen in developing economies, but little clarity as to why. The state of the evidence is such as to suggest a very cautious policy response. Policies should be selected based on what will perform well given considerable uncertainty as to economic fundamental driving observed trends. Despite this, examining existing competition policy enforcement frameworks can has potential to be productive. My thoughts on this continue to evolve – doubly so given the evolving state of this literature. Please consume with that caveat. Asker Market Power, Contestability, Antitrust June 2019 2 / 25
  3. 3. Definitions Market Power: The textbook definition of market power ... is that the firm has the ability to influence the price at which it sells its product(s). In other words, if a firm does not face a perfectly elastic residual demand curve, it has market power. Implications: Market power =⇒ Markups > 0 and without further assumptions on conduct and other primitives: Markups > 0 =⇒ Market power Few firms =⇒ Market power Sources: [24] Asker Market Power, Contestability, Antitrust June 2019 3 / 25
  4. 4. Markups > 0 =⇒ Market power Perfectly competitive market with atomistic firms Average markup is 1.39. (Price ÷ marginal cost) P Q 1 1 Supply Demand 0.5 Asker Market Power, Contestability, Antitrust June 2019 4 / 25
  5. 5. Few firms =⇒ Market power Consider the classic homogenous Bertrand model with two firms that have the same constant marginal costs. P = MC and both firms have a 50% market share. In a related sense, useful to recall Shaked and Sutton (1987): when firms’ fixed cost investment shape competition, the competitive process itself can lead to consolidation More information about the underlying primitives is required to make conclusions about competition. Sources: [24] [16] [23] Asker Market Power, Contestability, Antitrust June 2019 5 / 25
  6. 6. Empirical implications of definitions and basic theory Have to be cognizant of the logical steps in finding market power Consumption of evidence requires judgement, it is not mechanical. Absent assumptions about conduct and primitives (i.e. a model), evidence is not dispositive Quality of inference depends on the applicability of a (usually implicit) model Recurrent danger in much of this of repeating errors imbedded the Structure-Conduct-Performace (SCP) paradigm abandoned by IO in the early 1980s. All that said, we should know what the world looks like. And any evidence is valuable. Sources: [22] on SCP and the issues therein, c.f. conclusions in [15] for value of this work in potentially re-shaping thinking re aggregate economy. Asker Market Power, Contestability, Antitrust June 2019 6 / 25
  7. 7. Evidence, via a few selected pictures Figure 1: Average Change in Market Share of 4-Largest Firms over 5-year intervals −1 0 1 2 3 4 ChangeinConcentration (4−FirmMarketShare/PercentagePoints) 1972−77 1977−82 1982−87 1987−92 1992−97 1997−02 2002−07 2007−12 Manufacturing Industries Non−Manufacturing Industries Notes: Results from a regression of change in 4-firm concentration shares by time period. From 1972- 1992, average of 4-digit SIC codes for manufacturing industries and lowest levels of aggregation for non-manufacturing industries (A mixture of 3 and 4 digit SIC codes). From 1997 onwards, average of 6-digit NAICS codes for all industries. Data for non-manufacturing firms in 1972 is incomplete. Data from 1992 and 1997 are from non-comparable industrial classification systems. Table 1: Market Concentration and Productivity RegressionsSource: [13] see also [6] Asker Market Power, Contestability, Antitrust June 2019 7 / 25
  8. 8. Evidence, via a few selected pictures Figure 3: Correlation of Economic Outcomes to Market Concentration −.3 −.2 −.1 0 .1 .2 lnOutputChange −1 −.5 0 .5 1 ln 4−firm Share Change Real Output −.3 −.2 −.1 0 .1 .2 lnPriceChange −1 −.5 0 .5 1 ln 4−firm Share Change Prices −.3 −.2 −.1 0 .1 .2 lnLaborProductivityChange −1 −.5 0 .5 1 ln 4−firm Share Change Real Labor Productivity −.3 −.2 −.1 0 .1 .2 lnMeanWageChange −1 −.5 0 .5 1 ln 4−firm Share Change Mean Wage −.3 −.2 −.1 0 .1 .2 lnEmployeesChange −1 −.5 0 .5 1 ln 4−firm Share Change Employees −.3 −.2 −.1 0 .1 .2 lnLaborShareChange −1 −.5 0 .5 1 ln 4−firm Share Change Labor Share Notes: Results from a non-parametric regression of 5-year changes change in the combined market share of the four largest firms by time period using standardized residuals after demeaning for year- Source: [13] see also [6] Asker Market Power, Contestability, Antitrust June 2019 8 / 25
  9. 9. Evidence, via a few selected pictures Figure 8: Cost-Weighted vs. Sales-Weighted Average Markups, Compustat Solid blue line shows the sales-weighted average of firm-level markups in Compustat data, as in De Loecker and Eeckhout (2017). Dashed red line shows the cost-weighted average of firm-level markups. The former has increased by a larger amount, but the latter is the relevant measure of the aggregate distortion to first-order conditions that results in welfare losses. Alternative ‘low M’ and ‘high M’ calibrations. Our benchmark calibration targets anSource: [12], see also [10] [11] Asker Market Power, Contestability, Antitrust June 2019 9 / 25
  10. 10. Evidence, via a few selected pictures there has been a steady rise from a markup of around 1.1 to a markup of 1.6 in 2016. Observe the steady rise in the first two decades (1980s and 1990s), and the virtually flat evolution in 2000s. In the last few years, there has again been a sharp increase. 0 .5 1 1.5 2 1 2 3 2016 1980 (a) Distribution of Markups: 1980, 2016 .7511.251.51.752 Markup2016 .75 1 1.25 1.5 1.75 2 Markup 1980 0.011 0.010 0.009 0.008 0.007 0.005 0.004 0.003 0.002 0.001 0.000 (b) Contour Plot of Markups: 1980, 2016. Figure 2: The Change of the Global Distribution of Markups Because we have the markup for each of the firms, we can investigate the change in the distribution. From Figure 2a, it is evident that the the increase in the average markup is due to an increase in both the variance as well as the mode of the distribution. Most importantly, we observe the fattening of the upper tail. And while the values of the higher percentiles have increased substantially, there is little change at or below the median. Even in 2016, most firms have markups that are relatively low. But in contrast, substantially more firms now have rel- atively high markups.5 Figure 2b shows yet another way to analyze this distributional shift, Source: [10] see also [11] [12] Asker Market Power, Contestability, Antitrust June 2019 10 / 25
  11. 11. Summary of emergent stylized facts arising from these papers: Country-level industry concentration has increased, at least on average in many countries, although measured magnitudes vary Markups have increased, at least on average, although measured magnitudes vary Prices index changes seem unrelated to concentration Profit share of GDP has increased The labor share has declined Industry concentration and labor share are negatively correlated. Labor productivity dispersion has increased Firm entry rate appears to have declined, although measurement is tricky Employment share of young firms has declined. Sources: [6] [2] [10] [11] [12] [9] [13] [14] [20] [4] [7] [31] Asker Market Power, Contestability, Antitrust June 2019 11 / 25
  12. 12. Implications of evidence: Welfare impacts of market power or markups Figure 1: Production misallocation (resulting from market power) MC1 MCf P q1 Q = q1+q2 QSP D Notes: q1 indicates total production from the cartel, while qf indicates production from the competitive fringe. The producer with market power has marginal costs of MC1, while the fringe has the marginal cost schedule of MCf . QSP is the social planner’s quantity. at a higher resource cost than is socially optimal: Indeed, the low-cost producer should do all the production. The welfare cost of this production misallocation is the shaded area. It is this welfare cost, the rectangle, that we take as our measure of the full extent of misallocation. This Source: [3], see also [12] Asker Market Power, Contestability, Antitrust June 2019 12 / 25
  13. 13. Implications of evidence: Impacts unrelated to market failure Perfectly competitive market with atomistic firms Average markup is 1.39. (Price ÷ marginal cost) P Q 1 1 Supply Demand 0.5 Asker Market Power, Contestability, Antitrust June 2019 13 / 25
  14. 14. Implications of evidence: Impacts unrelated to market failure Perfectly competitive market with atomistic firms More efficient firms become even better Prices unchanges Labor share down Average markup increases from 1.39 to 1.57. (Price ÷ marginal cost) P Q 1 1 Supply Demand 0.5 0.5 Asker Market Power, Contestability, Antitrust June 2019 14 / 25
  15. 15. Implications of evidence: Impacts unrelated to market failure Country-level industry concentration has increased, although measured magnitudes vary Markups have increased, although measured magnitudes vary Prices index changes unrelated to concentration Profit share of GDP has increased The labor share has declined Industry concentration and labor share are negatively correlated. Labor productivity dispersion has increased P Q 1 1 Supply Demand 0.5 0.5 Asker Market Power, Contestability, Antitrust June 2019 15 / 25
  16. 16. Implications of evidence: Impacts unrelated to market failure Perfectly competitive market with atomistic firms Demand increases Average markup increases from 1.39 to 1.64. (Price ÷ marginal cost) P Q 1 1 Supply Demand 2 0.5 Demand 1 1.5 Asker Market Power, Contestability, Antitrust June 2019 16 / 25
  17. 17. Implications of evidence: Summary Patterns likely reflect some combination of the following channels (and maybe others): Market power increases, possibly relating to lax antitrust enforcement Changes in production technologies (rising fixed and sunk costs) Changes in the nature of produced goods Globalization Causal links between the observed patterns and any of these channels has yet to be clearly established in the data. Sources: variously [21] [4] [14] [2]. Asker Market Power, Contestability, Antitrust June 2019 17 / 25
  18. 18. Implications of evidence: Competition policy failure? In the aggregate, no dispositive evidence that competition policy has lead to these trends. However, certainly a productive challenge to any view that competition policy is perfect Emergent lines of research, prompted in part by the aggregate numbers, suggesting various potential competition policy challenges: Mergers: treatment of passive investors Mergers: treatment small mergers Interaction with globalization and rising mercantilism Mergers: coordinated effects Platform/Network effects (FAANGs and related business models) Exemptions and related ‘regulatory capture’ (e.g. State aid, Noerr-Pennington and related doctrine/practices) Sources: [5] on passive investors, [25] [26] on small mergers, [1] [28] [30] on globalization, [18] [8] on coordinated effects, [17] [27] on platforms, [19] on ‘exemptions’ Asker Market Power, Contestability, Antitrust June 2019 18 / 25
  19. 19. Competition policy challenges: Common ownership and treatment of passive investors Figure 1: Common Ownership Profit Weights Over Time Notes: This figure depicts the mean implied profit weight across all pairs of firms in the S&P 500 index by year, excluding own profit weights, which are normalized to 1. See Section 2 for an explicit formula for common ownership weights and derivation. We compute the implied common ownership profit weights for the full set of S&P 500 Index constituents, pairwise, from 1980 through the end of 2017. Revisiting the math of common Source: [5] Asker Market Power, Contestability, Antitrust June 2019 19 / 25
  20. 20. Competition policy challenges: Small mergers 010002000 Count 1995 2000 2005 2010 Year Mergers Notifications Panel A: Notifications of never-exempt mergers 0100020003000 Count 1995 2000 2005 2010 Year Mergers Notifications Panel B: Notifications of newly-exempt mergers 150200250300350 500100015002000 Count 1995 2000 2005 2010 Year Mergers Investigations Panel C: Investigations into never-exempt mergers 050100150200250 0100020003000 Count 1995 2000 2005 2010 Year Mergers HSR-only invest. Investigations Panel D: Investigations into newly-exempt mergers Figure II: Nearly all of the decline in notifications and investigations occurs among newly-exempt mergers. The top panels plot notifications and mergers over time. The bottom panels plot investigations and mergers over time, with the primary and secondary y-axes counting the former and latter, respectively. Panels A and C are based on never-exempt mergers, while Panels B and D are based on newly-exempt mergers. In each, a vertical line marks 2001, the year the Act was amended to raise the size-of-transactions threshold. Note that the distance between the dashed lines in Panel D represents non-HSR-related investigations (of which there are few). 19 Source: [25], see also [26] Asker Market Power, Contestability, Antitrust June 2019 20 / 25
  21. 21. Competition policy challenges: Interaction with globalization and rising mercantilism Paris, le 19 février 2019 N°1043 A Franco-German Manifesto for a European industrial policy fit for the 21st Century At a time of increasingly fast changes globally, Europe must pool its strengths and be more united t han ever. Europe’s economic strength in the coming decades will be hugely dependent on our ability to remai n a global manufacturing and industrial power. The industrial sector of the 20th century is changing b efore our eyes due to digitalization. Brand new industrial sectors are appearing such as those linke d to artificial intelligence, others are changing at great speed such as the car or railways sectors, an d other traditional sectors will continue to be essential such as steel or aluminium. If Europe still wants to be a manufacturing powerhouse in 2030, we need a genuine European indu strial policy. The investments required to enable Europe to compete on the global stage and the de velopment of long-term industrial strategies aiming inter alia at a carbon-neutral economy are so im ...2. Adapt our regulatory framework: We will only succeed if European companies are capable of competing on the global stage. Competition rules are essential but existing rules need to be revised to be able to adequately take i nto account industrial policy considerations in order to enable European companies to successfully compete on the world stage. Today, amongst the top 40 biggest companies in the world, only 5 are European. Despite our best efforts, which we must pursue, there is no regulatory global level playing field. And there won’t be one any time soon. This puts European companies at a massive disadvantage. Whe n some countries heavily subsidize their own companies, how can companies operating mainly in E urope compete fairly? Of course, we must continue to argue for a fairer and more effective global le Source: [1], see also [28] Asker Market Power, Contestability, Antitrust June 2019 21 / 25
  22. 22. (Very) Selected Bibliography [1] A Franco-German Manifesto for a European industrial policy fit for the 21st Century, 19 February 2019, at https://www.gouvernement.fr/en/a-franco-german-manifesto-for-a-european-industrial-policy-fit-for-the-21st-century, accessed 15 June 2019. [2] Akcigit, Ufuk and Sina Ates (2019), Ten Facts on Declining Business Dynamism and Lessons from Endogenous Growth Theory, NBER Working Paper 25755. [3] Asker, John, Allan Collard Wexler and Jan De Loecker (2019), (Mis)Allocation, Market Power and Global Oil Extraction, American Economic Review, 109(4), 1568-1615, 2019. [4] Autor, David, David Dorn, Lawrence F. Katz, Christina Patterson, and John Van Reenen (2017) The Fall of the Labor Share and the Rise of Superstar Firms, NBER Working Paper 23396. [5] Backus, Matthew, Christopher Conlon, Michael Sinkinson (2019), Common Ownership in America: 1980-2017, NBER Working Paper 25454. [6] Bajgar, Matej, Giuseppe Berlingieri, Sara Calligaris, Chiara Criscuolo and Jonathan Tmmis (2019), Industry Concentration In Europe and North America, OECD Productivity Working Papers, No. 18. [7] Barkai, Simcha 2017, Declining Labor and Capital Shares, Working Paper. [8] Byrne, David and Nicolas de Roos (2019), Learning to Coordinate: A Study in Retail Gasoline, American Economic Review, 109(2), 591-619. [9] Chen, Wenjie, Federico Dez, Romain Duval, Callum Jones, and Carolina Villegas-Snchez (2019) The rise of Corporate Market Power and its Macroeconomic Implications, Ch2 in World Economic Outlook, April 2019: Growth Slowdown, Precarious Recovery, IMF. [10] De Loecker, Jan and Jan Eeckhout (2018), Global Market Power, NBER Working Paper 24768. [11] De Loecker, Jan and Jan Eeckhout (2017), The Rise of Market Power and the Macroeconomic Implications, NBER Working Paper 23687. [12] Edmond, Chris, Virgiliu Midrigan and Daniel Yi Xu (2019), How costly are markups?, NBER Working paper 24800. [13] Ganapati, Sharat (2019), Growing Oligopolies, Prices, Output, and Productivity, mimeo. [14] Gutirrez, German and Thomas Philippon (2017), Declining Competition and Investment in the U.S, NBER Working Paper 23583. [15] Harberger, Arnold (1954), Monopoly and Resource Allocation, American Economic Review Papers and Proceedings, 44(2), 77-87. [16] Hubbard Tom and Michael Mazzeo (2018), When Demand Increases Cause Shakeouts, AEJ Micro, forthcoming. [17] Khan, Lina (2017), Amazon’s Antitrust Paradox, Yale Law Journal, 126(3), 564-907. [18] Miller, Nathan and Matthew Weinberg (2017), Understanding the Price Effects of the Miller/Coors Joint Venture, Econometrica, 85(6), 1763-1791. Asker Market Power, Contestability, Antitrust June 2019 22 / 25
  23. 23. (Very) Selected Bibliography, continued [19] Minda, Gary (1990), Interest Groups, Political Freedom, and Antitrust: A Modern Reassessment of the Noerr-Pennington Doctrine, Hastings Law Journal, 41(4), 905-1028. [20] Rossi-Hansberg, Esteban, Pierre-Daniel Sarte, and Nicholas Trachter (2018), Diverging Trends in National and Local Concentration, Working Paper. [21] Sam Peltzman (2019), Industrial Concentration under the Rule of Reason, Journal of Law & Economics 57(S3): The Contributions of Robert Bork to Antitrust Economics (August 2014), pp. S101-S120. [22] Schmalensee, Richard (2012) ‘On a Level with Dentists?’ Reflections on the Evolution of Industrial Organization, Review of Industrial Organization, 41, 157-179. [23] Shaked, Avner and John Sutton (1987), Product Differentiation and Industrial Structure, The Journal of Industrial Economics, 36(2) , 131-146. [24] Syverson, Chad (2019), Macroeconomics and Market Power: Facts, Potential Explanations and Open Questions, Economic Studies at Brookings. [25] Wollmann, Thomas (2018), Stealth Consolidation: Evidence from an Amendment to the Hart-Scott-Rodino Act, American Economic Review: Insights, forthcoming. [26] Wollmann, Thomas (2019), How to Get Away With Merger: Stealth Consolidation and its Real Effects on US Healthcare, in process [27] Special issue on Antitrust and the Platform Economy, Review of Industrial Organization, 54(4), 2019. [28] Open letter on European champions with signatures: More, not less, competition is needed in Europe, at https://www.competitionpolicyinternational.com/wp-content/uploads/2019/02/Open-letter-on-European-champions-with-signatures.pdf, accessed 15 June 2019. [30] Horn, Henrik and James Levinsohn (1997), Merger Policies and Trade Liberalization, NBER Working Paper 6077. [31] Kehrig, Matthias and Nicolas Vincent (2018), The Micro-Level Anatomy of the Labor Share Decline NBER Working Paper No. 25275. Asker Market Power, Contestability, Antitrust June 2019 23 / 25
  24. 24. Appendix: More evidence, average markups by country the pattern that emerges in the aggregate, both globally and for the regions, is the amalgama- tion of each of the constituent countries, there is considerable variation across countries. Most European economies have seen steep increases, particularly Denmark, Switzerland and Italy. Except for Portugal, which had a modest decline in markups, the other European countries all show an increase in markups that is in line with the overall trend. Markup 2016 change? Global Average 1.59 +0.52 Europe 1.64 +0.66 1 Denmark 2.84 +1.95 2 Switzerland 2.72 +1.63 3 Italy 2.46 +1.46 4 Belgium 2.06 +1.03 5 Greece 1.80 +0.85 6 United Kingdom 1.68 +0.74 7 Norway 1.60 +0.74 8 Ireland 1.82 +0.66 9 France 1.50 +0.53 10 Sweden 1.31 +0.50 11 Netherlands 1.52 +0.47 12 Finland 1.36 +0.44 13 Austria 1.33 +0.41 14 Spain 1.34 +0.33 17 Germany 1.35 +0.29 16 Portugal 1.19 –0.06 North America 1.76 +0.63 1 United States 1.78 +0.63 2 Canada 1.53 +0.61 3 Mexico 1.55 +0.17 Africa 1.38 +0.32 1 South Africa 1.34 +0.07 Markup 2016 change? Asia 1.45 +0.43 1 South Korea 1.48 +0.72 2 Hong Kong 1.65 +0.41 3 India 1.32 +0.34 4 Japan 1.33 +0.30 5 Indonesia 1.50 +0.22 6 Thailand 1.44 +0.21 7 Malaysia 1.33 +0.03 8 Pakistan 1.17 –0.01 9 Taiwan 1.24 –0.15 10 Turkey 1.16 –0.32 11 China 1.41 –0.45 12 Philippines 1.50 –0.77 Oceania 1.55 +0.56 1 Australia 1.57 +0.57 2 New Zealand 1.35 +0.37 South America 1.59 +0.01 1 Argentina 1.45 +0.64 2 Colombia 1.56 +0.41 3 Brazil 1.61 –0.01 4 Peru 1.64 –0.04 5 Venezuela 1.47 –0.46 6 Chile 1.37 –2.25 Table 1: Sample of Individual Countries (40 countries out of 134). Countries in each region are ranked by their change in markup. The Region and Global averages are for all countries in that geographical area, not just those reported in the table. ? Difference between markup in 2016 and 1980. If the first observation (1980) is missing, we extrapolate linearly. The pattern of the NAFTA countries Canada and United States, is very much aligned, though the US started 20 points above Canada. Instead, Mexico has experienced a much more modest increase, though it has had a high markup from the start. Source: [10] Asker Market Power, Contestability, Antitrust June 2019 24 / 25
  25. 25. Appendix: Competition policy challenges: Interaction with globalization and rising mercantilism 5/8/2019 19 EU countries call for new antitrust rules to create ‘European champions’ – EURACTIV.com 19 EU countries call for new antitrust rules to create ‘European champions’ Commissioner of Competition Margrethe Vestager is wary about having cross-border mergers given that they could limit competition in the internal market. [European Commission] A total of 19 EU governments have proposed updating the EU’s antitrust rules in order to facilitate the 5/8/2019 19 EU countries call for new antitrust rules to create ‘European champions’ – EURACTIV.com After a ministerial meeting in Paris on Tuesday (18 December), the group of 19 countries called for “new political impetus” to ensure European industry remains competitive on a global level. As part of a new assertive strategy, the 19 EU governments said they will make proposals to the next European Commission that will be nominated after the EU elections in May 2019. One of their main ideas is “the identi cation of possible evolutions of the antitrust rules to better take into account international markets and competition in merger analysis,” the nal statement reads. France and Germany have defended cross-border mergers between big national rms over the past months in order to forge European “champions”. However, the Commission is traditionally wary of such operations, fearing they could squeeze competition in the single market. The EU’s antitrust chief, Margrethe Vestager, expressed concerns  on Tuesday over plans to merge Germany’s Siemens and France’s Alstom to create a European rail champion. Asked about the merger during a press conference, she said: “It is right to say that we have concerns on very high-speed trains because it is very important for Europe to develop also when it comes to high- speed trains.” But some national governments disagree. “If we want to be able to face competition with Chinese giants, we have to bring European forces together,” said French nance minister Bruno Le Maire, in comments to the Financial Times aimed at defending the merger. Vestager is expected to meet with Le Maire in Brussels later today (19 December). The French minister will meet as well with Commission vice-president for the euro, Valdis Dombrovskis, and commissioner for Economic A airs, Pierre Moscovici. Le Maire will explain how France intends to meet the EU’ budget de cit targets despite new spending plans announced after the ‘yellow vests’ protests. ‘Act quickly’ Paris, le 19 février 2019 N°1043 A Franco-German Manifesto for a European industrial policy fit for the 21st Century At a time of increasingly fast changes globally, Europe must pool its strengths and be more united t han ever. Europe’s economic strength in the coming decades will be hugely dependent on our ability to remai n a global manufacturing and industrial power. The industrial sector of the 20th century is changing b efore our eyes due to digitalization. Brand new industrial sectors are appearing such as those linke d to artificial intelligence, others are changing at great speed such as the car or railways sectors, an d other traditional sectors will continue to be essential such as steel or aluminium. If Europe still wants to be a manufacturing powerhouse in 2030, we need a genuine European indu strial policy. The investments required to enable Europe to compete on the global stage and the de velopment of long-term industrial strategies aiming inter alia at a carbon-neutral economy are so im portant that we can only succeed if we pool our funding, our skills, and our expertise. The choice is simple when it comes to industrial policy: unite our forces or allow our industrial base and capacity to gradually disappear. A strong industry is at the heart of sustainable and inclusive gr owth. And above all, it’s what will give Europe its economic sovereignty and independence. To succeed, we need much more strategic thinking than in the past. That is why France and Germa ny call for a more ambitious European industrial strategy with clear objectives for 2030. This should also be a top priority for the next European Commission. The social market economy has been and will continue to be a successful model for the EU and worldwide. We should continue to strengthen and improve it. The European industrial strategy is a strategic aim in this respect. Building on our discussions with other countries, and as reflected in the recent Friends of the Indus try statement of December 2018, we consider the future European industrial strategy should be buil ...2. Adapt our regulatory framework: We will only succeed if European companies are capable of competing on the global stage. Competition rules are essential but existing rules need to be revised to be able to adequately take i nto account industrial policy considerations in order to enable European companies to successfully compete on the world stage. Today, amongst the top 40 biggest companies in the world, only 5 are European. Despite our best efforts, which we must pursue, there is no regulatory global level playing field. And there won’t be one any time soon. This puts European companies at a massive disadvantage. Whe n some countries heavily subsidize their own companies, how can companies operating mainly in E urope compete fairly? Of course, we must continue to argue for a fairer and more effective global le vel playing field, but in the meantime, we need to ensure our companies can actually grow and com pete. This entail changes to existing European competition rules. France and Germany suggest examinin g different options: Taking into greater consideration the state-control of and subsidies for undertakings within the framework of merger control. Updating current merger guidelines to take greater account of competition at the global level, potential future competition and the time frame when it comes to looking ahead to theAsker Market Power, Contestability, Antitrust June 2019 25 / 25

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John Asker - Global Forum on Productivity - 20-21 June 2019, Sydney

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