At a lunchtime meeting on 9 June, Paul Seabright discussed recent academic and policy thinking on the competition policies of the European Community and its member states. Seabright is Fellow and Director of Studies in Economics at Churchill College, Cambridge, and a Research Fellow in CEPR's Applied Microeconomics Programme. This meeting marked the launch of a major CEPR research initiative on `Market Structure, Industrial Organization and Competition Policy in Europe', funded by the Commission of the European Communities under its SPES programme (see lead article). Financial support for this meeting from British Telecommunications plc is also gratefully acknowledged. The views expressed by Dr Seabright were his own, however, and not those of the above organizations nor of CEPR, which takes no institutional policy positions.

Seabright noted that recent discussion of the allocation of competition policy powers between the European Community's institutions and member states has concentrated on the merits of their decisions in individual cases. Those arguing that industrial policy should be given greater weight in merger decisions have expressed concern at the powers accorded to the European Commission's Competition Directorate; others who feel that the tide of opinion in Europe is too interventionist particularly in the UK have cited such cases to argue for retaining more control of competition policy in the hands of national governments. Seabright advocated dividing responsibility its implementation according to the principle of `decentralization where possible, centralization where necessary'. Centralization will then prove necessary in practice when the adverse effects of anticompetitive behaviour extend beyond national boundaries; national regulatory authorities do not take account of such external effects, so overall Community welfare suffers if all member states' national authorities act without coordination.

Seabright noted the success of the European Community's merger regulation in clarifying the respective responsibilities of the Commission and member states. Experience to date suggests that this will facilitate rather than restrict international merger activity, since restraints on member states' abilities to oppose mergers on alleged grounds of national interest are likely to play a greater role than limits on the Commission's ability to take industrial policy criteria into account. Recent cases suggest that the Mergers Task Force may be erring on the side of over-indulgence towards potential market dominance, since the criteria for assessing dominance remain unclear and dependent on a process of bargaining between firms and the Commission. For example, in the recent Varta/Bosch case, it found that a market share of 44% may not suffice to prove a dominant position.

Seabright called for similar clarification in other areas of competition policy, such as the control of restrictive practices. This is more difficult than the control of merger activity, since it does not concern `events' but rather conditions that may last for some time before the authorities decide to take action. Specifying criteria for the assignment of restrictive practice cases is correspondingly more difficult, but recent developments in markets such as motor cars and beer suggest that it is highly desirable.

Regulators of national competition policies referee between firms, while regulation at the Community level referee just as frequently between member governments, whose tendencies to distort competition have hardly diminished despite considerable pressure from the Commission. State aids to industry declined during the 1980s, but probably on account of the business cycle rather than any downward trend, and the current recession has exacerbated pressures for competitive subsidization.

Seabright then turned to the division of functions between branches of government, focusing on the Community-level institutions. He maintained that the trade-off between promoting competition and `the wider public interest' the benefits to large firms from economies of scale as well as growth and technological externalities may best be resolved by establishing an independent agency charged solely with the analysis of competition issues. This should follow the model of Germany's Bundeskartellamt rather than the Monopolies and Mergers Commission in the UK or the Competition Directorate of the European Community, with the Commission retaining the right to overrule its findings in exceptional cases on grounds of the wider public interest. This will neither stop the political horse-trading by member states that characterizes Community-level merger decisions in practice nor even always lead to better decisions. It will, however, make the debate over the trade-off between competition policy and wider considerations more transparent. This may assist the attainment of a `level playing field' for competition among firms in different EC member states; enhancing the transparency of such an agency's terms of reference should also reduce the risk of its capture by special interests.