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Competing over Competition Policy

Finally, Europe is taking competition seriously, as the decision to block the merger of General Electric and Honeywell demonstrates. Competition is the basis of a dynamic market economy. Yet, as Adam Smith recognized, firms inevitably seek to restrict it: more profits can be made by creating a monopoly rather than through better products. The Microsoft case in America brought home both the variety of abusive practices and the chilling effect anti-competitive behavior can have on innovation. So government must “set the rules of the game” to maintain a fair playing field, and vibrant competition. Europe’s commitment to competition comes none too soon. After a new era of vigorous anti-trust enforcement under the Clinton Administration, the Bush Administration seems to be backing off from that line. At the same time, conservative members of the US federal courts, many appointed during the Reagan era, are increasingly restricting the government’s power to oversee and curtail predatory business practices. The Clinton era anti-trust team exposed and successfully prosecuted some major price fixing conspiracies that reached across international borders and cost global consumers billions of dollars. They attacked, for example, predatory pricing by airlines, in which established airlines drove out low cost carriers not only by cutting fares, but by adding substantial capacity—at great losses; but once the low cost carriers were driven out, the big airlines raised prices and cut back on service once again. The recent spat between the United States and Europe concerning the Honeywell and GE merger brings home several points. Most importantly, it shows the virtues of strong competition in competition policy. For Europe’s competition authorities picked up the ball that the Bush administration had fumbled badly. America’s Secretary of the Treasury, perhaps the senior economic official in the world’s largest economy, is often seen as the semi-official spokesperson for global capitalism. In his old capacity as boss of Alcoa, Treasury Secretary Paul O’Neill did what any good captain of industry would do when faced with falling prices: he turned to government for a hidden bail-out in the form of a