Beating the competition hands down

Competition policy remains one of the least understood areas of government economic policy.

On the one hand the Government strongly supports competition in certain areas. It exposes civil servants to competition from outside contractors and is prepared to incur significant costs to create competition.

Yet recent decisions by the Government's most prestigious competition adviser, the Monopolies and Mergers Commission, appear to point in the opposite direction.

The MMC recently found there was nothing wrong in perfume manufacturers refusing to supply retailers that wanted to sell the product more cheaply. Nor was this an isolated example. In the year to 30 June, the MMC judged that six monopolists (or groups of oligopolists) were doing nothing contrary to the public interest. As the first table shows, half the monopoly references were cleared, compared with none in 1989. Those figures have led some to conclude the MMC has become toothless. Others claim there has been a deliberate shift in government policy, arguing that Michael Heseltine, President of the Board of Trade, is more committed to supporting industry than fostering competition. Hence his appointment of Graeme Odgers, the industrialist, who as head of the MMC has presided over a string of anti-consumer decisions.

Yet I regard this view as extremely implausible. Mr Odgers' predecessor, Sir Sydney Lipworth, was also a businessman. And any MMC chairman has to contend with more than 30 independent-minded members as well as permanent staff. Nor has the MMC been packed with businessmen. Since 1989 the proportion of businessmen has fallen as the MMC's has grown (see table 2). The spectacular growth was in the number of academics.

Moreover, in examining mergers as opposed to monopolies, the MMC cleared a majority of cases even in the 'tough' days of 1989 (see table 1). And the number of monopolies found to be against the public interest has only fallen from eight to six, a drop that may reflect a more enthusiastic policy by the Office of Fair Trading which selects the cases.

The MMC is also still suggesting tough remedies. Recommending British Gas should be split or that the British Medical Association should stop publishing guideline prices for operations do not look the work of a soft, pro-business organisation.

Recent MMC decisions do have important implications but not those that critics have drawn. Britain has too many separate institutions involved in competition policy. The OFT makes or advises on references to the MMC, it investigates and recommends, and the Secretary of State takes the final decision. New heads at all three competition authorities within a year is the explanation for the confusion over the direction of competition policy. Almost inevitably the three men had different views. There is no mechanism for ensuring a common approach, leading to friction.

Under our system, confusion is likely to mean a weakening of policy. Someone who objects to the behaviour of a dominant firm must win the argument with each of the three authorities. If any one takes the side of the monopolist, the complainant loses. Thus the system unduly favours the rights of the party under investigation.

But although we need to rationalise our competition authorities, we must retain the independent element provided by the MMC. Without this it would be all too easy for decisions on competition cases to become politicised, the subject of backdoor negotiation.

The detailed scrutiny of the facts by an impartial and apolitical body, obliged to publish its findings in enormous detail, works well. The challenge is to rationalise the system without losing this essential element.

The author is parter in charge of competition policy services at Coopers & Lybrand. He was formerly senior economic adviser to the MMC.

----------------------------------------------------------------- MMC decisions ----------------------------------------------------------------- 1989 1994 Monopoly references Against public interest 8 6 Not against public interest 0 6 Merger references* Against public interest 5 1 Not against public interest 8 2 ----------------------------------------------------------------- *Excluding newspaper mergers -----------------------------------------------------------------

----------------------------------------------------------------- MMC composition ----------------------------------------------------------------- 1989 1994 Business 15 15 Academic 4 9 Professions 5 7 Trade unions 4 2 Other 1 2 Total 29 35 ----------------------------------------------------------------- Excludes specialist panels Source: MMC annual reports -----------------------------------------------------------------