Book Review: Antitrust Goes Global

8 Colum. J. Eur. L. 141 (2002)

reviewed by David A. Kanarek.

Edited by Simon J. Evenett, Alexander Lehmann and Benn Steil. Washington, D.C.: Brookings Institution (2000). 198 pages.

Throughout the summer of 200 1, the antitrust community and businesses on both sides of the Atlantic Ocean witnessed the European Union (EU) reject the merger between General Electric (GE) and Honeywell. The $43 billion purchase was already approved by US antitrust regulators. This was the first time that the EU stopped a merger of two American corporations that had already been approved in the US. In the aftermath, some argued that the opposing conclusions were a result of differences between the US and the EU in their goals of antitrust enforcement, a systemic problem, while others argued that it was “a major exception to an otherwise harmonious relationship.

Even though Antitrust Goes Global was written before the GE/Honeywell merger was proposed, the book, by explaining antitrust regulation in the EU and the US and the relationship between the two, lays the foundation for an understanding of this most recent decision. As a result of the increasing prevalence of cross-border mergers and acquisitions and international joint ventures, as well as the emergence of a second major antitrust regulator in the world, it is important to understand how the EU and the US enforce antitrust laws and how the two work together. The Brookings Institution and the International Economics Programme of the Royal Institute of International Affairs in London teamed up to compile this volume to explain the current antitrust regulatory regime in the US and the EU and to offer proposals on how the two can continue to cooperate in the future.

On the whole, the end product accomplishes its aim of highlighting transatlantic antitrust cooperation. The reference to the globalization of antitrust in the title of the book is one of the rare instances that the book goes beyond US-EU relations. The contributors focused almost solely on US-EU relations and enforcement and mentioned antitrust on a fully global scale only in passing. We find out, for example, that the US has an extensive antitrust agreement with Australia and that Canada and the US have cooperated extensively in cartel investigations, but there is little mention of how  antitrust agencies outside the EU and the US operate and coordinate on an international level until the PricewaterhouseCoopers case study. William J. Kolasky describes how the United States, Europe, Canada, New Zealand, Australia, Switzerland, Eastern Europe and other jurisdictions handled the merger clearance process in that particular case. The editors defend the focus on US-EU relations and enforcement because American and European firms were involved with over 80 percent of cross-border mergers and acquisitions. In any event, as we learn in the PricewaterhouseCoopers case, antitrust enforcement is more strongly pursued in these two jurisdictions than elsewhere; the rest of the world waits for the EU or the US before taking action.

As a result, this is an important volume that will serve as an appropriate reference guide to antitrust enforcement in the US and EU. It is not a book meant to be read cover to cover, as the articles are rather disjointed, but that seems to be a typical downfall in collecting articles together and presenting them in a single volume. Notwithstanding this intrinsic problem, the information within the contributing articles and the case studies is extremely useful in understanding the current regulatory regimes in the EU and the US, how the two sides cooperate, and what must be done to continue that cooperation in the future.

Simon Evenett, an economist with positions at the World Bank, Brookings Institution, Centre for Economic Policy Research, and Rutgers University, along with Alexander Lehmann, an economist at the International Monetary Fund, and Benn Steil, a foreign economic policy fellow at the Council on Foreign Relations and editor of International Finance, bring together papers and case studies contributed by practitioners and academics from both sides of the Atlantic. The academic papers cover the current enforcement activities and cooperation between the EU and the US, an economic justification for merger review, anticartel cooperation, and issues with vertical integration, with each of the individual authors coming to his or her own conclusions within each article. The case studies include prominent merger cases, transatlantic joint ventures and cooperative investigations.

The first chapter is an introduction by the three editors that provides a good overview of both global antitrust and the rest of the book. The authors identify three corporate developments that have lead to an increase in cross-border antitrust enforcement. First, and most obvious, is the unprecedented number of mergers between companies headquartered in different countries. These mergers are reviewed in many different jurisdictions, the two most important being the US and the EU. The second development is a reevaluation of the benefits of vertical integration and the drive to outsource “stages of production across national borders.”4 As the costs and other obstacles to international trade have decreased, firms have increased their reliance on foreign buyers and sellers. Furthermore, firms who previously strived for vertical integration are realizing that it is now less expensive to rely on outside suppliers and distributors. This drive toward “vertical disintegration can be expected to increase the enforcement activity of antitrust officials.”‘ The third factor is the spread of network-based industries. The drive for compatibility and network externality is a positive goal, but one with which antitrust regulators grapple. The most publicized case has been the investigations of Microsoft, which Robert Litan covers in a case study. The editors conclude by outlining their views on the future of US-EU cooperation on antitrust enforcement.

Following these introductory remarks, the editors introduce Merit Janow’s paper on the current nature of transatlantic cooperation and the history of that relationship. Janow, a professor of international trade at Columbia University, describes the almost ten years of formal cooperation between the US and the EU on antitrust issues. The official agreements between the EU and the US have two different goals. First, the agreements seek to reduce duplicative efforts through cooperation and positive comity. Second, since both EU and US regulators review the same mergers independently, the agreements establish channels of communication to avoid, or at least manage, disputes. Janow not only explains the current situation, but also communicates the uses and limitations of the US-EU agreements.

The third chapter is Edward M. Graham’s explanation of the economics and justifications of merger review. Because much of the discussion is a basic analysis that can be found in most microeconomic textbooks, the analysis does not always stay focused on the relevant issues of antitrust enforcement in the US and the EU. For example, in reviewing the empirical studies on the economic consequences ofimergers, there is no mention of European firms or mergers occurring outside the US. Likewise, Graham’s history of merger waves is confined to the United States, and one could well conclude from it that no mergers occurred outside the US until the 1980’s, according to Graham. Notwithstanding the US bias, this economic analysis of merger review is important to understanding antitrust in general, and belongs in a volume such as this.

The final three academic papers focus on specific antitrust enforcement concerns and analyze where the US and the EU cooperate and where the enforcement diverges. James Venit and William Kolasky cover merger review, Spencer Weber Waller reviews anticartel enforcement, and Philip Marsden writes on vertical merger issues. Venit and Kolasky’s analysis of the merger review process demonstrates that this is the one area where the differences between the US and the EU are the most publicized, yet there is great potential for cooperation. The opportunities to cooperate come from the fact that, even though the procedure of merger review differs, the substantive criteria used by the US and the EU are converging. Differences in procedure are much easier to overcome than differences in the goals of merger review and the substance of the analysis. Specifically, the two authorities recognize coordinated effects, or oligopolistic dominance, as a concern in merger regulation. In addition, both agree on a definition for product market, as the EU adopted the “small but significant and nontransitory increase in price” (SSNIP) test in 1997.6 While there are substantive differences to be resolved, Venit and Kolasky suggest that the processes of merger review are far more incompatible. Similar procedures would benefit all parties involved, not least of which are the merging parties. Review thresholds, different deadlines and divergent information requests are a few examples of the procedural dissonance between the US and the EU merger review processes. Resolving the differences would expedite and simplify the process for the merging parties, as well as facilitate the convergence of the remaining substantive issues to avoid situations like the GE/Honeywell failure.

Waller’s treatment of anticartel cooperation covers the current investigatory techniques of both the US and the EU and the apparent lack of cooperation between the two. Though anticartel enforcement is one area about which both jurisdictions have been particularly adamant and where both agree so strongly, there is surprisingly little evidence of cooperation and assistance. Waller describes the current procedures used in anticartel investigations in the US and the EU as well as the current institutional mechanisms for cooperation between the two. In all of Waller’s anticartel investigation examples, it seems that the US and the EU have not provided any known assistance or cooperation in the other’s investigations. Waller contrasts the lack of cooperation between the US and the EU with the recent history of cooperation and joint enforcement between the US and Canada. Using this example, Waller makes the case for new US-EU cooperation mechanisms and puts forth a list of recommendations that would further this aims.

Philip Marsden tackles the different perspectives on vertical integration and how different jurisdictions view the antitrust implications of vertical arrangements. To put it bluntly, the differences between how the US and the EU view vertically integrated companies is based on “fundamentally different philosophical approaches to economic freedom.” Because of this, any agreement of cooperation and any attempt to bridge the philosophical gap will only happen “if one side capitulates to the other.” The difference in views stems from the concern about who will be affected by a combination of business entities. The US primarily looks at the effect on consumers, while the EU also takes into account the effect on competitors. This philosophical difference is evident in the role of competitors in the merger review process, for example. Marsden concludes that the EU approach is defensible in its own jurisdiction, but should not be the approach used in international antitrust enforcement.

The remainder of the book is a series of nine case studies of several of the most prominent examples of cooperation and the lack of cooperation on transatlantic antitrust enforcement. Because US-EU antitrust relations have only been formalized for ten years, the best way to really understand the relationship is to study the real-life examples. The case studies themselves are very informative and well written. Unfortunately, it is difficult to draw any conclusions in the aggregate. It appears that the editors ordered the case studies alphabetically by the contributor’s last name. It would have been much more useful to order them in a chronological order, so that the reader could see the evolution of the US-EU relationship and see how antitrust administrators learned from previous experiences.

Overall, Antitrust Goes Global will be an extremely useful book for policymakers, academics and practitioners. It strikes a good balance between theory and practice and provides a good reference to the current situation and to the future of the developing US-EU antitrust relationship. The reader learns about the advantages and difficulties of the globalization of antitrust enforcement, just as officials on both sides of the Atlantic are grappling with the same issues. Hopefully antitrust enforcers will use this book and its recommendations to the benefit of companies, practitioners and consumers.