2006 Blog Archive for Dalibor Rohác
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Link to 2007 Archive

	Looking at market power is not a "rule of reason"	20 DEC 2006
	From dumping to price fixing in three weeks	13 DEC 2006
	Let them have their discriminatory taxes	08 DEC 2006
	Buying low-tax alcohol is illegal. Adieu free movement of goods.	29 NOV 2006
	Why so much regulation?	27 NOV 2006
	Competition which will not take place	15 NOV 2006
	Privatise the spectrum!	07 NOV 2006
	What has happened to free movement of capital?	02 NOV 2006
	How not to compete for FDIs	26 OCT 2006
	Why unilateral liberalisation won't happen	18 OCT 2006
	Sad news from Brussels and Bratislava	11 OCT 2006
	Thou shalt not change airlines within a single trip	04 OCT 2006
	Wasting money by small amounts doesn't count	27 SEP 2006
	EC v. Microsoft: The never ending story	20 SEP 2006
	Do we really need new legislation?	13 SEP 2006
	Double Shame	06 SEP 2006
	Dilemmas of an Observer of EU Competition Policies	01 SEP 2006
	Unintended consequences?	18 AUG 2006
	A Rather Unfortunate Summer	26 JUL 2006
	Voiding the BMG-Sony deal: Where is the Rule of Reason?	19 JUL 2006
	Competition as consumer protection	12 JUL 2006
	EC getting tougher on antitrust issues	06 JUL 2006
	Antitrust comes to China	28 JUN 2006
	The fatal regulatory conceit	21 JUN 2006
	The End of the New Europe?	14 JUN 2006
	Why Europe should love competition in public services	08 JUN 2006
	Liberalise trade! Now and unilaterally!	01 JUN 2006
	In defence of the Commission	24 MAY 2006
	Airbus subsidies again on the scene	18 MAY 2006
	A new assault on tax competition	10 MAY 2006
	Should we have antitrust regulations in the non-for-profit sector?	03 MAY 2006
	In Defense of "Predatory Pricing"	26 APR 2006
	The Bad Competition	19 APR 2006
	"I cannot see why there should be hostile takeovers"	12 APR 2006
	Are we losing the war of ideas?	04 APR 2006
	Can Brussels deal with roaming costs?	29 MAR 2006
	The CPE and labour markets - is there something to be feared?	22 MAR 2006
	Why does the EC fail to curb wasteful spending?	15 MAR 2006
	Against European Champions	08 MAR 2006
	Let us be free from "Economic Patriotism"	01 MAR 2006
	Competition in the energy sector	22 FEB 2006
	A new assault on tax competition in the EU	16 FEB 2006
	Three Cheers for the WTO. And the GMO.	08 FEB 2006
	Let them merge!	01 FEB 2006
	Pleading for competitive labour markets	25 JAN 2006
	Your business is not well? It must be the dumping!	18 JAN 2006
	Hoping for the service directive	11 JAN 2006
	The never-ending story of Microsoft Company	04 JAN 2006

Looking at market power is not a "rule of reason"
20 DEC 2006 – Johnson and Johnson’s buyout of Pfizer’s healthcare business might lead to too much concentration of power on the Greek market for mouthwash, according to the EC. But the Greeks have been saved from this truly abhorrent fate by a bold measure of the Commission, ensuring that J&J will sell some of its subsidiaries in Greece and Italy, as well as part of its nicotine patch business.

Put it in this way: this must strike one as an outright absurdity. Even if we could eventually imagine a reasonable role for the EC in fighting collusion and price fixing – even though such occurrences on the open market are rare, unstable and tend to disappear by themselves – it is difficult to present a case for a competition policy based on evaluating "market power."

The first reason is that – unlike in the case of price fixing agreements where evidence can be collected by the competition authority – decisions concerning "too much" market power will necessary be arbitrary. And, as we know, these decisions are usually based on various concentration indices, such as the Herfindahl index, considered by many economists as truly obsolete and having no significance in the real world and even less in policymaking.

The result of striving for "not too much" market power are these chaotic decisions, linking markets of mouthwash and nicotine patches and ultimately casting a cloud of uncertainty over many business decisions. And although many like to call such policies "rule of reason," it is in fact mere arbitrariness.
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From dumping to price fixing in three weeks
13 DEC 2006 – To accept the mindset of those who enforce anti-trust statutes often means to be paranoid and to see all entrepreneurs as either conspiring in collusion agreements or engaging in deadly attempts to suppress competition by means of predatory pricing.

At the present time, the Commission is investigating whether television and computer monitor producers from outside the EU have formed a cartel. As we know, a cartel is usually defined as an agreement aiming at restricting output and raising prices. As such it is extremely vulnerable to behaviour of those from outside the cartel and of course to cheating by those engaged in the collusion. As a result, without enforcement mechanisms, cartels (as understood by standard micro theory) are doomed to fail. This alone should make us sceptical about presence of a tacit price-fixing agreement between monitor companies outside the EU.

What is more, less than a month ago, the Commission published its decision (bottom of this page) in which it concluded that there had been price dumping in imports of cathode-ray colour television picture tubes from mainland China, Korea, Malaysia and Thailand – even though it admitted that deterioration of market for CRTs took place mainly because of previous drop in demand rather than because of dumping.

Anyway, to accept both the recent decision of the EC and the reasons which have led to current investigations is to believe that there is something fundamentally wrong with the electronics market. And it takes some credulity to believe that producers who were engaged in predatory pricing are now in cahoots. Even if the two investigations do not pertain to the same producers, it is highly unlikely that there could co-exist both forms of behaviour on one market. Is it not, after all, more plausible that the differences and changes in prices are due to normal, competitive forces within the huge worldwide electronics market, rather than to conspiracies and price wars?
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Let them have their discriminatory taxes
08 DEC 2006 – "European wines and beers are second to none," says EU Agricultural Commissioner, Mrs Fischer Boel, and she is certainly correct. She emphasised this fact with regard to the dispute which has arisen after the Canadian government decided to grant Canadian brewers and winemakers excise tax exemptions.

The Bill should apply retroactively from 1st July 2006 and would give Canadian producers a considerable advantage over their European counterparts. Without being acquainted with the everyday reality of Canadian politics, I believe it is not unreasonable to say that this piece of legislation is a result of rent-seeking by an influential pressure group. Yet this does not make it an entirely bad thing. Certainly, the tax exemption distorts relative prices and makes European producers worse off. But at the same time both Canadian producers and Canadian consumers gain – and this makes is it different from "ordinary" forms of economic protectionism, such as tariffs, quotas and the VERs which represent basically a transfer of wealth within the country.

What makes me feel uneasy about this issue is the stance taken by the EC. Even if we accept the idea that the Canadians have, by their protectionism, decided to hurt European winemakers, what should be done about it? Ms Fischer Boel may want to try to persuade the Canadian government to abandon these measures, which would not be objectionable. More disturbingly, to make her arguments more credible, she might threaten the Canadians with reciprocal measures on the European side. As a result, a day may come when we will see higher tariffs on ice wine, maple syrup and other Canadian exports. And an outcome of mutual protectionism is definitely less desirable than the losses suffered by the Europeans exporting wine and beer to Canada.
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Buying low-tax alcohol is illegal. Adieu free movement of goods.
29 NOV 2006 – The European Court of Justice has ruled that cross-border on-line purchases of alcohol and tobacco products will not be not be legal in the EU. The proposal to legalise such trade would have clearly benefited British and Scandinavian drinkers and smokers who would be able to buy what they need without paying onerous taxes and without travelling to low-tax jurisdictions. Hence the decision was applauded by HM’s Government who seemed otherwise favourable to tax competition on European level:

"The government continues to strongly support the right of individuals to benefit from the freedoms of the EU single market but remains determined to crack down on those who seek to abuse those rights."

What is more, it is easy to show that the VAT is effectively equivalent to an income tax if we assume away bequests. And if one believes that competition in income taxation is a good thing, then one cannot fight competition in setting VAT. Finally, the ruling goes explicitly against the principle of free movement of goods. If it is legal to buy alcohol in a low-tax country within the EU and bring it home, what essential difference does it make if one orders it on-line? In principle, both acts are identical and if one is recognised as being utterly legal and unobjectionable, why shouldn’t the other be as well?
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Why so much regulation?
27 NOV 2006 – Antitrust legislation is but an instance of a broader set of economic regulations imposed on economic activity by governments and supranational institutions. To explain why we observe an inflation of regulation at all fronts, one has to go back to understand the nature of the political process in which it emerges. Yet, for liberals, it is usual to say that such legislation is the result of our losing the war of ideas and the prevalence of doctrines favouring massive involvement of public authorities in the economy.

As far as regulation is concerned, it is my conjecture that what we are facing today is more a manifestation of the presence of strong vested interests than of any kind of "war of ideas" in the proper sense. To a large extent, competition legislation can be explained by the notion of rent-extraction. In this model, a politician can threaten firms by doing them harm unless firms comply with his interests. Likewise, most other regulations result from small groups with concentrated interests being disproportionately represented within politics because they are much better able to overcome the collective action problem than large groups. How else would one explain the common EU working time rules or the failure to pass a rule as trivial and simple as the Bolkestein directive?

More and more, I have come to believe that, although we can’t discard the notion of the war of ideas, we should not "misunderestimate" the role played by vested interests, interest groups, rent-seeking and rent-extraction. You may like it or not, but the political process fails and is biased in favour of illiberal policies.
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Competition which will not take place
15 NOV 2006 – When I was writing last week about the effects of spectrum privatisation on competition in the telephone industry, I forgot to underline that there is one use of the spectrum the government will probably never be eager to leave to the market – this being radio and television broadcasting. Access to radio and television frequencies is severely restricted in most European countries – which has led to the development of cable and satellite channels. And even they cannot escape the visible hand of government regulation.

It is disturbing to learn how much influence the state has on content broadcast through television licensing. Legal statutes determine broadcast content, "fairness" of journalistic work and even length and frequency of commercial breaks. Although the rules are now being relaxed for the whole of the EU, no advertisement will be allowed during the coverage of religious services. Yet, European programmes will be allowed to feature brand logos, in spite of the effort summarised by Commissioner Reding as "advertising driven by content, not content driven by advertising".

An obvious question is why governments simply do not let the broadcasters broadcast as much advertising as they want. And why they do not sell away all frequencies to whomever is interested. There can be no doubt that in such a way, broadcasters would face genuine competition and an optimal mix of advertising and content would prevail. The most plausible answer is that such competition does not exist and is not likely to exist because of political value of controlling the media. Whatever drives politicians, it is certainly in their self-interest not to let themselves deprive of influence over television broadcasting. It is not because they want to control the length of commercial breaks during children’s programmes, but rather because they want to have influence over television for political purposes.
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Privatise the spectrum!
07 NOV 2006 – I am writing this posting from the MPS Meeting in Guatemala where I just had an opportunity to attend a greatly inspiring lecture by Thomas Hazlett, a GMU Professor of Law and Economics. Hazlett is well known for his work concerning privatisation of the frequency spectrum. Today, he presented results of his empirical work on the subject, which followed the spectrum reforms in Guatemala and El Salvador. In both countries, the government started in late nineties to sell-transferable rights to use of frequencies for mobile operators. The empirical work by Hazlett shows that such liberal regimes have paved the way towards truly competitive mobile telephony markets in those countries, resulting in disproportionately low prices and wide availability.

It should be said that the theoretical case for spectrum privatisation was first put forward in late fifties by Ronald Coase (notably in his 1959 article in Journal of Law and Economics) but at the time it was derided as absurd and heretic. Fifty years later, what once seemed as an absurdity is a feasible approach towards allocation of frequencies among competitive uses, be it in the mobile phone industry or radio and TV broadcasting. In this respect, Guatemala and El Salvador are by far ahead of Europe and Central European countries in particular. In Slovakia, for instance, only two mobile operators have existed for quite a long time and at a particular moment in the past, the Telecommunications Minster assured the general public that in such a small country, there was no particular need for a third operator. This being said, I suggest that pushing for a more liberal approach towards spectrum allocation should be on our agenda.
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What has happened to free movement of capital?
02 NOV 2006 – Commissioner McCreevy rightly complains about the rise of economic protectionism across Europe. Member states often take measures aiming at preventing take-overs and mergers, in spite of the presumption that free movement of capital is guaranteed. It is paradoxical that we observe at the same time two contradictory phenomena – the rise of protectionism on the one hand and state aid to foreign investment on the other. In the Czech Republic, only 4 out of 92 industrial zones in construction are funded by private investors; central and regional governments have created the rest (article here).

I argued last week that this way of attracting foreign investors is sometimes well on the edge of insanity. What strikes me now as quite significant is that we observe these two things happening at the same time. One may argue that it is the case that the old member states specialise in protectionism while the new members, on the contrary, tend to attract foreign investors by means of wasteful spending. However that may be, to see such policies in place at the same continent and at the same time appears as one further manifestation of absurdities generated by process of political decision-making. Charlie McCreevy is right in saying:

"I tell you what is frustrating more than anything else: do the 25 member states really believe in free markets at all?"

How not to compete for FDIs
26 OCT 2006 – It is well-known that countries in Central Europe compete to attract foreign investors. This competition has several different forms and some of them are praiseworthy, while others rather deplorable.

On the positive side, tax competition within CEE has led to a partial shift of the tax burden from income to consumption, accompanied by introduction of flat taxes and less complicated tax codes. In addition, foreign investors have come to expect CEE to be a stable place with rule of law and protection of property rights. However, the political process often leads governments to behave in an inefficient manner, and they have thus found ways to compete for foreign investments in a very bad way. In Slovakia, for instance, the recently built Hyundai/Kia plant has been co-financed by the government without any regard for cost-benefit considerations. Sixty kilometres across the border, Hyundai is building another factory. This time, Czech taxpayers are going to foot the bill. My presumption is that such bizarre co-financing schemes conflict with EU norms on state aid, even though national competition authorities try to hide it. The common wisdom in these countries is that such use of public money may be inefficient in the end but is still preferable to the other ways it could have been spent. In this way, at least, new jobs will be created and the backward regions will experience a big push.

But still, as a rule of thumb, the aid is distributed without much regard for costs and benefits. It seems that once politicians see an opportunity to bring a large, well-known investor who could create a certain number of new jobs, they try to grab it at any price simply to impress their electorate.
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Why unilateral liberalisation won't happen
18 OCT 2006 – Our learned colleague Mr Micklethwait presented a cogent case for unilateral liberalisation of trade. While I cannot but fully agree with his reasoning, I would like to explain why I do not believe that unilateral trade liberalisation is a real option. Although I wish to see it happening, I believe that there are strong reasons why it will not happen.

The argument relies on the nature of political process. While liberalising trade is equivalent to stopping poking in one's eye, it is not so for everyone in the economy. There will certainly be important benefits dispersed among consumers, about which most of our fellow citizens do not have any idea, but at the same time, there will be some costly adjustment process on the part of the producers. And it is not difficult to realise that it will be the producers, not the consumers which will make themselves more heard by the politicians.

Every time a policy aims at improving the welfare of a large group of individuals by a small amount while harming a small yet well-organised group, its prospects are weak. This is the reason, by the way, why we still observe so many of the voluntary export restrictions in spite of the fact, recognised by all schools of economic thought, that they are the least desirable form of protectionism. Unlike tariffs, VERs enable the producers to collect what would otherwise have been tariff revenue which makes them particularly appealing for the politicians who can, in turn, expect their gratitude. (click here for an abstract of a classical paper on this issue)

However that may be, international trade is a positive sum game. At the end of the day, we all could be made better-off by liberalising unilaterally. But in the process of adjustment, there will be some who will be hurt and who will not keep it for themselves. And as it happens that those groups are particularly influential in the political process, the prospects for one-by-one liberalisation are particularly weak.
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Sad news from Brussels and Bratislava
11 OCT 2006 – Current affairs do not offer much consolation for anyone who wishes Europe to be on the track towards being a prosperous society benefiting from the advantages of fully competitive markets. To start with, protectionism begins to show its ugly head, as the EU ministers have passed 2-year import duties on shoes from China and Vietnam. Paradoxically, there has not been much discussion about the issue, although it was passed by the narrowest majority possible. Still, even though the immediate effects on Europeans' welfare will probably not be significant, this is a measure about which any literate man should be able to say that it makes us worse-off. How is it that we allow our policymakers to adopt measures which are known to be detrimental? Is there something wrong with the way economics is taught? Are voters just plain stupid? It seems to me that they are just rationally ignorant. As the expected benefit of voting for the right man in the elections is extremely small, no one bothers to make an informed choice. The result is the mess we are witnessing.

And I must emphasise that my impression is that this applies to Slovakia even more than to other countries. Our bonehead apparatchik prime minister, Mr Fico has come up with a series of proposals that challenge the most rudimentary common sense. What is his view on how to decrease deficits? Just let the gas utility, owned partially by the state, pay special dividends. Even better, do prices of electricity, gas and petrol appear too high? There is nothing easier to deal with - we will regulate them at the government's discretion!

These are sad things. And as they presumably are result of political accountability and democratic selection of governments, it is unlikely that anything can be done about it, be it at European or national level.
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Thou shalt not change airlines within a single trip
04 OCT 2006 – In its fight against market imperfections, the EC has decided to ban interline pricing of air tickets. The scheme, used by IATA, allows passengers to switch airlines, to change dates and times of their trips, and, what is more, the tickets are fully refundable. Yet, in the eyes of Neelie Kroes, this scheme is an example of price-fixing and she expressed doubts whether it still "benefits passengers on journeys within the EU."

I have no idea how can one confirm or disconfirm whether some selling scheme "still benefits" anyone except by subjecting it to the market test. And since such air tickets are still sold even though other, cheaper and less flexible ones are available, it must mean that they indeed do benefit the passengers.

To judge the world according to its resemblance with the model of perfect competition may be fruitful in the case of security markets or world market with wheat and gold, but it is certainly the case that most of our everyday markets are not perfectly competitive. And it is indeed efficient that it is so. Imagine perfect competition in retailing. How many resources would be wasted to assure that the number of competitors is sufficiently low so that no one can affect the equilibrium price? Imagine that you unexpectedly had to buy something and so you went to the store. What would you find? Empty shelves! At equilibrium price, everything had been sold. No retailer would have stocks to satisfy unexpected excess demand. No one expect anything unexpected to happen and in the world of perfect competition it cannot indeed happen.

Likewise, in an ideal world with costless information flexible air-tickets at higher prices would be a sign of a cartel abusing its dominant position. But in the real world, such cartel appears rather as an efficient production structure, remedying for uncertainty and offering an intangible commodity – flexibility. Even though Ms Kroes may deny that it even exists, such a commodity has a value and a price. And banning a trading scheme that supplies it will only make customers worse off.
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Wasting money by small amounts doesn't count
27 SEP 2006 - On this blog, I have been discussing in some length the role of the DG-Competition in stopping wasteful government aid to private businesses (here, for example). To my disconcertion, the EC has proposed to ease existing rules for state aid, following pressure from France, Germany and United Kingdom. At the moment, the minimal subsidy to be considered as aid is €100 000, a figure which the EC now wants to double. And at the same time government guarantees for loans up to €1.7 million are to be exempted from the EC action as well.

One cannot say this measure is completely illogical. Increasing the "de minimis" aid "should allow member states to boost the competitiveness of such companies without adversely affecting competition," says Neelie Kroes. Finally, a hundred thousand euros is really peanuts compared to what politicians give away conspicuously to national "champions" and such an amount of aid should really not have significant effects on competition between enterprises located in different Member States.

But wait a minute. Should state aid control be uniquely about spill-overs? That is, should the EC step in only when competition among Member States is affected? I do not think so. My prime reason for defending such a policy is not the spill-over effect that state aid might have but rather its wastefulness. Whether the Slovak government gives €100 000 to twenty different firms or whether it gives a subsidy of €2 000 000 to one firm is immaterial to my being opposed to such spending. In both cases the government would have just wasted 2 million euros and I wish that something be done with it in both cases.
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EC v. Microsoft: The never ending story
20 SEP 2006 - The EC’s obsession with Microsoft seems to be unlimited. Most recently, Neelie Kroes ruled out the possibility of friendly settlement with the company and warned Microsoft about Windows Vista’s containing too many of Microsoft applications. She went on saying that:

"If jobs are to be created as a result of Vista’s release, any such job creation would only be enhanced with the release of a version of Vista which allowed others to compete on the merits of their products."

The flaw about this reasoning is that new jobs are not the goal. They are merely means by which labour can be put into productive uses, aiming at satisfying consumers’ wants. From this perspective, there is never a shortage of jobs – human wants are unlimited and there is an almost infinite number of ways how labour can be put into productive use. And with Windows Vista’s bringing a whole lot of Microsoft applications without an additional charge, it might be the case that the producers of rival products are hurt but, in the end, Europeans will be receiving a free lunch in the form of goods which no one has to reinvent and build from scratch, liberating thus their productive resources for alternative uses.
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Do we really need new legislation?
13 SEP 2006 - The European energy market is a problem. Built on the economic principles of the early Fifties and insulated from any kind of competition until recently, it is not an example of a dynamic industry with many potential entrants that would keep the incumbents doing their best.

What can be done about it? The EC proposes new legislation as a solution to the problem, facilitating access to energy markets and strengthening the independence of national regulators. This will probably help, and indeed I do not believe that much more can be done. The major problem with energy markets is that their structure is very different from what a competitive structure would be, i.e. a structure which would have developed without governments’ interference in the old days. Equally important is the fact that entry into the industry requires considerable costs, prohibitive for most competitors unless the incumbent company fares really badly.

Both of these facts are facts of life and will probably cause the energy markets to look very different from what we conceive as competitive markets for a long time to come. Most importantly, neither of them can be changed by government or EC decree. The only thing the European institutions can do is to liberalise entry from a legislative standpoint - and there is actually much to be done on this field. I am far more sceptical as to whether the proposed breaking up of companies that control both supply and distribution of energy can be useful and whether it will contribute to anything but legal uncertainty. Competition policy has never been about waving a magic wand, transforming our world instantaneously and without cost. And in this case it is also about being patient with the existing industrial structure that developed over very long time; it cannot be changed overnight, except at enormous cost.
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Double Shame
06 SEP 2006 - Two events made me feel uneasy over the past week. Actually, there might have been more of them, but these two were directly related to free markets and competition.

The first one is local. The Czech government will bail-out Czech Airlines (tSA) up to approximately €70 million after the rise of fuel prices and ill-advised airplane purchases have brought the company at the edge of bankruptcy. The news of tSA requesting state aid went on the news unchallenged, neither by a politician, nor by experts as if it were self-evident that the "national champion" can always rely on the taxpayer to foot the bill. It would be superfluous to stress that there is no particular interest of a Czech traveller in not letting tSA go its way. The whole case is a prime example of wasteful government spending.

The EC has not fared much better than the Czech government, however. Last Thursday, the Commission adopted Mr Mandelson’s proposal to introduce import duties on shoes from Vietnam and China on the grounds that their prices are kept artificially low by dumping.

"If we tolerate dumping, we send the signal that Europe tolerates unfair competition and unfair trade," says the Commission and I am tempted to add that this would be a signal I have been waiting for a long time. The purpose of action of the EC, in my eyes, should not be to establish "fair" competition but to promote free competition. And it must be said that so far it has failed terribly to do so.
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Dilemmas of an Observer of EU Competition Policies
01 SEP 2006 - Contributors to this weblog try to give a skeptical view of what the EU should do in competition matters. A coherent position is to say that the European institutions have no role in these issues as competition policy in itself is ineffective and based on phony economic concepts. What complicates this view is the fact that DG-Competition does more than just bully Microsoft and monitor mergers for potential of harmfully high market concentrations. The Commission also steps into (member) state aid on the grounds that it distorts competition on the European market. At the moment, for example, a heated discussion concerns Polish aid to three shipyards that are close to bankruptcy.

Should we oppose such interventions as well? On the one hand, it is difficult to make a cogent case for an international body to stop wasteful domestic spending. State aid differing from one country to another, in the same manner as different tax conditions, does not hinder competition. As Pascal Salin once nicely put it, Dutch growers of tomatoes can compete with the Spanish in spite of the fact that they face completely different structure of costs (the Spanish enjoying obviously a good deal of free lunches in the form of sunshine). The differences in cost structure are not a constraint but rather a crucial impetus to competition on a market. European shipyards can thus compete with Polish shipyards even though they do not enjoy the “free” lunches, paid by Polish taxpayer.

However, if I were a Pole and realised that such state aid is a waste of public money, I would – on pragmatic grounds – support the EC’s stepping in. What else should the EU be for, if not for constraining the politicians? That might be, in my eyes, an equally legitimate viewpoint on this issue.

How should this apparent contradiction be resolved? I am tempted to adopt the pragmatic view fairly often – the misfortunes of French and Spanish economic nationalism being the last example. Yet one should feel that from a public choice perspective, this view is detrimental in the long term because, as we have seen, once we grant a public institution the powers to do something in this or that area, it won’t take long until it starts to mess with plenty of other things which are not its business at all. But still, how can one get rid of the desire to see the EC constraining the politicians who spend like drunken sailors?
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Unintended consequences?
18 AUG 2006 - Competition policy is a mess in itself. And sometimes it can bring about unintended consequences which are even worse. Even though it prides itself being independent of any political pressures and - it should be so under a transparent political regime - sometimes the antitrust authority might act in accordance with the wishes of politicians, however senseless they are.

Such is the case of the long-awaited decision of Slovak Antimonopoly Office concerning the sale of Bratislava airport to TwoOne group. The former government has decided to sell both the Kosice and Bratislava Airports to this alliance composed of Vienna Airport and the Slovak-Czech investment group Penta. Under Slovak statutes, such a contract requires the consent of the Slovak antitrust authority. While in the case of the Kosice Airport the decision was affirmative, the Office has hesitated about the other airport long enough to permit our new beloved prime minister to stop the deal in the meantime (story here in German). The Antimonopoly Office denies the allegations that reasons for its hesitations were political and it might well be true that it was a simple case of incompetence without any political prejudice, but it does not in any way change the fact that if the Office had decided in due course, our government would have been prevented from canceling it. Thus, Bratislava Airport is probably bound to become a relatively unimportant, badly run place when it could have been a relatively unimportant but well run place whose passengers could have truly benefited from the proximity of a major European airport. And that certainly is a pity.
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A Rather Unfortunate Summer
26 JUL 2006 - From the point of view of how politicians can harm us, one would expect summer to be a rather benign part of the year. But this is certainly not the case – at least not in Slovakia where the new government is contemplating a direct regulation of petrol prices and as a number of insane measures are looming with the members of the Cabinet slowly getting used to their new powers.

Neither is it not the case in the EU. Last week, the Commission ordered Luxembourg authorities to repeal its preferential tax regime for financial holdings in order to restore “level playing field in the EU's financial services industry” as Neelie Kroes subtly put it. The current tax regime for the financial sector has existed since 1929 and provides significant exemptions for capital earnings by large financial corporations. Now, according to the EC, by 2010 this regime should be phased out for companies enjoying it now.

I cannot stress enough that Luxembourg has been one of the few bastions of tax competition within the EU and its treatment of financial institutions should be taken as an example of how things should be done. One of the reasons is the fact that on economic grounds, the idea of taxing capital gains is indefensible as it always involves distortions of intertemporal consumption decisions by taxing deferred consumption more heavily.

If Ms Kroes wants a level playing field in financial services, I beg her to propose a harmonisation downwards, forcing other member states to adopt Luxembourg’s approach towards fiscal issues and not the other way round, imposing distortive a tax regime simply because everyone else is using it.
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Voiding the BMG-Sony deal: Where is the Rule of Reason?
19 JUL 2006 - One cannot but welcome the fact that for some time, antitrust authorities have moved from applying the per se rule towards some kind of cost-benefit analysis, embodied in the principle of the rule of reason. I believe that it is not utterly nonsensical to formulate this principle in the way that no activity should be made illegal unless its benefits can be shown smaller than the costs of restraining the competition, rather than the opposite which would require the regulators to show that the benefits outweigh costs to make a market action legal. I see this approach as something which would somehow limit the inherent legal uncertainty related to antitrust enforcement, as it is naturally more difficult to positively prove something than to fail to prove the opposite. And to ban any market action unless the regulator can predict in advance that its benefits will outweigh its costs means to bring market economy to a halt.

It is thus saddening to see that this principle is not shared by European Court of First Instance, which recently ruled that in the case of Sony Music - BMG merger the European Commission had not satisfactorily proved that the deal would not hurt competition. How could it have? In a dynamic environment such as the music market, no one can anticipate with certainty what technologies will emerge and how music will be distributed in, say, ten years. It is impossible to demonstrate that the costs from (eventually) attenuated competition will be outweighed by benefits created by new entrepreneurial opportunities arising on the market. But it is equally impossible to prove the contrary. And under such circumstances, I assert that the sensible course of action for the regulator is to laisser faire and to let the market find its way. It is worrying that the EU judges think otherwise.
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Competition as consumer protection
12 JUL 2006 - Low cost airlines have been a blessing for countries of Central Europe as they allow both a massive inflow of tourists into these countries and at the same time allow the citizens of the former communist countries to travel and explore Western Europe at ridiculous prices. This is true in spite of the fact that the author of this article had recently a very bad experience with one of these companies and is determined never to use its services in the future.

Anyway, Ryanair has been subject to a fierce criticism in recent past for not disclosing true cost of airport fees, resulting in consumers’ not knowing the price of the air ticket before the actual booking takes place. Some claim that this act violates the EU legislation and that Ryanair should be prosecuted under current statutes concerning consumer protection.

Regardless of whether it is true or not that Ryanair was overcharging its customer in an illicit way – and I presume that it was not as one can always see the detailed breakdown of his fare before he makes an online payment – I doubt that it is the matter of the EU to deal with such matters. If Ryanair did really cheat its customers then this should be subject of an arbitration or a suit and not of a legal action from the part of the Commission. And if the only evil thing which Ryanair did was that it was disclosing the final fare of the ticket only one moment before the payment, then it should be no policy issue at all. It should be purely a matter of competition to determine whether consumers prefer an airline which offers low fares and lousy treatment of consumers or an airline which combines high prices with a degree of civilised behaviour.
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EC getting tougher on antitrust issues
06 JUL 2006 - On this blog, I do sometimes commend the DG-Competition on acting courageously against economic nationalism and barriers to competition which are created by member states in order to protect the national champions. Unfortunately, this is not the only field of action pursued by the EC. We should always bear in mind that Mrs Kroes et consortes follow also a most detrimental policy of fighting against alleged uncompetitive practices in the private sector, even in cases where no previous public intervention affecting competition has taken place. And needless to say that the Commission is usually tougher on tackling these issues.

From my point of view, it will do no good if the Commission gets tougher on these matters. And, as a matter of fact, it is getting tougher. Under the new guidelines, fines will increase so that the company will be liable up to 30 per cent of sales of product in the market of which the "uncompetitive practices" have taken place. For repeated abuses (which, as I have claimed some time ago, often result from bureaucratic convenience), the fine might increase up to 100 per cent instead of the currently enforced maximum of 50 per cent. In addition, the EC has created new fines for joining a cartel, ranged between 15 and 25 per cent of total annual turnover.

This development is dangerous from one perspective which may not be immediately apparent: The ability of the Directorate and of the EC to impose higher fines contributes to an increase of their relative importance, when compared to other public bodies, to their having bigger budgets and thus to the creeping centralisation of power in the hands of an obscure bureaucracy.
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Antitrust comes to China
28 JUN 2006 - What have been the most important drawbacks of the Chinese way towards market economy? Could it be the lack of political freedoms and still existing dominant powers of the state and the Party? Or could it be the regulation of people’s ability to migrate from the rural areas to the industrial South? For some, it might seem that these are only minor flaws and they would argue that what the Chinese have been lacking during all those years is proper antitrust legislation.

Thus the main problem with China would not be that its economy is still heavily regulated and that the share of the unhampered market is still small but that unconstrained wild capitalism has led to a situation of market dominance and its abuse. As a result, TetraPak now controls a 95 per cent share on the packaging material market and MS Windows is the most frequently used operating system.

This is of course complete nonsense. There would be nothing deplorable even if all the Chinese were using Microsoft software and drinking milk from TetraPaks. Antitrust – as both history and our more recent experience with competition authorities show – is probably the last prerequisite for a functioning market economy. But anyway, those who believed that this was indeed an noticeable shortcoming should find comfort in the fact that henceforth even China will enforce proper competition laws which will aim mainly at preventing mergers and acquisitions on the part of large multi-national corporations.

This is not to say that Chinese economy, still plagued by its living communist heritage would be competitive enough as it is. The power of state-organised monopolies is probably incomparable to anything we have ever seen in Europe. But it is equally true that the only true lasting benefit which the Chinese regulators can offer to Chinese citizens is to simply dismantle these public monsters and not to fight against private economic activity, whatever its scale.
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The fatal regulatory conceit
21 JUN 2006 - Can markets be made competitive by a government decree? Of course they can - in the sense that the government opens them to whomever might be interested in entering them. Yet if one adopts an a priori idea about what is the "competitive" price and the "competitive" number of firms, then it might happen that the regulatory agency will attempt to attain this "optimal" state and I do not have to stress that such attempts will be probably futile. The reason is that in a world of imperfect information, uncertainty and permanent change, no one can say in advance what the competitive structure of a market looks like.

From my perspective, this is the most important flaw of our current practice of antitrust regulation, be it on the national or on the EU level. Most recently, Commission directed its efforts towards instructing the German regulator to impose more effective competitive remedies in the area of fixed-line telephony. These might include even price regulations, as those which are currently used in other EU countries.

While this certainly is a blatant example of the fatal conceit of the EC that the competitive price can be known to anyone in advance, the telecom industry has suffered from a lack of competition in past decades. This is not because the industry would inherently tend to be monopolistic but simply because at some time the government stepped in and created a national fixed-line telephony provider and closed the entry. As these formerly rigid industries are liberalised across Europe, they certainly look differently than they would have if the government had not meddled with them fifty years ago. But they can be made fully competitive only by opening them and by putting governments' hands off them and not by pursuing new and sometimes derisory regulatory activities.
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The End of the New Europe?
14 JUN 2006 - What are the prospects of free markets and competition in Europe? In short term, there are reasons to be rather pessimistic, although the situation is not all that desperate. But first, what is the bad news?

There are several items, including the rise of economic nationalism and the ever-larger Leviathan in Brussels. In addition, the hopes which some of us used to put into the New Europe – qua motor of economic reforms throughout the continent – are becoming more and more unfounded. Although the election deadlock in the Czech Republic will probably allow the creation of a right-wing government, mention giving a new wind to the liberalisation movement across Europe.

Even worse, Slovakia, the beloved tiger of Central Europe, witnesses now the turn of the tide. This week-end, the voters will almost certainly put an end to the four years of painful-yet-needed reforms and Robert Fico, a leftist populist of the worst kind, is expected to take power and to revise the changes which have deprived, as he claims, Slovaks of their social rights.

In the short term, it is futile to expect any change for the better – at least not from Prague, Budapest or Bratislava. Eurocrats will push for deepening of the centralisation and politicians will run unsound policies, endangering thus the very foundations of European prosperity. But we need not to despair – at some time, unsustainable welfare state and economic protectionism will have to come to an end, if for nothing else, then for the sake of economic necessity.
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Why Europe should love competition in public services
08 JUN 2006 - Since Tiebout's 1956 article, economists have argued that under certain conditions, competition among jurisdictions can bring about efficient supply of public goods and services. While the original Tiebout model requires rather strong assumptions, it can be asserted that in the real world, competition among jurisdictions leads to different bundles of these goods being supplied in each jurisdiction, satisfying thus various preferences. In addition, interjurisdictional competition allows voters to compare different bundles of public goods and ways of supplying them, ultimately forcing politicians not to behave in too inefficient ways.

From this perspective, it is curious to hear voices demanding a harmonisation of supply of public goods and services across the whole of Europe. Socialist MEPs have presented a draft of a directive defining the basic characteristics of public service provision which are to be common within the EU. As the leader of socialist MEPs puts it, "all EU citizens must have the right to high-quality schools and hospitals, a healthy water supply, safe transport and social services."

But does harmonisation lead to efficient outcomes? Is it, for instance, desirable that the Slovaks and the Czechs have access to public services of the same quality as the Swedish do? Insofar as such generous public good consumption would require sacrificing most of the private consumption – as there are no free lunches in this world of ours – this would surely be a disastrous situation.

What is more, the socialists aim at eliminating cross-border competition in public service provision. But is competition something which should be feared? I can imagine public buses from Slovak capital Bratislava offering their services in the neighbouring Austrian villages (one-hour ticket costs roughly 0.5 Euros) without its being detrimental in any way.

Finally, what are public services? For example, is transport a public good which should be supplied by government, be it national or local? Under a rigorous scrutiny, no one can claim so. It is equally impossible to qualify other services included in the draft as "public goods" and thus the proposal appears not only as an attempt to usurp more power for the European institution but also as an attempt to pretend that the goods which are currently provided by the state are truly public goods, which is a complete non sequitur.
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Liberalise trade! Now and unilaterally!
01 JUN 2006 - Frédéric Bastiat once warned that once the state becomes involved in serving particular interests, the resulting situation is a state of conflict between various interest groups, each one aiming to plunder the others. Recently, this seems to be the case of the EU and its commercial policies.

Is the furniture industry angry with cheap imports? Then the tarriffs on sofas can become a topic of the European – Chinese trade negotiations, as the furniture companies are filing a complaint at the EC. They claim that the Chinese sofas are selling at a lower price than it costs to produce them... presumably in Europe. It is almost amusing to see that each time an industry or a particular company loses its competitivness, it blames it on predatory pricing, as if the costs of production were a God-given constant which never changes.

What is not amusing, on the other hand, is the creeping protectionism of the EU. It is often alleged that Chinese producers are dumping their export prices or that the undervaluation of yuan makes the competition unfair and this is presented as a case for protective measure. But however it may be with the Chinese, and I do not believe that dumping is their sole comparative advantage, there exists no economic reason whatsoever for anti-Chinese protectionism. Even if the Chinese government uses unfair practices to boost its exports, the countries of Bastiat, Cobden, Molinari or von Mises should always be a shining example of laissez-faire trade policy – even if it was unilateral.
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In defence of the Commission
24 MAY 2006 - From time to time, I am not sure what is a bigger threat for free markets in Europe – whether it is the omnipotent Brussels bureaucracy, protected from any kind of political accountability, or whether is rather the myopic behaviour of national politicians. Anyway, it is the combination of both phenomena that constitute the mess in which the Europeans are now doomed to live.

It is my usual stance to be very critical of EU regulations and initiatives, for I fear that they in most cases do not serve the purpose of maintaining a common market. Yet there are exceptions to this rule. Some time ago, I was writing about the truly abhorrent attempts of some governments to stop pan-European mergers, presumably for nationalist reasons. This being said, I would support a legal action undertaken by the Commission against preventing hostile takeovers, for in this case, it is truly free movement of capital across Europe which is at stake.

What I have hoped for was that such legal action would be swift and would put the governments in question, most notably the French and the Spanish, into deep embarrassment. I was thus somewhat surprised to see such an arrogant reaction coming from Barcelona, with Spanish Industry Minister claiming that "Brussels' speed and impertinence in this matter surprise us, in view of its bureaucratic slowness and lack of initiative regarding other problems."

It is indeed my hope that Brussels will indeed lack the initiative in all other domains which are not related to the Common Market and will at the same time act rapidly and "impertinently," as far as stopping political discretion is concerned.
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Airbus subsidies again on the scene
18 MAY 2006 - I am sorry to be obliged to return to the same problem which I discussed here and here, but it seems that in the same way that certain firms are being repeatedly prosecuted for alleged violations of antitrust statutes, other firms are continually enjoying the attention and care of politicians.

This is the case of our "European Champion" EADS, the company which has most recently been seeking aid from the European governments just in order to be able to compete with Boeing by offering a modified version of A350 as a rival to Boeing's 787. The news report is impeccable:

"Airbus's parent firm EADS said on Tuesday it may go back to European governments for extra loans if it decides to revamp the A350, but kept silent on what it will do to help the slow-selling jet catch up with Boeing."

Isn't it incredible? "May go back to European governments for extra loans" sounds almost unbelievable to me. For it assumes that the government is indeed a merchant bank. Now couldn't I go to the government for some extra loans as well? What makes the Airbus so special that it can demand and receive state aid?

The answer is that there is no economic reason to subsidize construction of any airplane and that all imaginable reasons are solely political. Thus the wastefulness of such government spending should be obvious to everyone. But the effects of state aid to Airbus go beyond that. Most importantly, they risk having repercussions on US – EU trade relations and ending up in a trade war, detrimental to all.
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A new assault on tax competition
10 MAY 2006 - On Friday, ECOFIN discussed a reform of the VAT, which would apply the principle of country of destination instead of country of supplier. Those who follow the EC position on tax competition must have known that this would happen one day. And they should also have known how detrimental such a change would be, in spite of what the EU commissioner Kovács claims:

"We want to avoid unfair tax competition because if we maintain the place of origin principle, in that case, businesses will establish themselves in the country with the lowest rates and that would certainly distort the competition."

One could of course argue that – in contrast to "real costs," such wages and remunerations to factors of production – the VAT is some sense an artificial cost item which can be changed at government’s will and thus should not influence the allocation of businesses across Europe.

But are not these people the same which claim that the VAT and thus taxes are a price which we pay for government services and that the level of taxation simply reflects society’s preferences for public goods? If this was true, than for instance the Swedes would opt for a high-tax-high-expenditure state, even at the cost of capital migration to other places. In the same manner, say, Slovaks (oh I do wish it were true) can opt for smaller state with lower taxes and higher level of economic growth. In this case, the VAT is a "real cost" and its differences simply reflect differences in preferences for public goods.

Of course that I do not believe that this would be an accurate description of how we arrive at various levels of government spending. I rather believe that we face Leviathan states which spend as much as they possibly can, regardless of any social "preference" for public goods. An in this case, tax competition, including VAT competition, are even more desirable, for they help to tame the monster.
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Should we have antitrust regulations in the non-for-profit sector?
03 MAY 2006 - Should there be? For those who believe that there should be no antitrust even in the market sector, the answer is a resolute no. Yet this belief does not seem to be shared by everyone - Tomas Philipson and Richard Posner argue in their recent paper that regardless of particular objectives of producers, competition is "socially valuable" and thus antitrust laws should not distinguish between these objectives. And this in fact is the case in the US, where antitrust statutes do not make such distinction.

So, should the CNE be prosecuted for being the only classical-liberal think-tank in Brussels? Should it be ordered to divide in two so that competition reigns on the market for classical liberal ideas? I do not think that Philipson's and Posner's case is that strong. It is fine to point out that, conceptually, even non-for-profit organizations do maximize something and constitute a parallel to traditional firms but to infer from this that they should be subject to the same antitrust treatment as firms is a complete non-sequitur.

On the other hand, the arguments which I would raise against such a proposal are more or less the traditional ones - that the concept of market power is meaningless, that there is no way how to identify the relevant market and thus to say whether a particular firm is a monopoly or not unless it enjoys a state-given privileges.

But I believe that the traditional Austrian argument against antitrust can be even reinforced in this case because to say that "price is above/below marginal cost" makes no sense at all in the case of non-for-profit organizations, as these are as a rule not selling anything. In this sector, no one sensible can expect "perfect competition" with myriads of identical producers to emerge. Even though to apply means of economic analysis to such a non-market behaviour is appealing and in many cases fruitful, the lightness with which Posner et al. simply show that "non-for-profit firms are unlikely to be disciplined by input markets or corporate control, which makes the case for antitrust regulations particularly important" should not go on unchallenged.
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In Defense of "Predatory Pricing"
26 APR 2006 - Many an Austrian would surely agree that antitrust policy as such is unjustifiable, arbitrary and has no legitimate place in a society of free men. In this regard, I would like to invite the readers to think of what the worst feature of antitrust policy is, or what the most ridiculous concept that the antitrust regulators are using is.

I have given this question a thought over past week and my answer is surely predatory pricing. Even the EC Treaty lists "unfair prices" as a foremost feature of dominant position abuse. The story is that under predatory pricing, one of the competitors sells at such low price as to drive others from the business in order to be finally able to set the price above marginal costs and reap monopoly profits.

Now this story may sound intuitive, but under closer scrutiny it is revealed to be complete nonsense. First, the strategy of suffering losses until the other competitors are bankrupt is extremely risky because one usually has no knowledge of their cost functions. Thus the monopoly profits in question would have to be extraordinarily high to attract such risky behaviour. Even so, if there are no other barriers to entry, the sole fact that a competitor is forced to close down his business due predatory pricing does not preclude him from coming back to compete with the monopoly which has been created.

As DiLorenzo points out, when Henry Ford introduced the Model T, he started to sell it at a price lower than marginal costs and only later on the volume of sales permitted him to benefit from economies of scale so that the price of again above the marginal costs. Thus there is no obvious way how to tell whether a particular price is above or below marginal costs.

This example, I believe, should make it clear that predatory pricing is a part of what entrepreneurs are supposed to do within the discovery process of the market and not something which should be feared.
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The Bad Competition
19 APR 2006 - Yesterday, I had a surreal experience while watching the evening news (link here in Slovak). The entire report was dedicated onthe issue of 2009 Czech presidency of the EU. With a grave voice, the journalist was saying that this task is of utmost importance and difficulty, as the Czech Republic will have to host two summits of the EU and to set the agenda not in the national but in the European interest.

It was also announced that during the Czech presidency, the hot issues will include reform of the CAP and Croatia’s accession. I was frankly amazed to learn that the EU works in such a way that its representatives know already today that in three years' time, a reform of the CAP will have to be done.

But anyway, how are the Czechs preparing for their task? Happily enough, they have succeeded in renting a building adjacent to the Czech Representation to the EU and they expect to increase their staff from current 120 to 260. These new people are to play a crucial role in preparing the presidency. Thus, Mr Kohout, the head of the Czech mission, emphasized that these people will absolutely have to be fluent in modern languages and possess a top-class graduate education.

Isn’t it frightful? What are these men and women expected to do? What will be the outcome of their three years (and probably more) in the public service? This is again a terrible example of the crowding-out effect, when the most talented and most productive individuals are hired - in a very competitive process - by the state and do absolutely useless jobs, while their benefits to society would have been enormous if they had been employed in the private sector. It is a depressing feature of the new EU countries in which the wage differential between the private sector and the eurocracy is particularly pronounced to see la crème de la crème of a generation leaving for a public service career.
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"I cannot see why there should be hostile takeovers"
12 APR 2006 - With all my reservations towards EU Competition policy, I admit feeling a good deal of satisfaction if the powers of the Commission are used for good purposes. Perhaps this is an ill-advised attitude, because these powers in themselves should be regarded with the greatest suspicion, but I still enjoy witnessing these rare moments.

This is the case, at least in part, of the EC’s disapproval of French and Spanish actions against foreign takeover bids. In Spain, the government has acted so as to prevent the takeover of its energy group Endesa by German E.ON and the French (successful) prevention of the takeover of Suez by Enel. These unsophisticated examples of economic nationalism are truly disturbing and it is a shame that they take place in year 2006. And if there is someone to reverse these unwise interventions, I cannot but applaud.

In these circumstances, it is disturbing that there still are individuals who criticize the EC from this obscure nationalist standpoint and who seem to mean it. For instance, the prime minister of Luxembourg, Mr Jean-Claude Juncker puts it this way:

"[EC] gives the impression that everyone who puts questions to planned or ongoing mergers should automatically be a protectionist. That is a very a-political approach."

"I cannot see why there should be hostile takeovers in the EU."

"Pure market ideologists overlook that this is about the fate of people."

Are we losing the war of ideas?
04 APR 2006 - There appears to be a sad fact that bad ideas are contagious. After entering the EU, many a Slovak or a Czech took for granted that the "accomplishments" of Western welfare states were simply to be transferred to the East. And, unfortunately, it is indeed the case: the Czech Republic now operates a system of redistribution which has all the parameters of a large European welfare state, except for the wealth produced that can be redistributed.

In Slovakia, classical liberals are accused of extremism and the hottest theme of the looming elections is the establishment of a large nanny state by left-wing parties.

What is even more striking is that some of our neighbours are trying to mimic the pretentious French-style economic nationalism. In Hungary, the opposition Fidesz party promises preferential treatment for domestic companies and a review of past privatisations. "We either choose Hungarian solidarity or indifferent ruthless capitalism," says Viktor Orban, former prime minister and leader of Fidesz. Well, my choice has always been the indifferent ruthless capitalism, but that is another story.

A very similar development is taking place in Poland, with the Polish government trying to block the merger of two UniCredito-owned banks, aiming at creating a market leader which would not be owned by Poles.

All of this is very disturbing, particularly with regard to the future of free markets and a society of liberty and responsibility in Europe. Unfortunately, those who hoped for the good ideas to spread to the West (including your author), were wrong. It is the other way round, as if a version of Gresham’s Law worked here, driving out good ideas from the popular mind.
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Can Brussels deal with roaming costs?
29 MAR 2006 - It often seems that the EC attempts to play a role of an influential buddy who can handle anything. Do you fear unemployment, discrimination, sluggish growth or cheap sneakers from Vietnam? Even if your national government is incompetent and fails to answer your concerns, the benevolent Commission will surely address it. This of course is a part of a long-term game which has the goal of giving the EC the legitimacy it cannot derive from standard democratic procedures.

A good example is a bold statement pronounced by Bertie Ahern and Viviane Reding, the telecoms commissioner, that the EC will put forward legislation to end roaming costs. The whole of the EC shares Mrs Reding’s opinion that tackling with roaming costs is "important for competitivness," as if this magical word would justify any piece of legislation the Commission comes with. This approach appears to be based on the presumptuous premise that "if there is a problem, the EC can fix it."

In this case, both the existence of a problem and EC’s ability to do anything about can be questioned. It is alleged that roaming costs appear to be high. Compared to what? Roaming charges have decreased by eight per cent over the past year. It is the case that operators in southern Europe are charging somewhat more than those who are located in Belgium or France. But this is essentially nothing else than a lack of competition at national level which results from the ridiculous and politicized system of granting licences to mobile operators. In the Czech Republic, for instance, the government has granted so far three licences whereas in my native Slovakia the government officials have decided that two are more than enough. The result is that roaming costs and mobile phone costs in general are much higher in Slovakia than in the Czech Republic. The obvious solution is to liberalize the entry to mobile operators markets. And that can be implemented, I fear, only at the national level.

Nevertheless, I suspect that is not a liberalisation of entry and enhanced competition that the EC strives for. Rather, it seems to promote a noisy measure, perhaps "abolishing" the roaming costs altogether, just to show that "the EU is working in citizens’ interest." But can it really end with the roaming costs? Are EC members endowed by some supernatural powers to make something obviously scarce not cost a penny? I think there are reasons to be sceptical about it.
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The CPE and labour markets - is there something to be feared?
22 MAR 2006 - Having made a trip to Paris very lately, I can’t avoid speaking of the CPE and the rioting youth. I witnessed the heavy police presence in Latin Quarter, closed streets and the CRS forces in action, as well as traditional wall inscriptions starting with "Sarko facho" and ending with impeccable "mort au capital" and "vive le communisme," not to speaking about dozens of broken cash dispensers in proximity of Place de la Sorbonne. It is a sad thing to see this happening in the country of Turgot and Bastiat. And even worse is the cause for which these youngsters are fighting because the CPE is without any doubt one of the rare good pieces of French legislation, particularly when taking into account the unemployment rate of young people. The CPE would intensify competition on labour markets and would greatly simplify terminating the employment of young people. I would have of course preferred that it simplify firing and employment of all workers, not only young, but so be it. This is France and even such a reform should receive much praise. What do the protesters fear? If it is difficult to fire a young man or woman from a job and if this man or woman does not have any work record bearing information about his or her labour market abilities, then there exists an important disincentive to employ him. Isn’t it better to face the threat of firing than not having a job at all? Well, it depends on the welfare benefits you are entitled to. But can a nation prosper in the long term if its labour market is inflexible and if it faces onerous burdens of taxation and regulation? More than ever, in the CPE case, the future of this great country is at stake. And the enraged young rioters are, as many times before, on the wrong side.
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Why does the EC fail to curb wasteful spending?
15 MAR 2006 - In a sense, it is always a pleasure to hear that the Commission’s forces are used less to bully private companies and more to curb wasteful government spending. For if there is a role for the competition policy at the EU level, then it is to present a check on ill-advised and distortionary state aid. Of course, many a libertarian might disagree and argue that there is no role whatsoever for DG Competition for whether a government decides to waste its taxpayers’ money is an issue which should be resolved at a local or national level, not centrally in Brussels. There is something to this argument, but my position is more pragmatic – after my country joined the EU at a high cost (which it has not ceased to bear), I – as a taxpayer – would be happy if this membership were used as a means to prevent Slovak politicians from spending like drunken sailors.

And I am sorry to say that the otherwise extremely active DG Competition seems to fail to accomplish this role. Most recently, the Commission approved Ireland’s project aimed at improving broadband internet access by saying that "the [government-financed] open networks will enable all operators to offer high-speed broadband services to businesses and citizens in the towns concerned," as if this made the measure harmless. The truth is that it is far from harmless to use public funds for the provision of a purely private good in quantity which exceeds what consumers are willing to purchase. In the same manner, the general consensus that wasteful spending on IT, internet or R&D is somewhat less inefficient or nobler than the other ways is disturbing and should not go unchallenged.

The Irish example strikes me as important because it is quite endemic. Four months before the general election, the Slovak government approved a scheme which entitles every student under the age of 25 to a subsidy of 150 Euros if it is used to acquire broadband internet connection. Thus one can be suspicious that there can be but two motives for such programmes: (1) attempt to buy votes of young people against fast internet connection and (2) rent-seeking by broadband access providers. Both of these motives are deplorable and I would be happy if the projects were cancelled even by use of such institutions as the EC.
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Against European Champions
08 MAR 2006 - The GDF-Suez deal is truly a shame for the French. The idea that a nation should have active industrial policy, protecting its "national champions" is ill-advised and disastrous. And I am happy that Ms Kroes seems to understand it:

"Some national governments are just focusing on national champions," Kroes told reporters in Tokyo. "My statement is that national champions are outdated. When we took the decision to come in together in the European Union, when we took the decision to create one internal market, the national champion is outdated."

"The borders are gone. It is all about European champions, and global champions..."

Whether a company is a national, European, Australian or global champion should be completely immaterial to economists and even more to policymakers. There is no good having European champions at the expense of taxpayers. On the contrary, what economists and policymakers should strive for is a world of unrestrained competition in which one’s being a industrial champion (as a result of extraordinary entrepreneurial achievement) is fragile and open to the judgment of market.
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Let us be free from "Economic Patriotism"
01 MAR 2006 - However distorted, European integration has brought some important improvements for the life of European businesses and consumers. One of these should be that investors can move freely across borders and that cross-border mergers and acquisitions can take place. From my perspective, this might perhaps be the most significant fruit of all the 50 years of the often confused and misconceived attempt to unite European nations, because freedom to merge and acquire not only within a nation-state but also within the whole conti