Competition policy should be focused on consumers

The decision by Mario Monti, the European Union's competition commissioner, to reject a merger between GE and Honeywell – after the US authorities had already given the go-ahead – is about far more than the future of these two companies. It marks a coming of age of the EU as a player in the international economy. For the first time, the European Commission has intervened to block a merger already approved by the American authorities. That the decision has overturned the plans of two such giants of the US market has given rise to accusations that it was no more than protectionism. But that is to miss the point, which goes to the heart of the future of the single market.

It is right that the EU should take a more proactive role, instead of rubber-stamping American decisions. Indeed, it is difficult to see the logic behind a single market not having a single competition policy. The next stage in the project ought to be for member states to transfer competition policy fully to the commission, to avoid the waste and stupidity of having 15 separate policies.

But such an enhanced role for the commission must be accompanied by a fundamental reassessment of the underlying philosophy of European competition policy. US anti-trust legislation aims, above all else, at protecting the consumer. If companies hurt each other, but not consumers, the law has no role. That was what lay behind last week's US Appeal Court decision not to go ahead with the break up of Microsoft. The same logic was applied to the GE/Honeywell merger in the US. Because they have no directly competitive products, the authorities happily approved the merger.

Crucially, however, where US law is based on protecting consumers, EU competition policy focuses primarily on protecting competitor companies. Thus the GE/Honeywell merger was blocked because Mr Monti feared that, by bundling their respective aerospace products (jet engines and avionics) and producing a new, lower-price product, they would usurp their competitors and take too big a share of the market.

The US's bias towards the consumer is a critical factor behind its position as the most competitive economy in the world. Companies have to compete in the market. As the GE/Honeywell merger prohibition shows, in the EU they can instead compete in the regulator's office to protect their market share. We need to test whether it is consumers who are harmed, not competitors.