Introduction

There is a lot of buzz within the EU around the so-called new competition tool. This tool can generally be described as an ex ante tool for regulators to intervene in markets with a structural lack of competition, without finding anti-competitive agreements, concerted practices or abuse of dominance in such markets. The tool has been part of the toolkit of the regulator in the United Kingdom (the Competition & Markets Authority) for decades and it has been contemplated in 2020 (but abandoned) by the European Commission. Despite the Commission’s decision to limit a new ex ante tool to digital markets (DMA/DSA), quite a few EU member states (e.g. Germany, Italy, Denmark) decided to introduce a broader regulatory ex ante tool for their local competition authorities and this is now being considered by other EU member states, such as the Netherlands and Sweden.

This article will dive deeper into the background and functioning of the new competition tool. Discussed will be (1) the UK system as a boilerplate model for an NCT, (2) the assessment of the European Commission of the tool, 3) the usage of the tool in different countries and 4) the lessons that can be learnt from those experiences for legislators currently contemplating introducing it.

What is the new competition tool?

Competition law has various ‘traditional’ tools for regulators to intervene in the competitive landscape of markets. This includes merger control, the cartel-prohibition and the prohibition to abuse dominance.

This traditional toolbox is supplemented in some countries with the new competition tool (“NCT”). There are variations in setups of such NCT – especially on the scope and safeguards – but  the basic  idea can be described as follows. 

An NCT is an ex ante tool. It can be used to remedy market failures without finding an infringement of competition law. The NCT should impose regulatory remedies instead of punitive sanctions such as fines or periodic penalty payments. However, such remedies may nonetheless feel like a punitive sanction for  companies which are affected by these measures. Ex ante tools to remedy competition problems are not new. In regulated markets, such as the telecommunications, energy, utilities and the postal services market, ex ante market regulation is common.

Under the traditional competition law toolbox, remedies can already be proposed by market participants under the merger control regime and as part of investigations of regulators into cartel-prohibition and the prohibition to abuse dominance. However, those remedies are only applicable and enforceable against the market participant concerned, and not against the whole market.

Markets with a structural lack of competition are often oligopolistic or monopolistic markets with high entry barriers. Market studies can target a whole market but can also target a specific undertaking with a pivotal position in a specific market. For instance, the 2007-2008 UK CMA investigation into the UK market for the supply of airport services by a specific company (British Airport Authority).

The UK market investigation tool

The CMA’s market investigation tool can hardly be described as “new”, having first been introduced over 75 years ago.  It allows the CMA to do an in-depth investigation of a market to determine whether there is any feature of that market which prevents, restricts or distorts competition, and also imposes regulatory measures on the market participants to remedy the market failures identified. The CMA can undertake a market investigation if it has reasonable grounds for suspecting that any feature(s) of a market in the UK prevents, restricts or distorts competition. Unlike tools such as Article 101 and 102 of the TFEU, the focus of the market investigation is not on specific companies’ wrongdoing, but rather, on industry-wide practices.  A market investigation may follow a shorter market study, which has a range of softer possible outcomes, such as recommendations, although the CMA may accept commitments in lieu of a market investigation.

A market investigation must be concluded within 18 months from the date that the reference is made by the CMA. In exceptional circumstances, this can be extended by six months. Within that timeframe, there are a number of stages to the investigation, which include the publication of an early issues statement, setting out the proposed scope of the investigation and specific questions it will be addressing, evidence gathering including a series of site visits and hearings with parties and other interest groups, publication of a provisional findings decision (after about 12 months), further hearings and then the provisional decision on remedies (if required) before publication of the final report.

If the CMA concludes an adverse effect on competition in a market investigation, it has several powers to achieve as ‘comprehensive a solution as possible’. This can be done through behavioural remedies, such as governing the way a product is sold, portability obligations to enable switching providers or the product information that is made available to customers. The CMA can also impose structural remedies which can include mandatory divestiture to improve competition. In addition to imposing its own remedies, the CMA can also make recommendations to sectoral regulators or to government ministers.

Click here for more information on the latest market investigation of the CMA.

The European Commission

The NCT has been around in the UK for a very long time, but also from an EU-perspective, the NCT discussion is not ‘new’. It was the European Commission that came up with the term ‘New Competition Tool’ in its Inception Impact Assessment in June 2020.[1] In this legislative initiative, the European Commission proposed a tool to fill a ‘gap’ in current competition rules by ‘allowing for timely and effective intervention against structural competition problems across markets’.[2]

Four options were proposed by the European Commission at the time, running along two axes. Namely, the choice between a tool based on the classic ‘dominance’ concept or on the broader ‘market structure’ concept and the choice between a tool with a broad scope (in principle, all markets) or a narrow scope (a limited number of markets, such as in the digital and/or pharmaceutical sector).

Although most national competition authorities were in favour of introducing the NCT at the EU-level[3], the European Commission decided to abandon the idea of a New Competition Tool[4]. Formally, this initiative has been merged with the parallel ongoing initiative on the Digital Markets Act (“DMA”).[5] However, it is clear from the Impact Assessment Report accompanying the DMA that the main concerns about a structural lack of competition are to be found in the digital sector[6] and that the DMA is sufficient to deal with this. The DMA is an ex ante tool, prohibiting ‘gatekeepers’ from displaying certain behaviors.

The difference between the NCT and the DMA is that the DMA has a narrow scope. The DMA is only applicable to very large digital companies (so-called ‘gatekeepers’) while the New Competition Tool is, in principle, applicable to all markets (or at least all markets within the relevant jurisdiction).

The new competition tool in different countries

Beside the UK, there are other jurisdictions which have adopted an NCT. During the consultation of the NCT by the European Commission in 2020, eight national competition authorities noted that their national legislation already includes a mechanism similar to the NCT, or that the national legislator is contemplating adding it.[7] These countries are Belgium, Bulgaria, Austria, Romania, Lithuania, Iceland, Germany and Greece. Since 2020, Denmark, Norway, Italy, Finland and the Czech Republic[8] have followed suit, implementing a New Competition Tool or contemplating introducing one. 

Justifying the need for a new competition tool

A new tool can only be justified if there is a problem that needs to be fixed and cannot be fixed with the existing tools; a so-called regulatory gap.[9] Advocates of the NCT often point towards markets where there is a visible market failure / lack of competition, but there is no breach of cartel rules or abuse of dominance. For instance, the Dutch NCA found in a market study that there is a lack of competition in the Dutch savings market due to tacit coordination, but that there is no infringement of competition law.[10]

This regulatory gap should, in our view, be distinguished from a potential enforcement gap. In recent years, considerable attention has been drawn to the difficulties in enforcing against abuses of dominance. These difficulties arise out of the relatively high standard of proof, the uncertain scope, the time-consuming investigations and resource constraints of supervisors. The DMA can be seen as a response to these difficulties, providing an ex ante tool to prevent potential abuse of dominance by ‘gatekeepers’ in the digital sector. The choice for the DMA is a choice to fill an enforcement gap by creating a new regulatory tool.

However, an enforcement gap can only exist when the situation is regulated, but there are problems in enforcing those regulations. On the other hand, a regulatory gap describes the situation in which there is an absence of regulation so that structural and significant distortions of competition cannot be addressed. The question is whether there is a regulatory gap or an enforcement gap when it comes to the NCT.

Two situations of market failure are often mentioned when the need for a New Competition Tool is discussed: ‘winner takes all’ or tipping markets and tacit collusion in oligopolistic markets. The first example, tipping markets, could be seen as an example of an enforcement gap: there are existing rules prohibiting the abuse of dominance, but the speed with which this ex post prohibition can be enforced is deemed insufficient. In the last example, tacit collusion, there might be a ‘real’ regulatory gap, since tacit collusion is not prohibited under the traditional competition law rules. However, one could question the need for a general tool if the problem is limited to a relatively low number of oligopolistic markets. Is specific market regulation in such a case not a better solution?

Questions to be answered by legislators wishing to implement a new competition tool

The basis and reason for introducing an NCT should be clear. This means that legislators should think through why they want to provide the national competition authority with the NCT. Is there an enforcement gap or is there a regulatory gap? Can the existing enforcement gap be fixed, or is it really necessary to introduce a new tool? And should the regulation of markets not better be left to a legislator than to a supervisory authority with the prime task of enforcement?

If a legislator decides that there is a real necessity for the implementation of the NCT, there are many choices to be made in the setup of the tool, the role of market players and the judicial review. Forcing structural changes in a market by imposing remedies on companies that are acting in compliance with the (competition) law is a far-reaching competence, requiring checks and balances. For instance, the market investigation can be undertaken by independent experts and the setup can require that the stakeholders are allowed to express their views in a consultation round. Strict deadlines for the completion of a market study can ensure legal certainty.

Part of these checks and balances are questions around the possibility of requesting market investigations (should this be a right of stakeholders?) and the right to challenge the market investigation in court (already at the start, or only on the findings or the remedies)?

Another topic to investigate is the interaction between the NCT with both the traditional tools of competition law and other tools, such as sector-specific market regulation. What if there is an overlap in competences between the NCT and these other tools? It might be that the regulator chooses the path of least resistance, which is most likely the NCT, but this might neglect the rights of defence for the companies involved. 

Final remarks

In this article we have looked into the New Competition Tool. How one looks at the NCT depends on the jurisdiction: it can be, at least for now, a thing from the past (for the European Commission), a longstanding tool in the toolkit of the regulator (such as in the UK), a new tool of the regulator (such as in Germany) and for other regulators, it could be a desired addition to their toolkit (such as in the Netherlands).

We can see why regulators want the NCT. It is a relatively straightforward way for regulators to obtain results: remedies in problematic – often oligopolistic – markets. Especially when compared to a time-consuming, ex post, abuse of dominance assessment, the NCT can be attractive for regulators.

However, problems in enforcing abuses of dominance should not be the sole justification for the need to implement the NCT, since a broken tool should be fixed and not a reason to add (and not replace) another tool in the toolbox. Therefore, the NCT can be a solution in case of a regulatory gap, but is less of a solution in case of an enforcement gap. Also, the existing competences of the regulator may be taken into account as a relevant factor. If an authority already possesses a broad competence in competition law, as well as other regulatory areas, it should not too easily resort to imposing remedies by using an NCT. It may also be prudent to leave regulation to the legislator or to the government.

When implementing an NCT, lawmakers cannot simply copy the systems from other jurisdictions, since the legal landscape differs per country. However, there are certain common questions that should be thought through, especially around the rights of defence and the interplay between the NCT and other tools.

Lastly, we are interested to see how the European Commission will deal with the growing number of national regulators adding the NCT to their toolbox. This might lead to the Commission advocating for the need of an EU NCT to harmonise the different national systems – despite their earlier decision to abandon the idea of an EU NCT.

If you need more information or further guidance in this area, please contact Pauline Kuipers and Joost van Roosmalen.

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[1] https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=PI_COM%3AAres%282020%292877634

[2] https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=PI_COM%3AAres%282020%292877634 

[3] https://competition-policy.ec.europa.eu/system/files/2021-03/summary_contributions_NCAs_responses.pdf.

[4] https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12416-Single-Market-new-complementary-tool-to-strengthen-competition-enforcement_en 

[5] https://competition-policy.ec.europa.eu/public-consultations/2020-new-comp-tool_en en COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT Accompanying the document Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on contestable and fair markets in the digital sector (Digital Markets Act)

[6] https://eur-lex.europa.eu/resource.html?uri=cellar:57a5679e-3f85-11eb-b27b-01aa75ed71a1.0001.02/DOC_1&format=PDF p. 19, 22 and 88.

[7] https://competition-policy.ec.europa.eu/system/files/2021-03/summary_contributions_NCAs_responses.pdf.

[8] Interestingly, the proposal in the Czech Republic includes the possibility for the regulator to, in addition to remedies, impose an expanded merger control regime.

[9] See https://competition-policy.ec.europa.eu/system/files/2021-03/kd0120577enn.pdf, p. 23.

[10] https://www.acm.nl/en/publications/acm-savings-rates-lag-behind-due-too-little-competition